Author Topic: How low would you go?  (Read 7975 times)

EconDiva

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How low would you go?
« on: March 02, 2015, 10:27:55 AM »
If getting a lower mortgage meant shaving 5-10 years or more off of your FIRE date, how low of a house/condo/etc would you shoot for getting? 

I know this is a wide open question (because people have different incomes, goals, live in different areas, etc.) but I'm still interested to see what people say about this.  I could probably get approved for around $200kish worth of a mortgage and would like to eventually look in the $100kish range.  Then I thought to myself...why not shoot for way lower, and go for under $50K?  The difference in monthly payments between a $200k mortgage and $50k would surely mean a way earlier FI date.  Plus, MMM says the effects of reducing spending is way powerful than the effects of increasing income....right?

If you were living in an area where you could get a home for around $50k similar to this:
http://www.realtor.com/realestateandhomes-detail/2006-Rena-Cir-SW_Atlanta_GA_30311_M60549-23052?row=35

Would it be worth it to you from the perspective of a lower mortgage payment?

ysette9

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Re: How low would you go?
« Reply #1 on: March 02, 2015, 10:39:30 AM »
This is something we have been thinking and talking about a lot recently. After a lot of thought about what our true long-term goals are, we decided to lower the amount we are willing to pay to buy a place, recognizing that it likely means revising our vision from a single family house to a condo. Having purchased (and sold) a property before, there are things I am not willing to compromise on, even for an earlier FIRE date:

  • Neighborhood - I am no longer willing to live in a place with bars on the windows, multiple cars parked on the street, bad public schools, or a place where I don't feel comfortable going on a walk around the neighborhood in the evening.
  • Commute - I will not spend 40 minutes a day each way driving to and from work, especially stuck in traffic on a freeway
  • Poor/no insulation and poor/no central heat - Living in an old, uninsulated house now with no central heat, I can't tell you how uncomfortable (and expensive!) it is. When/if we purchase something, it will either have or I will modify it to have double-paned windows, insulation, and decent heat.

The listing you show below looks like a very decent house for the money (where I live it would be $700-1.5M depending on where it was located). I can't tell anything about where it is located though and whether that would work for your lifestyle. Only you can make that judgement call.

maizefolk

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Re: How low would you go?
« Reply #2 on: March 02, 2015, 10:43:52 AM »
When I bought my house it was with a mortgage ~1/4th of the amount I was approved to borrow which ratio-wise is in the same ballpark you are contemplating. I originally wanted to go even lower and may ultimately regret not doing so, but at the time my justification was that I was able to purchase a newer house with far fewer pending maintenance issues than other properties I was looking at that would have been somewhat cheaper up front.

I agree with ysette9 that you shouldn't trade a longer commute for a cheaper property, and to factor differences in ongoing costs in addition to up-front purchase price.

KCM5

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Re: How low would you go?
« Reply #3 on: March 02, 2015, 10:55:14 AM »
Hello pink bathroom!

That house is larger and nicer in many ways than mine. But really it depends on location. My happiness regarding location (walkable neighborhood, close to work, relatively safe, decent school options) is more important than the house itself. Within those confines, I'll go as low as I have to. Our house cost $85k, which is quite low for our neighborhood and the area in general and way lower than the mortgage that we would qualify for. But that super ridiculous question of how much one can qualify for was not even on our radar, and probably shouldn't be if you're planning on retiring early!

EconDiva

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Re: How low would you go?
« Reply #4 on: March 02, 2015, 10:58:36 AM »
Hello pink bathroom!

That house is larger and nicer in many ways than mine. But really it depends on location. My happiness regarding location (walkable neighborhood, close to work, relatively safe, decent school options) is more important than the house itself. Within those confines, I'll go as low as I have to. Our house cost $85k, which is quite low for our neighborhood and the area in general and way lower than the mortgage that we would qualify for. But that super ridiculous question of how much one can qualify for was not even on our radar, and probably shouldn't be if you're planning on retiring early!

Yeah, the bathroom is horrendous....but for the price?  Especially if you could get it down?

