Author Topic: Buy the house or walk away? Probably more face punches.  (Read 3622 times)

HovEratoTo

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Buy the house or walk away? Probably more face punches.
« on: April 05, 2018, 09:13:28 AM »
I have a feeling I know the answer here but I'm putting it out there in the hopes of hearing from more experienced folks. Hopefully the seller isn't on these forums.

In short, we found a house we love. It listed at (face punch) $400k, already a price drop because it wasn't moving in a hot market. They accepted our $389k offer. The sellers begrudgingly negotiated a few thousand in repair credit. Now, the appraisal came back low at $376k. We requested to lower the purchase price to the appraised value. We think it appraised low, though likely not by much, because the current owners didn't seem to have invested much in the house over recent years. The sellers may or may not counter.

Here's where I'm stuck: We really like this house. Perfect space for our needs and growing family (2500sqft). Great area, easily accessible to amenities and services, parks. Biking distance to daycare and elementary school. Great school district. However, it was at the tippy top of our budget. Many of the fixtures are original (outdated but still functional). Reselling would be tough if we don't do some cosmetic upgrades (or accept it won't sell any higher than what we buy for). We're fine with making improvements and doing a lot of work ourselves, and the neighborhood supports investing in the house, but still, added costs in the coming years.

We can "afford" this house - we will have no problem paying all the associated costs with plenty of room in our budget and savings for large maintenance costs etc. Our savings rate would still be high and our cash flow would be good. But by mustachian standards, it is definitely not the best financial decision. It would add a few years to our FIRE plans. We will be tying up a significant amount of money in an asset that won't be working for us and likely won't gain in much value over the period we live in it compared to market gains etc (we're hoping to live here at least 10 years). We looked hard for houses about $100k lower and really struggled to find anything that met our needs in terms of neighborhood, schools, and room to grow. Doesn't mean they're not out there, we just didn't find them yet.

Has anyone here made these kinds of trade-offs between FIRE and living situation? Should we use this as a way to avoid a financial mistake and just walk away? We've sunk a few thousand dollars in with legal costs, inspection, etc. but I figure a few thousand to save $100k+ is worth it. I'm trying so hard not to get emotional about this decision but you're buying your future lifestyle as much as you are a house. Any words of wisdom?

jlcnuke

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Re: Buy the house or walk away? Probably more face punches.
« Reply #1 on: April 05, 2018, 09:24:05 AM »
Well, I'm going to start off with a simple fact: all spending is a trade-off between FIRE and spending.

Next, I'll ask a question:
What in the heck did you do to spend "a few thousand dollars" before even buying the house?? I paid a few hundred for inspections prior to closing on both of the houses I bought, but the only "legal costs" were for closing (the attorney that did the closing and their costs to do so), so I have no idea what you're paying thousands for before you even buy the place.

Next, I'll say "you don't need that much house", but if it's what will make you and your family happy, then I have no problem with you buying it since you seem to have the means to afford it responsibly.

Lastly, my BIG question is, if you're buying this house for your family and thinking of spending that kind of money on it, why are you already looking at costs to sell the place?? I don't need to "fix up" my house so it will sell faster because I'm going to live in it, not sell it to someone else that I need to upgrade it to impress.

honeybbq

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Re: Buy the house or walk away? Probably more face punches.
« Reply #2 on: April 05, 2018, 09:46:02 AM »
Sounds like you like the house and it fits your needs and you can afford it.
What's the problem again?

Having a nice area to live in, work or commute in, nice neighbors, good schools, etc, these will all contribute to your overall happiness most likely.

You said you looked at houses 25% cheaper and didn't like them. Now you're potentially negotiating over the assessment value of 1-2%.  Seems like you don't have wild swings to address here in terms of %.

I'd say buy it and enjoy.

tralfamadorian

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Re: Buy the house or walk away? Probably more face punches.
« Reply #3 on: April 05, 2018, 09:47:58 AM »
How much is a rental of similar quality in the area? Less than $4k/mo?

