1 Year(ish) from House Purchase - What Should We Be Doing? / Mini - Case Study

[jeff2017]

Two-Fold Post:

Part 1:

I'll be proposing towards the end of the year (shhh don't tell anyone!) and SO and I have been discussing "the future" for quite a while and one of these topics is "the next house", wedding, kids, etc. SO bought the current house we live in before we met, back in 2011. It's a fine "starter house", 2 Bed, 1 Bath, 1,000 SF house, but not where we want to be forever.

We have both discussed our needs and wants from the next house, (I.E. Ranch-Style, 3 or 4 BR, 2+ Bath, and a Garage) and agree on the location that is both central to family, school district, work, etc. For the last 6-12 months we have been browsing online on sites like Zillow and Realtor, really just to get a feel more for the areas, layouts of the houses, etc. Honestly, during this time, I don't think we've even seen the "perfect" house that checks all the minimal boxes that we are looking for, which is a bit concerning, plenty of "good" houses, just nothing perfect. Doing this has been a helpful exercise just to get a better feel overall for the area, the neighborhoods, etc.

What are some other good "tips"/things to be doing at this stage of the game?

Part 2:

RE is not our #1 goal as we both enjoy our careers and are definitely frugal (maybe not Mustachian by some of your standards, but certainly live below our means, no fancy cars, etc.), with that said, the house that would meet what we are looking for is likely in the $275K-$350K price range.

Quick Background on our finances, I use the word "jointly" just to describe the aggregate between us, NOT b/c our finances are joint, as they are NOT at this time, but would be once married: Joint Income roughly $140K ($70K + $70K each, these numbers can skew higher pending bonuses), both max 401K, no debt or liabilities (excluding current mortgage), joint savings = $69K and continuing to stash more into savings each month as we want to be able to put down 20% to avoid being contingent as houses have been going quick.

The current house was bought in 2011 for $120K, $24K down payment to avoid PMI, and the current mortgage balance is right at $80K, currently paying min payments on a 30-year loan at 3.5%. The house would probably sell for around $135K, maybe a little more.

Without going into every detail and a full case study, from a high level, does a $275K-$350K house seem reasonable? In all honesty, the house we want will likely be on the higher end of that range. The game plan at the moment is to continue stashing cash to build a bit more of a buffer so we're not contingent.

The house were in now is not perfect, but definitely meets our needs, for now. That said, it's not a matter of if, more like when, we would move to our next house whether that be next year or in the next few years at the latest. FWIW, we both hope this next house will be the final house (I know everyone says that, but I can't imagine a reason why this would change as our families are both here and we both are on a good career track and have been with the same employer 5+ years each).

I've always been frugal, but finding JL Collins and MMM back in 2016 has been excellent. Finance is not SO's natural inclination, but she is definitely frugal and has been gaining more and more interest on these topics, and finance, in general. If anything, just looking for tips/advice to prepare best for the future.

Open to any and all (both positive or negative welcome!) feedback.

[YttriumNitrate]

I'll be proposing towards the end of the year (shhh don't tell anyone!) and SO and I have been discussing "the future" for quite a while and one of these topics is "the next house", wedding, kids, etc. SO bought the current house we live in before we met, back in 2011. It's a fine "starter house", 2 Bed, 1 Bath, 1,000 SF house, but not where we want to be forever.

My advice would be to stay in the starter house for as long as it suits your needs. Based on the information you gave, I reckon you're at least three years from needing a bigger house (married in 2019, pregnant in 2020, and toddler forces you from old house in 2021*).


***I expect at least four responses from people along the lines of "My family of six lives in an 800 square foot house and we have plenty of space, you don't need to move..."***

[jeff2017]

That's what I figured would be the common response, maybe just need the reinforcement.

Seems like houses have been increasing 3%+ per year and interest rates rising isn't perfect, just sucks to see each year the cost of the "next house" increasing $9K+ and rates climbing. Your timeline is actually pretty probable as SO is 31 and ready for a timeline like you describe.

I agree with your last sentence, was hoping my frugal, not 100% Mustachian disclaimer would deter some of those haha.

