Author Topic: House I love w/mortgage OR house I don't love w/no mortgage  (Read 6684 times)

YTProphet

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I'm selling my house soon and, as I've discussed once before on this forum, I'll be able to capture quite a nice gain from it due to some fortuitous buying/timing (probably in the $270k ballbark). So, using the gain plus my initial down payment, I'll have about $310k in cash to purchase my next home. However, I've come to a bit of a crossroads.

The 5 mile radius I'm looking at buying in has very drastic swings in home prices. The quaint downtown area is super expensive to buy in, whereas to buy a few miles away in the area that is nothing but characterless suburbia crammed with 1970's homes, costs are close to half the downtown area per square foot. I would love to retire early and I'm moderately frugal, but I just hate the idea of living in a cookie cutter 70's house that's not close to any parks, entertainment, etc. I want to live in the downtown area that has the little shops, restaurants, parks, and free summer activities. Even if my house in suburbia is paid off, I'm scared that I won't be happy there and will want to move again.

So should I bite the bullet and get a paid off house or take on a mortgage again to live where I want to be, even if that means paying more?

Mikhial

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #1 on: June 02, 2015, 06:53:11 AM »
It's hard to say without more about your full financial situation. Personally, though, I pay a bit more to live downtown. My quality of life has gone up dramatically. I don't have to drive to go to a restaurant, gym, or library. I also entertain more often because our place is nice and in a central location. Perhaps you can cut costs by downsizing.

Take my advice with a grain of salt however, I can pack my bags and leave at the end of my lease.

nereo

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #2 on: June 02, 2015, 06:57:01 AM »
+1 to the advantages of living exactly where you want to live.  It's helped our QoL immensely, and given us more time since we no longer need to get in a car to drive anywhere I need to go in a typical week.

My one question for the OP is how having a more expensive home fits into his budget.  Would the mortgage be a reasonable portion of your monthly budget?  can you get a low interest rate?  How many extra years will this add before you are FI?


asiljoy

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #3 on: June 02, 2015, 07:25:34 AM »
It depends. Are you forced to go dramatically outside your budget to go downtown? Can you do with a smaller home to be in the area you want to be in?

We went the more expensive/but the location we wanted route and it has meant that we're closer to jobs, use cars less, and have quite a bit of free/cheap entertainment in the form of parks, band shells, lakes, etc. When we did our budget, we included the fact that we more or less just park one car in the garage now because of that great location. Can you do something like that?

YTProphet

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #4 on: June 02, 2015, 07:29:26 AM »
It's hard to say without more about your full financial situation. Personally, though, I pay a bit more to live downtown. My quality of life has gone up dramatically. I don't have to drive to go to a restaurant, gym, or library. I also entertain more often because our place is nice and in a central location. Perhaps you can cut costs by downsizing.

Take my advice with a grain of salt however, I can pack my bags and leave at the end of my lease.
I can't really downsize anymmore given the situation with my kids. I wish I could but it's just not feasible.

It's hard to say without more about your full financial situation. Personally, though, I pay a bit more to live downtown. My quality of life has gone up dramatically. I don't have to drive to go to a restaurant, gym, or library. I also entertain more often because our place is nice and in a central location. Perhaps you can cut costs by downsizing.

Take my advice with a grain of salt however, I can pack my bags and leave at the end of my lease.
I make $125k/yr and have about $50k saved in various accounts. I just finished grad school recently and paying off my debts, thus the high income and little savings. The $320k-ish that I'll take from the sale represents basically my entire net worth.

Now that my debts are gone, I save about 30-40% of my income.

forummm

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #5 on: June 02, 2015, 07:36:26 AM »
If you're going to be in this house for a very long time, some people would encourage you to get a fixed-rate mortgage anyway at these historically low rates and then invest the money you would have used to buy the house with cash. With the tax benefits of a mortgage, the stock market will probably return much more than a 3.5% rate mortgage will cost over the long run. That may not be in line with your risk profile, especially if you'll panic when the market drops 50% (which it will do occasionally) but something to consider.

greenleaf

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #6 on: June 02, 2015, 07:39:12 AM »
It's hard to say without knowing the rest of your financial situation and exactly how much you value the downtown location vs. working less, but I would most likely choose the better location (assuming it's a reasonable and not a ridiculous amount of extra money that you're talking about).  We paid more to live on the side of town with a bike path and better access to parks, etc.  We didn't even consider houses on the other side of town or in cookie cutter subdivisions, so I'm not even sure how much more we paid, but probably 25%.  I actually have no mortgage, and it's great, but I sometimes wish we had gotten one to be in a slightly better location.  However, around here the other locations also have some downsides compared to where we are (unless we spend 100-200% more), so it's not clear that it would have actually been better for us.  It sounds like with your options one is very clearly better, just more expensive.