Meowmalade

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Re: Buy the house or walk away? Probably more face punches.
« Reply #4 on: April 05, 2018, 09:55:47 AM »
My gut says to go with the house.  It’s in a great location and probably won’t go down in value, sounds like it would be the cheapest house in the neighborhood.  If you sell down the road, you can make the decision then about whether updates are needed to sell at a higher price or whether you want to sell it in its current condition— some people prefer upgrading to their own tastes.  Or maybe at that point you’d want to spend some money upgrading the fixtures and staying put; if it’s a house you love, it could be your lifelong one.

Disclaimer: We bought at the top end of our budget and I was so nervous at the time because of the costs, but there isn’t a week that goes by when I don’t feel like I love living here and appreciate the proximity to amenities (in my case, easy access to the many plays I attend).  Our house feels so perfect for us and makes me really happy.  The location means we won’t lose money if we ever had to sell.

HovEratoTo

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Re: Buy the house or walk away? Probably more face punches.
« Reply #5 on: April 05, 2018, 10:13:51 AM »
Well, I'm going to start off with a simple fact: all spending is a trade-off between FIRE and spending.

Next, I'll ask a question:
What in the heck did you do to spend "a few thousand dollars" before even buying the house?? I paid a few hundred for inspections prior to closing on both of the houses I bought, but the only "legal costs" were for closing (the attorney that did the closing and their costs to do so), so I have no idea what you're paying thousands for before you even buy the place.

Next, I'll say "you don't need that much house", but if it's what will make you and your family happy, then I have no problem with you buying it since you seem to have the means to afford it responsibly.

Lastly, my BIG question is, if you're buying this house for your family and thinking of spending that kind of money on it, why are you already looking at costs to sell the place?? I don't need to "fix up" my house so it will sell faster because I'm going to live in it, not sell it to someone else that I need to upgrade it to impress.

Fair questions! We are doing a private (non-bank) lender so we had to pay for inspection + radon test ($640), appraisal ($450), and chimney inspection ($200) (Virginia conveys "as is" so we wanted to do our due diligence), and legal fees that haven't tallied yet but I imagine another few hundred. So maybe a "few thousand" was an exaggeration :).

We *want* to live there for 10+ years, but recognize that we are still young and things may change. That's all :).

HovEratoTo

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Re: Buy the house or walk away? Probably more face punches.
« Reply #6 on: April 05, 2018, 10:18:39 AM »
Thank you all, especially for the fast responses. This is reassuring. We've done a lot of research over the past 6 months but it still feels so overwhelming! I feel like we'll be good no matter what, but this has helped my confidence in our decision.

Snowman99

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Re: Buy the house or walk away? Probably more face punches.
« Reply #7 on: April 05, 2018, 10:54:09 AM »
We spend too much on our house knowing full well it will set back FIRE.

But here is the thing: we LOVE our house and we spend all our time in it. 

We have friends with not so nice houses who always want to "get out of the house" and "go out."  We don't have that problem.  They are looking to "upgrade" to a bigger home now, but are having a tough time in this market because although they could sell their house in an instant, it's hard finding a place to buy at reasonable prices.

In a way, being in a house you enjoy can save you money because you don't go out as much because you are less prone to getting cabin fever.  That, and you are less prone to buying another house and getting skimmed 5-6% by lawyers, brokers, etc.  Another argument can be made is that interest rates will be going up, and if you have to "trade up" in the future, it will be at a higher interest rate.

Also, if you are in a house you know you don't want to leave, you won't mind paying for renovations that increase your quality of life.

Life is all about what you enjoy and spending money is always a trade off.  Would you rather spend your years in a place you don't really like that much, or in a house you love?  If this house is indeed perfect, I say go for it.

If you want the home, buy it at the agreed price and don't haggle over what appears to be peanuts in the grand scheme of things.  Keep in mind, though, that the lender might ask you to front more of a down payment based on the appraisal.

FYI- $400k is considered "cheap" in my neck of the woods (Boston) so no face punches here!

thd7t

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Re: Buy the house or walk away? Probably more face punches.
« Reply #8 on: April 05, 2018, 11:02:14 AM »
How long have you lived in the area where you're looking to buy?  I lean toward the "walk away" position on this one.  There are more houses out there and this one sounds like it has hidden "upgrade" costs associated with it.