[Bracken_Joy]

I will say... we bought the house before we had the kids. Perfectly healthy, married at 26, all that good stuff. We're on our second round of IVF. The extra space we have is a constant sad reminder of the children we haven't been able to have yet, and money that could be going to soften the blow of the costs of infertility treatments.

I recommend waiting until the kids are there, before you up-size.

[jeff2017]

I'll be proposing towards the end of the year (shhh don't tell anyone!) and SO and I have been discussing "the future" for quite a while and one of these topics is "the next house", wedding, kids, etc. SO bought the current house we live in before we met, back in 2011. It's a fine "starter house", 2 Bed, 1 Bath, 1,000 SF house, but not where we want to be forever.

My advice would be to stay in the starter house for as long as it suits your needs. Based on the information you gave, I reckon you're at least three years from needing a bigger house (married in 2019, pregnant in 2020, and toddler forces you from old house in 2021*).


***I expect at least four responses from people along the lines of "My family of six lives in an 800 square foot house and we have plenty of space, you don't need to move..."***

Also, along these same lines, my guess is SO would ask something like the following, "Why shouldn't we buy the next house sooner than later (I.E. in 2019 for example versus 2020 or 2021)? We have the money and both agree on what and where we want to go, so why wait? If we have marginally more money in a year or so, why wait another year or two as prices and interest rates will likely increase by then as well?"

[jeff2017]

I will say... we bought the house before we had the kids. Perfectly healthy, married at 26, all that good stuff. We're on our second round of IVF. The extra space we have is a constant sad reminder of the children we haven't been able to have yet, and money that could be going to soften the blow of the costs of infertility treatments.

I recommend waiting until the kids are there, before you up-size.

Sorry to hear that and not something I had taken into account.

[Bracken_Joy]

I will say... we bought the house before we had the kids. Perfectly healthy, married at 26, all that good stuff. We're on our second round of IVF. The extra space we have is a constant sad reminder of the children we haven't been able to have yet, and money that could be going to soften the blow of the costs of infertility treatments.

I recommend waiting until the kids are there, before you up-size.

Sorry to hear that and not something I had taken into account.

1 out of 8 couples experience infertility, so sadly, it's a reality for more people than the majority would realize. And most cases are "unexplained", like ours. Rates go up as age increases, unsurprisingly. Because even though we've seen major property appreciation during the time we've lived here, OTHER costs also factor in majorly- higher utilities, need to buy furniture, etc. If that money could all, instead, be sitting and working their little dollar signs off in the meantime, why not? Plus, not having extra space to keep clean and tended while dealing with everything (be it infertility, or just pregnancy), has merit in its own right.

[jeff2017]

I will say... we bought the house before we had the kids. Perfectly healthy, married at 26, all that good stuff. We're on our second round of IVF. The extra space we have is a constant sad reminder of the children we haven't been able to have yet, and money that could be going to soften the blow of the costs of infertility treatments.

I recommend waiting until the kids are there, before you up-size.

Sorry to hear that and not something I had taken into account.

1 out of 8 couples experience infertility, so sadly, it's a reality for more people than the majority would realize. And most cases are "unexplained", like ours. Rates go up as age increases, unsurprisingly. Because even though we've seen major property appreciation during the time we've lived here, OTHER costs also factor in majorly- higher utilities, need to buy furniture, etc. If that money could all, instead, be sitting and working their little dollar signs off in the meantime, why not? Plus, not having extra space to keep clean and tended while dealing with everything (be it infertility, or just pregnancy), has merit in its own right.

1 in 8, wow, had no idea it was that common

[YttriumNitrate]

Also, along these same lines, my guess is SO would ask something like the following, "Why shouldn't we buy the next house sooner than later (I.E. in 2019 for example versus 2020 or 2021)? We have the money and both agree on what and where we want to go, so why wait? If we have marginally more money in a year or so, why wait another year or two as prices and interest rates will likely increase by then as well?"

My response to that:

A) Don't be so sure that prices will be higher in a year or two. We're 9-10 years into a bull market, and a recession could be right around the corner dropping interest rates and lowering demand for houses.