Rubic

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #7 on: June 02, 2015, 07:41:33 AM »
As much as I'd hate to suggest spending more money, it's definitely worth buying something you will love.  The same reasons you love the upscale house will probably make it easier to sell.  This assumes you'll be living in it for a long time, but that's easier to do when you live in a home you love.

YTProphet

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #8 on: June 02, 2015, 07:49:39 AM »
As much as I'd hate to suggest spending more money, it's definitely worth buying something you will love.  The same reasons you love the upscale house will probably make it easier to sell.  This assumes you'll be living in it for a long time, but that's easier to do when you live in a home you love.
This seems to be the sentiment of most Mustachians, which is very interesting and not quite what you'd expect. Then again, it seems most Mustachians are like me - don't spend much money, but, when you do, buy something that is high quality, what you want, and will increase your happiness.

ShoulderThingThatGoesUp

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #9 on: June 02, 2015, 07:50:32 AM »
It's definitely stupid to buy a house you don't like. Don't do that.

greenleaf

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #10 on: June 02, 2015, 07:59:26 AM »
I just saw this:

Quote
The $320k-ish that I'll take from the sale represents basically my entire net worth.


I'm one of the (very few, I'm guessing) people on this board to have paid cash for a house, and even I would say do not pay cash in this situation.  I think you should get a mortgage regardless of which house you choose.  You can pay it off early later if you want to.  My rule of thumb (that I am making up on the fly because it worked for me, and may be totally bogus for anyone else) would be have 2x the value of the house invested in other assets before thinking of paying cash (or getting a <15 year mortgage or prepaying a 30 year mortgage in < 15 years).  And even that is crazy, according to many on this board.

Also, if you can only buy the downtown house by using all (or even just a fairly large part) your net worth as a down payment to get the mortgage low enough, you can't afford it, in my opinion. 

ShoulderThingThatGoesUp

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #11 on: June 02, 2015, 08:53:19 AM »
I just saw this:

Quote
The $320k-ish that I'll take from the sale represents basically my entire net worth.


I'm one of the (very few, I'm guessing) people on this board to have paid cash for a house, and even I would say do not pay cash in this situation.  I think you should get a mortgage regardless of which house you choose.  You can pay it off early later if you want to.  My rule of thumb (that I am making up on the fly because it worked for me, and may be totally bogus for anyone else) would be have 2x the value of the house invested in other assets before thinking of paying cash (or getting a <15 year mortgage or prepaying a 30 year mortgage in < 15 years).  And even that is crazy, according to many on this board.

Also, if you can only buy the downtown house by using all (or even just a fairly large part) your net worth as a down payment to get the mortgage low enough, you can't afford it, in my opinion.

I also paid cash for my house, and I agree. I felt OK doing that because I have substantially more in investments than in the house.

merula

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #12 on: June 02, 2015, 09:56:31 AM »
Is there any happy medium? Like, could you live a half mile from the super awesome downtown in a place that's cheaper but not quite cookie-cutter suburban wasteland of beige?

For example, my ideal place to live in my city would be about 2 miles away from my house. That neighborhood was built up 1880-1900ish, absolutely amazing architecture, a wide mix of house sizes and styles, my favorite grocery store, the governor's mansion, etc. etc. My place was built 1915, my neighborhood is nice but more run-down/working class. 1950's-1970's suburbia starts another 1-2 miles away.

If you were in my city, $300,000 would buy a 2br/2ba condo or serious fixer-upper in the supernice area, 4br/2ba 2,000 sq ft house in good shape in my area, or 5br/3ba everything-updated-move-in-ready house in the 50s-70s area.

