I am looking for Mustachian opinions about whether my scheme outlined below will work, and whether it is a good and appropriately Mustachian idea.
My DH and I currently own a condo in the city, and in approximately 2 years we might want buy a single family home. (This assumes buying is more advantageous than renting for our situation, which I believe it will be.)
We have a specific neighborhood in mind that would allow for a very Mustachian lifestyle. It is not a huge neighborhood, so there are only about 5-25 houses on the market at any given time, with a lot of seasonal variation. Houses selling in the slow winter months seem to go for a lower price. We anticipate we would like to buy the new home before selling the condo, so that we can maximize our flexibility on timing/ we are not pressured to choose among limited options within the timeline of selling our condo.
The tricky part is financing. Here is the plan:
- Save a 20% down payment for the new home in cash
- Buy new home. New mortgage plus condo mortgage/ HOAs still keeps us within 43% debt to income ratio
- Sell condo as soon as practicable, but we would potentially have two mortgage payments for a little while
Does anyone see any reason that a bank/ mortgage broker wouldn't let us proceed this way?
Does anyone see any unwise money moves here?
One consideration is that we would have a lot of money (more than half our net worth) in cash and in equity in current condo, which is not making much if any return. I think the opportunity cost of holding the down payment for new house in cash is significant. (Target saving for down payment for new house is $100-$120k, so market gains on that amount at 7% per year is what I would consider opportunity cost.) But I think I would still rather be in a position of strength to wait for a great house to come along and be able to negotiate a good deal on it.
Some context on our overall financial position. We make over $200k/year right now. Saving this down payment money in cash in a two year timeframe is doable. We would still simultaneously max out two 401k accounts. We would have to stop making regular contributions to a taxable brokerage account. Also, in our current condo, we have $120k equity, so I am open to suggestions for using that equity to finance new home before we sell condo if there is a way to get to it. I looked in to HELOCs, but I couldn't find info on early repayment penalties and overall I like the cash idea because it seems simpler.