B) If you're buying a house for your future needs, you'll have a better idea of what you want in 2021 in 2021 as compared to 2018.

C) When I finally bought a "family" house, my spouse stopped working to stay at home with the kids. If we had a house that required two incomes ahead of time, that would have been tough.

[jeff2017]

Also, along these same lines, my guess is SO would ask something like the following, "Why shouldn't we buy the next house sooner than later (I.E. in 2019 for example versus 2020 or 2021)? We have the money and both agree on what and where we want to go, so why wait? If we have marginally more money in a year or so, why wait another year or two as prices and interest rates will likely increase by then as well?"

My response to that:

A) Don't be so sure that prices will be higher in a year or two. We're 9-10 years into a bull market, and a recession could be right around the corner dropping interest rates and lowering demand for houses.

B) If you're buying a house for your future needs, you'll have a better idea of what you want in 2021 in 2021 as compared to 2018.

C) When I finally bought a "family" house, my spouse stopped working to stay at home with the kids. If we had a house that required two incomes ahead of time, that would have been tough.

I just wanted to log in to say thank you for these points! Just had a very productive discussion around your points above.

[jeff2017]

Any other thoughts?

[formerlydivorcedmom]

It's a great idea to save a separate downpayment so that you can avoid having a contingency on the sale of your current house....but also make sure you will be able to handle carrying two mortgages/utilities for a time, just in case.  When we moved here it was a tight market so we were sure our old house would be under contract quickly, and it was.  We had offers within 48 hours five times - 4 of them fell through for various reasons!  That meant it took a few months for a sale to actually go through and we were double homeowners for a while.

What are the taxes like in your area?  Our property taxes are insane (3.25%), so a $75k difference in house prices has a huge effect on my annual taxes.

We've been grossing about your combined income.  I wasn't comfortable with a mortgage over $200k.  (We have a 15-year-mortgage, and the numbers were just too high.)  Where I live, the difference between a $250 and a $350k house are often the finishes and the particular neighborhood...or with similar locations/finishes, it's going from 2500 sq ft to 3500 sq ft.  Our house is 3k sq ft for 5 people and it's outrageously big.  If you are coming from 1k sq ft, be careful not to overdo it on size with what you think you *might* need for children.  They take up a lot of room as toddlers, but then all of a sudden they don't.

Honestly, I would LOVE a house on the man-made lake with the high-end finishes and larger lot (which is what I could get for $350k).  Just not enough to pay for it.

[Catbert]

Start going to open houses in your target neighborhood rather than just looking online.  A no-spend sunday afternoon while helping you understand the trade offs you'll have to make ( e.g., location vs size vs layout vs price).  When you get serious it will help you know when to pull the trigger.  You'll also meet lots of real estate agents so you'll know who to avoid.

Check your credit report and FICO.  Is it what you expected?  Any incorrect entries or black marks you can fix?   

[frugaliknowit]

You asked for feedback:

I'ts great that you are trying to get "ahead of the curve" in your life with your fiance, however in this case there's downside in trying to "nail down" the cost of housing:

1.  Housing costs, on a large scale, in the long run, are based on square footage, whether rented or owned.  Your buying or renting more square footage than you need is sub-optimal.  Sure, I get it that psychologically it's comforting to have everything in place for the future...

2.  There's no such thing as a "forever home".  While your next home could be your "forever home", it's not likely.  Life happens, needs change.

I would "cool your jets" and concentrate on other aspects of your building your life with your fiance.

[LifeHappens]

One very practical thing I would suggest is working on your DIY skills if those are weak. Help friends and family with projects, go to those free workshops at Home Depot and do small projects around your current place.

[Lmoot]

You used “perfect” several times in your post....get that out of your vocab,  and head. Focus on the things you can’t change (location and lot size for example).