EconDiva

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Re: How low would you go?
« Reply #5 on: March 02, 2015, 11:00:14 AM »
When I bought my house it was with a mortgage ~1/4th of the amount I was approved to borrow which ratio-wise is in the same ballpark you are contemplating. I originally wanted to go even lower and may ultimately regret not doing so, but at the time my justification was that I was able to purchase a newer house with far fewer pending maintenance issues than other properties I was looking at that would have been somewhat cheaper up front.

I agree with ysette9 that you shouldn't trade a longer commute for a cheaper property, and to factor differences in ongoing costs in addition to up-front purchase price.

That's smart you were able to weight the upfront costs versus the cost of going lower with higher maintenance.  I think once I'm ready to buy this is where I will have to be very careful.

KCM5

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Re: How low would you go?
« Reply #6 on: March 02, 2015, 11:02:10 AM »
Hello pink bathroom!

That house is larger and nicer in many ways than mine. But really it depends on location. My happiness regarding location (walkable neighborhood, close to work, relatively safe, decent school options) is more important than the house itself. Within those confines, I'll go as low as I have to. Our house cost $85k, which is quite low for our neighborhood and the area in general and way lower than the mortgage that we would qualify for. But that super ridiculous question of how much one can qualify for was not even on our radar, and probably shouldn't be if you're planning on retiring early!

Yeah, the bathroom is horrendous....but for the price?  Especially if you could get it down?

I meant that I like it! But I understand that would not be to most people's taste ;)

I would totally not hesitate to buy that house if it was within biking distance of work. No doubt. Unless there was a cuter one for $45k, but you know, options.

EconDiva

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Re: How low would you go?
« Reply #7 on: March 02, 2015, 11:08:03 AM »
Hello pink bathroom!

That house is larger and nicer in many ways than mine. But really it depends on location. My happiness regarding location (walkable neighborhood, close to work, relatively safe, decent school options) is more important than the house itself. Within those confines, I'll go as low as I have to. Our house cost $85k, which is quite low for our neighborhood and the area in general and way lower than the mortgage that we would qualify for. But that super ridiculous question of how much one can qualify for was not even on our radar, and probably shouldn't be if you're planning on retiring early!

Yeah, the bathroom is horrendous....but for the price?  Especially if you could get it down?

I meant that I like it! But I understand that would not be to most people's taste ;)

I would totally not hesitate to buy that house if it was within biking distance of work. No doubt. Unless there was a cuter one for $45k, but you know, options.

Whoops! Totally didn't mean to insult your taste...just not my thing.  But yeah, I feel you on the importance of the location making all the difference. 
« Last Edit: March 02, 2015, 11:34:41 AM by EconDiva »

MattC

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Re: How low would you go?
« Reply #8 on: March 02, 2015, 11:30:41 AM »
Wow - that looks pretty nice for $50k.  If you can live the life you want in the house, then count all the costs and get it.  If you're financing at 5%, a $50k cheaper house will save you $2500 a year in interest expenses, and if your property taxes are 2% (don't know what they are in your area), that's another $1,000 a year savings.  So that $3500 a year is a rough "cushion" for absorbing any greater expenses of the cheaper house; e.g. costs (time and money) for longer commutes, greater maintenance costs, greater utility costs (although smaller usually will equal cheaper), etc.  If it's mostly move in ready for you, it looks like the numbers for a house like that would probably work out in your favor. 

But like other posters have mentioned, commute is really important.  If it makes your one way commute 10 minutes/5 miles longer, over 250 round trips a year, $.3 a mile that's 83 hours and $750 in car expenses additional.  If your time is worth $20 an hour, you've now burnt through 2/3 of your anticipated annual savings. 

I bought a $44k 3-unit fixer upper to live in and rent; paid it off in 5 years, and while I haven't made as much money on it as I expected I would, I'm way better off than had I got a $100k single family.  Just figure out how much you expect to pay in repair and maintenance.  Then double that number, and if the numbers still work out, get it. 