If there is no happy medium, then my advice is threefold:

(1) Rethink your needs, even with kids. What's a real need or major-happiness-inducing want versus a nice-to-have? For example, for me, a yard and separate bedrooms for my kids are not "needs" but "would make life so much better". But having a guest room and space to host my whole extended family are firmly on the "nice but not necessary" list. I can always make my kids share while guests are visiting or rearrage furniture temporarily for a party. My rule of thumb is "don't have space you don't use at least once a week".

(2) Go explore areas of your city you aren't as familiar with. Make it a family bike ride or something. I have found so many little oases of nice neighborhoods in places I thought were rundown just by wandering around.

(3) If your risk tolerance and creditworthiness makes this worthwhile, get a mortgage anyway and invest the cash. I don't think it's wise to have so much of your net worth tied up in one asset, but it can make sense if you're very conservative risk-wise and/or don't qualify for the amazing current interest rates.

CommonCents

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #13 on: June 02, 2015, 10:02:29 AM »
+1 to merula.  Agree to look for another option than A or B.  Consider a house you fix up, a house that's not cookie cutter even in suburbia (they exist), a smaller house near a park, etc.  Or wait a bit longer on selling your house until you do have more of a cash cushion.  The closing is expensive!

That all said - I opted for location and bought a non-mustachian house.  I'm quite happy with that decision.  I'm mindfully spending on what is important to me.

TheLazyMan

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #14 on: June 02, 2015, 10:08:40 AM »
Whenever I choose something cheap just because it's cheap and the alternative is something I really love, I often end up getting the one I really love later anyway because the cheap one just doesn't fit my needs.  So I've learned to spend a little extra where it counts for my long-term satisfaction.  Though I'm FI so your situation may differ.

dess1313

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #15 on: June 02, 2015, 01:56:12 PM »
Depending on the type of houses available, there's a few things to consider

Tax difference between the two areas. Is living in the downtown area going to drastically increase your tax cost?

Are you able to get a house with enough bedrooms/bathrooms for what you want in either area?  A house you don't like the carpet in, is a very different situation than one that doesn't have enough bedrooms or bathrooms.  Those cant be fixed.  You need to sort out your requirements for a house.  How many bed, bath, spare rooms, pantry, back yard, garage, etc etc.  What won't you live without?  What do you need to be happy for the next 10+ years as your family grows.  You need a house that fits what you want.  Loving a huge kitchen, but buying a house with a tiny galley kitchen won't make you happy even if the price was dirt cheap or was in your favorite area.  If you buy a house downtown (or in the burbs) that doesn't fit you, you still won't be happy.

Would living down town remove your need for using your car most of the time?  Reduced travel costs would be a BIG bonus if one area was better that way.  What about schools for the kiddos?  Is one place better or worse?  If you can walk to work, grocery stores, parks, school, and other important things, instead of having to drive thats a big bonus even if you have to pay for it in the house price

I would not put your entire net worth into your house, keep back 20-40% of what your sale price will be, as partly an emergency fund, and a bit to fix it up.  You never know when a roof will get a leak, or a toilet will need replacing, or you need/want to do a larger project.  A few gallons of paint, and some other small projects can make a place really shine.  You can always add more money to the mortgage later as you work and have funds available.  Make sure its a flexible enough mortgage to allow this.

If you buy a place that needs elbow grease, and are good at handy things as per your first post, it can be another long term investment in a way.  Buy it low, fix it up, and increase the value for down the road.  I bought an ugly duckling of a house, and now because i've worked on it, its exactly what i want and i love it.  But i would never again buy a house with a galley kitchen, and without a garage.  Those are two important things i will not compromise on down the road even if i had to pay more.

Bob W

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #16 on: June 02, 2015, 02:21:00 PM »
If you can't pay cash for something,  you can't afford it.   Houses are the ultimate in consumer driven purchases.  You could use every mustachian trick known to man and never overcome paying 400K too much for a place to hang your hat.    Do you have house fever?

So the correct answers are --

Lease (probably a top choice)

or

Buy a house less than or equal to your net worth.  Then obviously put 20% down and keep all your money invested.

If you lease,  you can then save like crazy to buy that uber expensive uber hip house.     It might take you 3 to 4 years to do so.    In that time you may come to your senses and realize -- "man,  there are a shit ton of really cool places to live in this world that I could live with just 4% of my assets"

Of course you could always consider finding or waiting for a much smaller place in the desired hip downtown location.

