Author Topic: DTI Mortgage question  (Read 1020 times)

soily

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DTI Mortgage question
« on: April 16, 2020, 01:36:00 PM »
I have this lifelong dream to own a little bit of land (between 5 and 10 acres) and have a homestead but also work towards FI at the same time. I'm a single 29 y.o. male with an extremely stable job. I've been out of college for 3 years. My current simplified budget is below.
 
Net monthly income:    4600
Mortgage/utilities:        730
401k/IRA:                   1130
Everything else:           900
Savings:                     1840
Current DTI:               10%

No debt besides my mortgage and 10k in low interest student loans. I have about 17k in my 401k/IRA and 5k in my emergency fund. I've only recently (within the past 1.5 year) become a strong saver. I live a fairly frugal lifestyle (drive a used hybrid, no cable/internet, no smart phone, no alcohol, cut my own hair, do my own repairs).

Now my current home isn't very conducive to homesteading but it is cheap and close to my office. I have been looking around for a new house and I found something that fits my criteria. The only sticking point is that it is 250k. That would increase my DTI to 22% and increase my mortgage payment by $700 a month.

The new house itself is in the direction where the city is growing, is surrounded by nice homes, and is in an excellent school district. The interior needs a little bit of love but nothing crazy.

Would I be making a bad financial decision by buying this piece of property? I've never had a rent/mortgage payment more than what I'm currently paying so essentially doubling my mortgage scares me. My current line of thinking is that I want to start homesteading now because it is something I love and I'm in the prime physical labor years of my life. My current job does not satiate my need for physical labor. I'm an introvert and physical labor is the way I get recharged.
« Last Edit: April 16, 2020, 02:53:39 PM by bdavis »

ketchup

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Re: DTI Mortgage question
« Reply #1 on: April 16, 2020, 02:08:34 PM »
Where is your cash for a down payment/closing costs coming from?

soily

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Re: DTI Mortgage question
« Reply #2 on: April 16, 2020, 02:21:32 PM »
Where is your cash for a down payment/closing costs coming from?
I'm considering using an USDA RD loan which does not require down payment but does charge a yearly 0.35% fee. It seems like the smart thing to do since we are likely to be in a bear market and interest rates are so low. What are your thoughts?

FatFI2025

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Re: DTI Mortgage question
« Reply #3 on: April 17, 2020, 08:26:24 AM »
I wouldn't do it. I'd also love a mountain cabin with a little acreage, but every time I run the projections, it's just not worth it. Once I'm FI in 2025 I'll reconsider the cabin and a boat. But for now I'm prioritizing FI over those things.

If you chose to prioritize a more expensive property, I don't think it would be a ridiculous decision. Just make sure to do the analysis of how much it will push back your FIRE date to make a fully-informed decision.

Abe

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Re: DTI Mortgage question
« Reply #4 on: April 20, 2020, 07:55:08 PM »
You'd be increasing your expenses by 40%. That'll significantly push back your retirement by dropping your savings rate from 64% to 50%. Look at chart 2 on this page for a reference:

https://earlyretirementnow.com/2017/11/01/shockingly-simple-complicated-random-math-behind-early-retirement/

soily

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Re: DTI Mortgage question
« Reply #5 on: April 21, 2020, 08:19:20 AM »
You'd be increasing your expenses by 40%. That'll significantly push back your retirement by dropping your savings rate from 64% to 50%. Look at chart 2 on this page for a reference:

https://earlyretirementnow.com/2017/11/01/shockingly-simple-complicated-random-math-behind-early-retirement/

I should have stated in the OP that I'm comfortable with retiring later if that means I'm doing what I love. 

Abe

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Re: DTI Mortgage question
« Reply #6 on: April 21, 2020, 10:43:02 AM »
Ah, then it seems pretty reasonable. You'd have a very high savings rate regardless. I'd say factor in the additional cost of maintaining a larger plot of land or larger house (whichever is the case).

Steeze

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Re: DTI Mortgage question
« Reply #7 on: April 21, 2020, 10:52:45 AM »
Ah, then it seems pretty reasonable. You'd have a very high savings rate regardless. I'd say factor in the additional cost of maintaining a larger plot of land or larger house (whichever is the case).

Yeah - I think building up the homestead is going to be a big expense. Not that I am saying don't do it, just the extra mortgage is not the only cost. There are shovels and rakes, and tractors, and green houses, and a barn, and a shop, and animals, and feed, and soil, and, solar panels and, and, and ... you get the point.

But - maybe this land & house is in the perfect location, its your forever home, and you are just going to be paying it down with minimal improvements until you are FI and can really focus on it in retirement. That makes a ton of sense to me.

Abe

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Re: DTI Mortgage question
« Reply #8 on: April 21, 2020, 02:53:30 PM »
Please let us know how it goes!

soily

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Re: DTI Mortgage question
« Reply #9 on: April 22, 2020, 09:40:25 AM »
Y'all are very supportive. Thank you for the great responses! I do agree that the startup costs for a homestead will not be negligible.

I looked at the property yesterday and there is a small (~800 sf) house also on the property. It is in rough shape but if it is salvageable, I think I could spend 20k (from the proceeds of my current house) to get it remodeled. I could then rent out the main 1700 sf house and cover most, if not all, of my mortgage. I'm trying to not get excited and let my emotions blind me.

My next steps are to get my house ready to put on the market and have a closer look at the 800 sf house. I think my main obstacle right now is the potentially terrible housing market. I'm talking to a realtor about selling my house tomorrow.
« Last Edit: April 22, 2020, 09:42:33 AM by bdavis »