Gone Fishing

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Re: How low would you go?
« Reply #9 on: March 02, 2015, 11:39:00 AM »

  • Neighborhood - I am no longer willing to live in a place with bars on the windows...or a place where I don't feel comfortable going on a walk around the neighborhood in the evening.

+1

epipenguin

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Re: How low would you go?
« Reply #10 on: March 02, 2015, 12:03:24 PM »
I constantly think about this. Well, maybe not constantly but very frequently. I live in a "nice" neighborhood - not the best in my city but pretty good. I bought my place pre-MMM so I definitely paid more for the location, and I was thinking I might have kids one day so I looked for a good school too. It is fairly walkable and bikeable. My boyfriend lives in a nearby blue collar neighborhood where house prices are much lower. And taxes are lower. And homeowners insurance rates are lower. Even the water bill is lower due to reasons. And when I looked up our city's crime statistics, expecting to show him that my neighborhood is the better one for us to settle in, I was surprised that his has a lower crime than mine. Apparently, people travel in to my neighborhood to commit crime, mostly burglaries, while I guess in his they assume that there's not much worth stealing? Within his neighborhood it's perfectly safe, and we can bike or walk around, but there's really not much to bike or walk TO. There's no downtown, and although one could bike to the local supermarket, it's all very suburban and intersected with big roads (but not massive roads as in the further out suburbs). It's not a long commute to work, and you COULD bike to work but really you're more car dependent.  In the car it only takes me 5 minutes longer to get to work than driving from my place.

There are plenty of ugly 1980's townhomes or nearly-as-ugly 1960's and 1970's single family homes to be had in his neighborhood for not very much money. Not $50k, but the townhomes are about $100k, whereas in my neighborhood the average seems around $400k. The townhomes do come with an HOA fee but they're usually not that much. The single family homes have a likelihood to be next to some trashy neighbors or big families with like 6 trucks parked everywhere. I keep asking myself - how much is a pretty house and a nicer neighborhood worth? Would I force myself to bike places or would I be lazy and just get in the car? Would I find ugly suburbia to be just depressing? Having said that, we're not going to have kids and so I don't have many arguments as to why we shouldn't buy something together in his neighborhood or close by, because with the equity we could release from our current places, we could get somewhere for cash and still have enough money to redo the kitchen or whatever needed to be fixed. That would be a great start for a life together, as we would have no mortgage payment. And yet...I do love the idea of biking to a nice close downtown area. Sigh.

Sid Hoffman

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Re: How low would you go?
« Reply #11 on: March 02, 2015, 01:23:00 PM »
I would say crime is the #1 factor for me.  There is a strong correlation nation-wide (and world-wide) between relatively high income areas being low crime and low income areas being high crime.  You can finesse it a bit by looking for someplace that's less dense and in an overall medium to low COL area, then moving to the nicest part of that metropolitan area.  I've lived in a number of different places now and find that I'm more likely to bike somewhere if I feel that it's safe.  Places that I don't feel safe in, I don't want to ride my bike in very much either, since they're so easy to steal and you're more physically vulnerable on a bike.  I'm willing to work as long as it takes to remain safe, and that is honestly very sad.

ShoulderThingThatGoesUp

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Re: How low would you go?
« Reply #12 on: March 02, 2015, 01:24:13 PM »
I live in a low-crime working-class neighborhood. They do exist.

slugline

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Re: How low would you go?
« Reply #13 on: March 02, 2015, 02:28:27 PM »
I'd have no problems with such a house based on the style. I have my own mid-century house with a pink bathroom. But if it's functional I don't really care!

However, I can't help but wonder why this listing is for only $50K in a major metro. Could the "gotcha" be the neighborhood? I don't know Atlanta well.

Sid Hoffman

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Re: How low would you go?
« Reply #14 on: March 02, 2015, 02:47:15 PM »
I live in a low-crime working-class neighborhood. They do exist.