YoungGranny

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Re: Buy the house or walk away? Probably more face punches.
« Reply #9 on: April 05, 2018, 11:10:26 AM »
If you are having 2nd thoughts already I'm worried that you might continue to have them. How long have you been looking to buy a home? If there a chance you could find something lower priced if you are willing to wait? I know location was extremely important to me so we bought one of the cheapest houses in a nice neighborhood but it had been VERY well maintained and updated. It took a lot of patience to find the right house. When the right house hit the market it got 3 offers in 24 hours; we ended up getting it for list price (a bummer to someone like me that likes to negotiate) but even though we spent $25k more on the house than comparable houses in a different part of town we definitely came out ahead in the long run because our transportation costs are so much lower.

Ultimately it's your decision. Is a few extra working years worth it for this house? Will you save more by choosing this location since it's closer to schools?

jlcnuke

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Re: Buy the house or walk away? Probably more face punches.
« Reply #10 on: April 05, 2018, 11:16:33 AM »
We spend too much on our house knowing full well it will set back FIRE.

But here is the thing: we LOVE our house and we spend all our time in it. 

We have friends with not so nice houses who always want to "get out of the house" and "go out."  We don't have that problem.  They are looking to "upgrade" to a bigger home now, but are having a tough time in this market because although they could sell their house in an instant, it's hard finding a place to buy at reasonable prices.

In a way, being in a house you enjoy can save you money because you don't go out as much because you are less prone to getting cabin fever.  That, and you are less prone to buying another house and getting skimmed 5-6% by lawyers, brokers, etc.  Another argument can be made is that interest rates will be going up, and if you have to "trade up" in the future, it will be at a higher interest rate.

Also, if you are in a house you know you don't want to leave, you won't mind paying for renovations that increase your quality of life.

Life is all about what you enjoy and spending money is always a trade off.  Would you rather spend your years in a place you don't really like that much, or in a house you love?  If this house is indeed perfect, I say go for it.

If you want the home, buy it at the agreed price and don't haggle over what appears to be peanuts in the grand scheme of things.  Keep in mind, though, that the lender might ask you to front more of a down payment based on the appraisal.

FYI- $400k is considered "cheap" in my neck of the woods (Boston) so no face punches here!

The bold is why I'm a firm believer that most people should buy the fewest number of houses possible in their lifetime, 1 being ideal (a home small enough to take care of in old age but barely large enough for the planned family size). I realize the following is not really applicable on this forum...but most people have the overwhelming majority of their net worth in their home (over 75% in most age brackets last time I looked), and losing upwards of 10% (between realtor fees, inspections, bank fees, and the other closing costs) of that each time they switch to a different house is a massive drain on their ability to secure a solid financial situation. It may not be "as significant" an impact on the net worth of people with large(r) investment portfolios, but it's still a MASSIVE cost that, in most cases, isn't necessary. I'm 41 and paying off my retirement home currently for this reason.

Basenji

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Re: Buy the house or walk away? Probably more face punches.
« Reply #11 on: April 05, 2018, 11:27:08 AM »
I live in a HCOL and we have a big ol' 30-year mortgage, but we love our house and the yard and we love our neighborhood and area. So, my questions are:
What did the inspection say? What do you mean the owners didn't put much into the house? Are the upgrades needed really only cosmetic?

I ask because many things I thought I would want to change in our house are, in fact, not changed after 10 years, and it's fine. But yeah, the maintenance bills will always roll in. Look carefully at the main systems: heating, cooling, water, cooking/gas, electric, Internet/phone, etc. If functional upgrades are needed for those things, you'll need to budget for it. For example, when we bought our house the furnace was fairly new and the inspector told us it was a really good brand that was known to last for a long time. If your sellers haven't replaced/upgraded systems in a long time, I'd be worried that they haven't maintained the house properly. But yeah, replacing a few faucets, painting some walls, if things work fine, you'll be surprised how quickly you stop seeing them as ugly.

My ugly but unchanged because functional/not offensive:
Cracked concrete front steps
"Quirky" master bathroom vanity
Plastic window shutters
Fugly "textured paint" wall treatment in guest room
Stupidly designed set of shelves over radiator
etc.