Personally I would wait, and here’s why:

- wedding expenses
- potential baby expenses
- whisperings of an overdue recession in the next couple of years (yes, this could reduce the value of your house, but probably not more than it could lower the cost of the “forever” house).
- going over double the value of the current house is a major lifestyle inflation; you’re still young and sometimes it’s nice to gradually work towards something

If you want to move to a different area, try to take advantage of the fact that it’s just the two of you for now and you can make due with less space; if you want to plan ahead, make enough extra space to support a baby or two, to school age. Maybe buy something that’s just a cosmetic fixer so you can practice skills on that, while slowly fixing it to increase the value so that you can get even more when you eventually sell it and it’s time to move up. However much the mortgage on the dream property is, is how much housing budget you’ll have every year, just to house two people. If it’s worth it to you after that then go for it.

[jeff2017]

One very practical thing I would suggest is working on your DIY skills if those are weak. Help friends and family with projects, go to those free workshops at Home Depot and do small projects around your current place.

Good advice, my DIY is not all that great, so this would be good skills to improve at.

[jeff2017]

You used “perfect” several times in your post....get that out of your vocab,  and head. Focus on the things you can’t change (location and lot size for example).

Personally I would wait, and here’s why:

- wedding expenses
- potential baby expenses
- whisperings of an overdue recession in the next couple of years (yes, this could reduce the value of your house, but probably not more than it could lower the cost of the “forever” house).
- going over double the value of the current house is a major lifestyle inflation; you’re still young and sometimes it’s nice to gradually work towards something

If you want to move to a different area, try to take advantage of the fact that it’s just the two of you for now and you can make due with less space; if you want to plan ahead, make enough extra space to support a baby or two, to school age. Maybe buy something that’s just a cosmetic fixer so you can practice skills on that, while slowly fixing it to increase the value so that you can get even more when you eventually sell it and it’s time to move up. However much the mortgage on the dream property is, is how much housing budget you’ll have every year, just to house two people. If it’s worth it to you after that then go for it.

Completely agree, particularly on the wedding costs and the concept of the decrease in value for the "forever home" versus today's home, excellent point.

I can't say it's worth it after all things considered. Particularly given the amount of $$$ it would require at this point today for a down payment that would leave us with minimal cash now.

[historienne]

B) If you're buying a house for your future needs, you'll have a better idea of what you want in 2021 in 2021 as compared to 2018.

Just wanted to echo this.  On the one hand, it sounds like y'all are thinking about many of the big things (school district, etc).  But it's hard to know in advance how, and in in what ways, kids might change your priorities.  For example, before kids, I didn't realize how important it was to me to live in a neighborhood that has lots of other families with young kids.  Or that it really was worth the extra $10k (to me, maybe not to you) to buy the house directly across the street from the park, rather than the one a block away.  Or that I would care about being walking distance to the library, but don't care about being close to restaurants.  Or that I'd value a short commute more than almost anything else, because time spent commuting is time I don't spend with my kids, and that time is precious to me.

[jeff2017]

B) If you're buying a house for your future needs, you'll have a better idea of what you want in 2021 in 2021 as compared to 2018.

Just wanted to echo this.  On the one hand, it sounds like y'all are thinking about many of the big things (school district, etc).  But it's hard to know in advance how, and in in what ways, kids might change your priorities.  For example, before kids, I didn't realize how important it was to me to live in a neighborhood that has lots of other families with young kids.  Or that it really was worth the extra $10k (to me, maybe not to you) to buy the house directly across the street from the park, rather than the one a block away.  Or that I would care about being walking distance to the library, but don't care about being close to restaurants.  Or that I'd value a short commute more than almost anything else, because time spent commuting is time I don't spend with my kids, and that time is precious to me.

Thanks for the response and reinforcement on this point. We tried to think big picture with some of the attributes, particularly as it relates to the school district and proximity to both of our parents/family, it's also pretty good from a commute perspective. This particular area is a strong district and has been for a long time. I read about redistricting, which does happen as a less desirable district borders one side of this area that is less expensive, but would obviously come with that risk. Conversely, the "other side" of this area borders a comparable, if not marginally better district and is, accordingly, a bit more expensive.

The subset of this area that we are most interested in is very close to the schools, so shouldn't have to worry about that if we plan properly.

It's funny to think about how time can change priorities, 5-6 years ago, I wanted to live near all the restaurants and nightlife, obviously much different now.