Yeah, head on over to Census.gov and look up Emmaus.  There's going to be something that stands out as different from normal.  I've noticed that in many of the snow-country places.  For me, first off I'd feel weird and out of place somehow, and second I've dealt with snow enough to know that it's not really my thing.  I guess I won't rule out moving to snow country at some point, but it's not high on my list at all.  I'd kind of rather work a few more years in order to have enough money to FIRE without having to resort to living in snow country.  I think that's the point of this thread: I would not be willing to go that low...in temperature.  :)

dunhamjr

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Re: How low would you go?
« Reply #15 on: March 02, 2015, 02:51:15 PM »
the problem with this isnt how low i would potentially go.

its more about location, house size, required work etc.

i pretty much cannot buy a house to fit my family and current work location for anywhere near that $100k you suggested.
even finding something appropriate for $200k is tight, and most options are not acceptable to me or my wife.

we live in an approx $350k house now, but not in an ideal location, lot size, etc.

truthfully the next house we are looking towards is very likely going to be around $450k, so that we can be in a good location for commutes, school district, etc.

Cassie

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Re: How low would you go?
« Reply #16 on: March 02, 2015, 05:29:24 PM »
If all the things others have mentioned are positive then why not?  We downsized to a small ranch-1400sq ft 3 years ago. WE totally redid the inside & when people see it for the first time they say it is beautiful. WE painted the outside,etc but it is just a small 1950's ranch so not very exciting from the outside but neighborhood is good, etc & we love not having a mortgage.

Blindsquirrel

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Re: How low would you go?
« Reply #17 on: March 02, 2015, 07:05:55 PM »
 Absolutely a personal choice.  As an odd stat, we (I) bought a 38k house when we made 45K, bought a 82K house when we made 60K, Bought a 126K house when we made 250K. The last house was bought at the absolute height of the financial crisis and was a foreclosure. Where you live is a very personal choice and I highly recommend doing/buying whatever you want within reason.  If working another year to live exactly where you want is the trade off, so be it. IMO

Gerard

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Re: How low would you go?
« Reply #18 on: March 02, 2015, 08:01:03 PM »
Could someone explain "cars parked on the street" as a signifier of a problem neighbourhood? Is this an American thing? Everywhere I've lived there's lots of cars on the street because nobody wastes land on a garage when you could have higher population density instead. Three houses on my block have off-street parking, and one of them is the second-shittiest house on the street.

epipenguin

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Re: How low would you go?
« Reply #19 on: March 02, 2015, 08:18:54 PM »
Could someone explain "cars parked on the street" as a signifier of a problem neighbourhood? Is this an American thing? Everywhere I've lived there's lots of cars on the street because nobody wastes land on a garage when you could have higher population density instead. Three houses on my block have off-street parking, and one of them is the second-shittiest house on the street.

To me it's more an issue of cars parked in the driveway AND on the street. Like there are multiple cars (often trucks) at each house, because there are either multiple adults living at the house or maybe they just collect trucks, I don't know. So even when there is room for 2 cars to be parked in a driveway, there's 2-3 others nearby. I frequently drive by houses where there are six large trucks haphazardly parked around the place. That looks unsightly. It's not the situation where it's an older neighborhood where everyone parks on the street because they don't have garages - I have those neighborhoods near me too, and they are fine - maybe because the cars are neatly lined up along the side of the street? Or that it doesn't feel crowded because there are only 2 vehicles per house?

Gerard

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Re: How low would you go?
« Reply #20 on: March 04, 2015, 03:06:43 PM »
I frequently drive by houses where there are six large trucks haphazardly parked around the place. That looks unsightly. It's not the situation where it's an older neighborhood where everyone parks on the street because they don't have garages - I have those neighborhoods near me too, and they are fine

Cool, thanks for the explanation!

queenie

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Re: How low would you go?
« Reply #21 on: March 04, 2015, 03:11:14 PM »
The house in the OP is larger and nicer than the house that we bought for $165,000.

So yes, I would.

We got approved for $220,000. We could have waited a year and been approved for more but we decided to just buy the most reasonably priced house in the school district. I don't wish that our mortgage was higher.

dunhamjr

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Re: How low would you go?
« Reply #22 on: March 04, 2015, 04:01:22 PM »
Could someone explain "cars parked on the street" as a signifier of a problem neighbourhood? Is this an American thing? Everywhere I've lived there's lots of cars on the street because nobody wastes land on a garage when you could have higher population density instead. Three houses on my block have off-street parking, and one of them is the second-shittiest house on the street.