Maintenance of systems/function:
Fixed exterior window framing due to poor installation and wood rot
Unlined crawlspace that got semi-flooded: lined, sump pumps in
New roof that had been leaking, done (contractor found the last time the roof was done it was a shoddy job)
« Last Edit: April 05, 2018, 11:33:09 AM by Basenji »

EarthSurfer

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Re: Buy the house or walk away? Probably more face punches.
« Reply #12 on: April 05, 2018, 11:32:15 AM »
My gut says to go with the house.  It’s in a great location and probably won’t go down in value, sounds like it would be the cheapest house in the neighborhood.  ...

I'm not buying the "won't go down in value" argument. Remember 2008-2010? And 2001 wasn't kind to property values in many areas of the country.

Additionally, a "dated" home is often the first to fall in value.

On the plus side, a "dated" home has the best opportunity for appreciation if purchased at the right price.

For the home purchase, you are being rational and understand the risks. It also sound like you are willing to ride out a downturn due to the good location and fit to your family.

2Birds1Stone

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Re: Buy the house or walk away? Probably more face punches.
« Reply #13 on: April 05, 2018, 11:48:52 AM »
How much are the taxes?

If they are $2,500 on a $400k house vs. $15k that's a HUGE weight on my decision.

A higher mortgage because of home value you may eventually recoup.

The taxes, you will not. Just additional food for thought.

HovEratoTo

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Re: Buy the house or walk away? Probably more face punches.
« Reply #14 on: April 05, 2018, 02:51:01 PM »
Taxes are about $3k plus about $200 in annual HOA fees.

The chimney inspection came back with a $1500 fix for some cracking and holes. The home inspection itself had some issues, the most concerning of which was an electrical box that was arcing when the inspector looked at it. Sellers have already addressed. Roof was replaced about 6 years ago by previous owners. HVAC recently replaced. Newer windows in good condition. No other major issues flagged with those main systems like hearing, cooling, water etc. We're such newbies I don't know that we know what to look for.

The other issues seemed minor, but yes it's possible there are hidden maintenance costs. We didn't ask for utility bills so I'm not sure what they run.

Basenji

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Re: Buy the house or walk away? Probably more face punches.
« Reply #15 on: April 05, 2018, 06:34:00 PM »
Taxes are about $3k plus about $200 in annual HOA fees.

The chimney inspection came back with a $1500 fix for some cracking and holes. The home inspection itself had some issues, the most concerning of which was an electrical box that was arcing when the inspector looked at it. Sellers have already addressed. Roof was replaced about 6 years ago by previous owners. HVAC recently replaced. Newer windows in good condition. No other major issues flagged with those main systems like hearing, cooling, water etc. We're such newbies I don't know that we know what to look for.

The other issues seemed minor, but yes it's possible there are hidden maintenance costs. We didn't ask for utility bills so I'm not sure what they run.

Re bolded text. That's what I meant. You wrote they hadn't put money into the house, but actually they did do some things, just not on cosmetics. That can be good. For example, if they had redone the kitchen in some horrible taste last year, it would be awful to live with but also awful to replace.

Meowmalade

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Re: Buy the house or walk away? Probably more face punches.
« Reply #16 on: April 05, 2018, 07:57:21 PM »
Taxes are about $3k plus about $200 in annual HOA fees.

The chimney inspection came back with a $1500 fix for some cracking and holes. The home inspection itself had some issues, the most concerning of which was an electrical box that was arcing when the inspector looked at it. Sellers have already addressed. Roof was replaced about 6 years ago by previous owners. HVAC recently replaced. Newer windows in good condition. No other major issues flagged with those main systems like hearing, cooling, water etc. We're such newbies I don't know that we know what to look for.

The other issues seemed minor, but yes it's possible there are hidden maintenance costs. We didn't ask for utility bills so I'm not sure what they run.

Re bolded text. That's what I meant. You wrote they hadn't put money into the house, but actually they did do some things, just not on cosmetics. That can be good. For example, if they had redone the kitchen in some horrible taste last year, it would be awful to live with but also awful to replace.

Roof and windows are expensive items.

Case

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Re: Buy the house or walk away? Probably more face punches.
« Reply #17 on: April 08, 2018, 09:44:22 AM »
I have a feeling I know the answer here but I'm putting it out there in the hopes of hearing from more experienced folks. Hopefully the seller isn't on these forums.