That, and if the other houses are only 2-3 miles from the hip mecca you could always ride your bike down there in like 10 minutes.   My guess is you seldom would.   Although you would have lots of extra money to make friends buying them beers.

You could always find a roommate situation -- you buy, they rent or you rent.    You could also figure in renting via airbnb to offset the extra cost of the cool house.  (check for comps on their site).  This might work really well for you if you pick to appropriate property with airbnb in mind.   Would 2K a month in airbnb money offset the difference?

So it really isn't a polemic choice.   There are dozens if not hundreds of potential scenarios. 

You are free of the burden of being owned by a house ---- what will you do with that freedom?

I'm a red panda

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #17 on: June 02, 2015, 02:37:10 PM »
It's definitely stupid to buy a house you don't like. Don't do that.

THIS.

If you don't like where you live, rent.


I have what most people on this forum would consider a spendypants home.  I love it. I am a homebody and spend a lot of time there.  I'm happy I love my house.  (I do have a mortgage, but I did not spend above what I thought I could easily afford even if one of us lost our job. The bank "approved" us for twice what we spent- bank approval is ridiculous.)  So basically- I'd go for the nicer house, unless you are talking about a crazy mortgage amount which doesn't make sense for your income.  I totally disagree with the assessment that if you can't pay cash for a house, you can't afford it.  Paying my mortgage is no different from paying rent, IMO.  Except that it always stays the same, and at some point, I get to stop paying. You have to pay rent forever, and it keeps going up.
« Last Edit: June 02, 2015, 02:39:24 PM by iowajes »

norabird

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #18 on: June 02, 2015, 02:41:31 PM »
Living in a walkable place makes a big difference in life satisfaction in my opinion, so I'd opt for location. But perhaps rethink size.

Having a mortgage no matter what to put your cash to work in the meanwhile seems sensible to me, but maybe I'm just too in the thrall of our house ownership culture. I've been reading "capital" recently and most people do in fact have most of their wealth in their house, so it is not a totally crazy idea to me historically.

Forcus

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #19 on: June 02, 2015, 03:38:23 PM »
Maybe I missed it, but what is the price difference? To me "suburbia, cookie cutter houses" is/are not a good enough reason. But work travel time, activities, and an acceptable trade off to early retirement are reasons to justify spending more.

Someone said include property taxes. That is true. But include vehicle costs, etc. If you can do without a car that is a huge benefit. But even if you don't do without a car, lower fuel and maintenance costs are a big benefit as well.

AJ

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #20 on: June 02, 2015, 03:47:58 PM »
My quality of life dramatically improved when we moved to a walkable location. We got roommates to offset the higher price of the house, and they MORE than make up the difference. If you live in a desirable neighborhood (and don't fancy the idea of a renter) you may be able to AirBNB a spare room to offset the cost of the better location.

Rural

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #21 on: June 02, 2015, 04:09:23 PM »
Rent. Figure out your new location better. There will be a bargain somewhere, and renting will give you time to find it. If you go ahead with either purchase, odds are you'll still find that bargain but be unable to do anything about it.

MsPeacock

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #22 on: June 02, 2015, 04:23:21 PM »
Whenever I choose something cheap just because it's cheap and the alternative is something I really love, I often end up getting the one I really love later anyway because the cheap one just doesn't fit my needs.  So I've learned to spend a little extra where it counts for my long-term satisfaction.  Though I'm FI so your situation may differ.

+1 (biased because I also hate 1970s suburb houses).

Location is the most important factor in real estate for a reason - it matters *a lot* to people, and it sounds like it matters a lot to you too. As other suggest, maybe there is a happy medium (renting, buying a house between the two locations, etc.)

greenmimama

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Re: House I love w/mortgage OR house I don't love w/no mortgage
« Reply #23 on: June 02, 2015, 05:55:20 PM »
We are doing this right now, except sort of the opposite, we want to live in the country, we are buying a home with a higher cost to get one that we love and see ourselves in for the next at least 15years, instead of paying cash for one that we can live in but it wouldn't check off any of our wants. This home in the country is close enough that my DH can ride his bike again and he is so happy about that.