To me it's more an issue of cars parked in the driveway AND on the street. Like there are multiple cars (often trucks) at each house, because there are either multiple adults living at the house or maybe they just collect trucks, I don't know. So even when there is room for 2 cars to be parked in a driveway, there's 2-3 others nearby. I frequently drive by houses where there are six large trucks haphazardly parked around the place. That looks unsightly. It's not the situation where it's an older neighborhood where everyone parks on the street because they don't have garages - I have those neighborhoods near me too, and they are fine - maybe because the cars are neatly lined up along the side of the street? Or that it doesn't feel crowded because there are only 2 vehicles per house?

its more about needing street parked cars in more suburban areas... where cars parked in the garage, in the driveway, AND in the street.

in the US most houses not in downtown type neighborhoods now have at least 1, if not 2 to 3 car attached garages.

not saying its always the case, but around me... the less nice neighborhoods have a lot of people crammed into a single family unit.
so they have 2-3 cars in the garage.  another 2-4 in the driveway.  and a couple more on the side of the road as well.

growing up i lived in a place like this, where my next door neighbor started out with 5 people, 2 adults and 3 kids, in a 3 bed house.  by the time i left/my mom moved out, there 9 people, 7 adults and 2 kids, living in that same 3 bedroom house.  at the end of it i am fairly certain they also had 6 cars, when the parking situation was really setup for only 2 cars per house.

even where i live now, mid-range neighborhood... we have a couple of families that have the 8-12 cars rotating out through the day/night as people go to work and such.  i have NO clue how many people live in these households, but its easily 3 generations, if not 4...

Bob W

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Re: How low would you go?
« Reply #23 on: March 05, 2015, 08:42:09 AM »
In Springfield MO, a booming Midwest college town,  you can get a reasonable house for 75K in decent locals.   There is an unlimited amount to do in town and the Ozarks is just full of crystal clear floatable streams and the highest rated hiking and camping in the country.

So yeah,  you could put 15K down and end up with an interest only loan and a payment of $250 a month including taxes and insurance. 

For reference you would need about 60K in investments to make that like a paid off house.  (figuring 5% return)   You would get to keep your money invested and still gain 3-5% on the 60K.

Another option in the Springfield areas is the USDA rural development guaranteed or direct loans.  Rates are as low as 1% depending on income.  You would have to be slightly out of the city limits for this one.  Look it up on google.

If you did this play right one would only need around 200K to be fully retired. 

And of course there is lots of work in Springfield when you get bored. 

For my money it is one of the lowest cost of living with a high quality of life and safety of any place in the world. 

Roots&Wings

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Re: How low would you go?
« Reply #24 on: March 05, 2015, 10:35:19 AM »
I'd go as low as possible without comprising my "must have" list. Personally looking at places that are under a quarter of what I technically could afford.

Will not compromise on a safe, walkable neighborhood though. I also check the registered sex offenders database maps (available through city-data site).

p.s. I love the vintage pink baths in your listing!

rockstache

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Re: How low would you go?
« Reply #25 on: March 05, 2015, 10:47:51 AM »
Hello pink bathroom!

That house is larger and nicer in many ways than mine. But really it depends on location. My happiness regarding location (walkable neighborhood, close to work, relatively safe, decent school options) is more important than the house itself. Within those confines, I'll go as low as I have to. Our house cost $85k, which is quite low for our neighborhood and the area in general and way lower than the mortgage that we would qualify for. But that super ridiculous question of how much one can qualify for was not even on our radar, and probably shouldn't be if you're planning on retiring early!

Yeah, the bathroom is horrendous....but for the price?  Especially if you could get it down?

I meant that I like it! But I understand that would not be to most people's taste ;)

I would totally not hesitate to buy that house if it was within biking distance of work. No doubt. Unless there was a cuter one for $45k, but you know, options.

I like it too. But I would replace the floor.