In short, we found a house we love. It listed at (face punch) $400k, already a price drop because it wasn't moving in a hot market. They accepted our $389k offer. The sellers begrudgingly negotiated a few thousand in repair credit. Now, the appraisal came back low at $376k. We requested to lower the purchase price to the appraised value. We think it appraised low, though likely not by much, because the current owners didn't seem to have invested much in the house over recent years. The sellers may or may not counter.

Here's where I'm stuck: We really like this house. Perfect space for our needs and growing family (2500sqft). Great area, easily accessible to amenities and services, parks. Biking distance to daycare and elementary school. Great school district. However, it was at the tippy top of our budget. Many of the fixtures are original (outdated but still functional). Reselling would be tough if we don't do some cosmetic upgrades (or accept it won't sell any higher than what we buy for). We're fine with making improvements and doing a lot of work ourselves, and the neighborhood supports investing in the house, but still, added costs in the coming years.

We can "afford" this house - we will have no problem paying all the associated costs with plenty of room in our budget and savings for large maintenance costs etc. Our savings rate would still be high and our cash flow would be good. But by mustachian standards, it is definitely not the best financial decision. It would add a few years to our FIRE plans. We will be tying up a significant amount of money in an asset that won't be working for us and likely won't gain in much value over the period we live in it compared to market gains etc (we're hoping to live here at least 10 years). We looked hard for houses about $100k lower and really struggled to find anything that met our needs in terms of neighborhood, schools, and room to grow. Doesn't mean they're not out there, we just didn't find them yet.

Has anyone here made these kinds of trade-offs between FIRE and living situation? Should we use this as a way to avoid a financial mistake and just walk away? We've sunk a few thousand dollars in with legal costs, inspection, etc. but I figure a few thousand to save $100k+ is worth it. I'm trying so hard not to get emotional about this decision but you're buying your future lifestyle as much as you are a house. Any words of wisdom?

You’ve stated already that its a poor financial choice.  You’ve also stated you can afford it, which is not entirely accurate.  It will push back FIRE a few yeArs. 

Therefore, you have to decide if having the ‘perfect’ house is worth a few extra years until FIRE.  Especially since its not really the perfect house (outdated fixtures and such), my guess is ‘no’. 

sokoloff

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Re: Buy the house or walk away? Probably more face punches.
« Reply #18 on: April 08, 2018, 09:57:28 AM »
Every house will come back with a list of things on the inspection report, unless the inspector is asleep at the switch.

Every first time buyer goes through a prospective buyer’s what-the-he’ll-am-I-doing?! crisis of confidence. I considered walking away from a $50K deposit on the house we’ve now lived in for almost 11 years and has been an (overall) great house for us.

Your house doesn’t sound any worse and, in some ways, better than the norm for inspections and if you love the house and area and can afford the house, I say go for it. You’re buying a place to live and raise a family, not an investment. Don’t remodel “for resale”; any work or money you put in should be for you guys, IMO. People who justify “investing” in remodels based on resale are deluding themselves (unless they add square footage and bedrooms, in which case they still only get back a fraction of the money invested) as compared to putting it in VTSAX, but you can’t directly live in VTSAX either.

mm1970

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Re: Buy the house or walk away? Probably more face punches.
« Reply #19 on: April 08, 2018, 10:33:32 AM »
We spend too much on our house knowing full well it will set back FIRE.

But here is the thing: we LOVE our house and we spend all our time in it. 

We have friends with not so nice houses who always want to "get out of the house" and "go out."  We don't have that problem.  They are looking to "upgrade" to a bigger home now, but are having a tough time in this market because although they could sell their house in an instant, it's hard finding a place to buy at reasonable prices.

In a way, being in a house you enjoy can save you money because you don't go out as much because you are less prone to getting cabin fever.  That, and you are less prone to buying another house and getting skimmed 5-6% by lawyers, brokers, etc.  Another argument can be made is that interest rates will be going up, and if you have to "trade up" in the future, it will be at a higher interest rate.

Also, if you are in a house you know you don't want to leave, you won't mind paying for renovations that increase your quality of life.

Life is all about what you enjoy and spending money is always a trade off.  Would you rather spend your years in a place you don't really like that much, or in a house you love?  If this house is indeed perfect, I say go for it.

If you want the home, buy it at the agreed price and don't haggle over what appears to be peanuts in the grand scheme of things.  Keep in mind, though, that the lender might ask you to front more of a down payment based on the appraisal.

FYI- $400k is considered "cheap" in my neck of the woods (Boston) so no face punches here!

The bold is why I'm a firm believer that most people should buy the fewest number of houses possible in their lifetime, 1 being ideal (a home small enough to take care of in old age but barely large enough for the planned family size). I realize the following is not really applicable on this forum...but most people have the overwhelming majority of their net worth in their home (over 75% in most age brackets last time I looked), and losing upwards of 10% (between realtor fees, inspections, bank fees, and the other closing costs) of that each time they switch to a different house is a massive drain on their ability to secure a solid financial situation. It may not be "as significant" an impact on the net worth of people with large(r) investment portfolios, but it's still a MASSIVE cost that, in most cases, isn't necessary. I'm 41 and paying off my retirement home currently for this reason.
This is funny because when we bought our house (in our 30s no kids) people talked to us about our starter home, and the fact that the first house tells you what you did wrong.

Well, we are probably going to retire in this house, mostly because inertia is a powerful force.  It's a perfect retirement home (well, it could be better if it were closer to the shops...but 1.25 miles up over a big hill might keep us younger?)  And with the two kids we have now - it's a squeeze.  But we are managing.

FIFoFum

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Re: Buy the house or walk away? Probably more face punches.
« Reply #20 on: April 08, 2018, 11:21:00 AM »
It's normal for appraisals to come in lower than the market. This is to protect the lender/mortgage-holder. If it doesn't affect your ability to get financing or change your loan terms, this seems like a bad reason to back out of the sale - if you otherwise want to move forward.

It sounds like you're thinking of backing out anyway and looking for an excuse. The systems are in good shape. You found a house that checks your boxes. You just have cold feet about reaching to the top of your budget for this house. Completely normal.

You haven't given enough info about whether you should go forward with this sale or continue to look for a different house or maybe just rent longer-term (and not even buy). 

Just Joe

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Re: Buy the house or walk away? Probably more face punches.
« Reply #21 on: April 09, 2018, 01:51:07 PM »
I'm a firm believer that most people should buy the fewest number of houses possible in their lifetime, 1 being ideal (a home small enough to take care of in old age but barely large enough for the planned family size). I realize the following is not really applicable on this forum...but most people have the overwhelming majority of their net worth in their home (over 75% in most age brackets last time I looked), and losing upwards of 10% (between realtor fees, inspections, bank fees, and the other closing costs) of that each time they switch to a different house is a massive drain on their ability to secure a solid financial situation. It may not be "as significant" an impact on the net worth of people with large(r) investment portfolios, but it's still a MASSIVE cost that, in most cases, isn't necessary. I'm 41 and paying off my retirement home currently for this reason.

That has been a sneaking suspicion that I've harbored but never tried to quantify. Fees, fees and more fees.

I was recently considering upgrades to our house and someone advised me to just sell it and buy something newer or bigger or with more land. I've decided against it b/c of the potential cost of the larger mortgage and all the fees.

We'll stay in our current home I think.

On the other side it left me wondering if we should have gone into more debt to buy the "right house" from the start years ago when our kids were young. More interest but less upgrades or repairs. Make the minimum payments and then downgrade to a smaller place with no mortgage when the nest emptied.

AMandM

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Re: Buy the house or walk away? Probably more face punches.
« Reply #22 on: April 09, 2018, 07:47:48 PM »
The question is, what is(are) the alternative(s) to buying this house now?  Stay where you are indefinitely?  Buy a different house now? Buy a different house later (how much later?)?

Then you can compare costs and benefits, both financial and intangible.

You say you love this house, including the space it has for future kids. That sounds like this could be the last (only?) house you'll ever buy; imo that would be well worth going to the top of your budget.  But you also talk about reselling, which sounds like you're planning to move out soon; in that case I would pass on this house and wait to find your last house.