Author Topic: When should we downsize the house?  (Read 5241 times)

Monkey Uncle

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When should we downsize the house?
« on: December 31, 2014, 05:01:18 AM »
Hi folks,

The wife and I agree that we are going to have to move eventually.  Our current house is a bit larger than we need, and it will be even more excessive once our soon-to-be college graduate son gets out on his own.  Also, the house and property are not conducive to long-term aging (stairs, hilly yard to take care of, wood heat).  However, we love our location and property and don't want to move just yet.  Also, we are pretty sure our son will be returning home after college for a save-up period prior to striking out on his own (not sure for how long).

I'm planning on FIRE or some version of semi-retirement in about 4 years (maybe longer, depending on how well we save and invest).  Here are the financial particulars on the house:

--currently owe about 98k, financed at 3 1/8 %
--I'm guessing market value at about 150k, but it's been a long time since we've had it appraised
--a little less than 13 years left on the loan
--monthly P+I = 779
--monthly insurance = 77
--monthly taxes = 70 (yes, that's right - property taxes here are insanely low, and the schools are appropriately shitty ;) )
--we have enough stashed to pay off the house if we wanted to, but at 3 1/8% it doesn't seem like the right thing to do

Here's the basic question: should we do the downsize move prior to FIRE?  Again, we really are not ready to do it right now, but 4+ years isn't that far away.  Here are the considerations that we are weighing:

--Despite our reluctance to pay off a loan at 3 1/8%, we are a little spooked by the thought of having a mortgage payment for the first 9 years of FIRE.  If we downsize, we likely would shorten the term by a few years, or perhaps eliminate the mortgage entirely depending on how much equity we have in the current house at the time.  During this 9-yr period, we will be living mostly off of the stash, though DW's modest SS benefit ($850/mo) begins in year 3.

--If we wait until after FIRE, are we going to be able to get a mortgage with little or no earned income?  This is probably the thing that unnerves me the most.  If we can't get a loan, I see four choices:
     1) buy a house that doesn't cost any more than the equity we have in our current house at the time (and even this option may require a bridge loan while our current house is on the market)
     2) dip into the stash to pay cash for the house
     3) wait until we've paid off the current house (again, this may require a bridge loan or a temporary dip into the stash while the current house sells).  My wife will be 72 by then, hopefully still able to function in our current house, but one never knows.
     4) un-RE or delay RE long enough to get a loan.

What would you do in our situation?  Thanks in advance for your replies.

ShoulderThingThatGoesUp

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Re: When should we downsize the house?
« Reply #1 on: December 31, 2014, 06:06:32 AM »
A smaller house saves you money on nearly everything - utilities, upkeep, taxes, temptation to buy crap. We are far from RE but did it as soon as we realized we were in too large of a house.

Banks grant mortgages all the time to people moving from one house to another on the condition that they sell their old house.

Le Barbu

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Re: When should we downsize the house?
« Reply #2 on: December 31, 2014, 06:29:22 AM »
You gave some details about the house and mortgage but the "stash"...what do you mean? Greenback in the matress, GIC's, Index funds, Gold?

I am about the same age and same mortgage than you and plan to repay the house over the next 4 years (93k @ 3.49%). I have no "stash", only 525k$ in stock index funds...

Monkey Uncle

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Re: When should we downsize the house?
« Reply #3 on: December 31, 2014, 08:10:35 AM »
You gave some details about the house and mortgage but the "stash"...what do you mean? Greenback in the matress, GIC's, Index funds, Gold?

I am about the same age and same mortgage than you and plan to repay the house over the next 4 years (93k @ 3.49%). I have no "stash", only 525k$ in stock index funds...

Not sure the details are all that important once we get past the fact that the portfolio should do substantially better than 3 1/8%.

Edit: about 4% cash, 7% raw land, 11% bonds, and the rest in a mix of large cap, growth/income, small cap, and international stock funds.  Roughly half a million total.
« Last Edit: December 31, 2014, 09:03:04 AM by Monkey Uncle »

Monkey Uncle

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Re: When should we downsize the house?
« Reply #4 on: December 31, 2014, 08:15:58 AM »
Banks grant mortgages all the time to people moving from one house to another on the condition that they sell their old house.

Yes, but will they lend to early retirees who have little or no earned income and are living mostly off a modest investment portfolio?

Le Barbu

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Re: When should we downsize the house?
« Reply #5 on: December 31, 2014, 08:18:25 AM »
You gave some details about the house and mortgage but the "stash"...what do you mean? Greenback in the matress, GIC's, Index funds, Gold?

I am about the same age and same mortgage than you and plan to repay the house over the next 4 years (93k @ 3.49%). I have no "stash", only 525k$ in stock index funds...

See attached.  Not sure the details are all that important once we get past the fact that the portfolio should do substantially better than 3 1/8%.

you are right, it looks like you have no cash standing still and bonds are in registered accounts. it's about the same than me then. some people, even Mustachian one, have a nice 50k$ EF in a checking account at 1% and carry a mortgage at 3%??

What is the raw land??

Le Barbu

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Re: When should we downsize the house?
« Reply #6 on: December 31, 2014, 08:22:53 AM »
Banks grant mortgages all the time to people moving from one house to another on the condition that they sell their old house.

Yes, but will they lend to early retirees who have little or no earned income and are living mostly off a modest investment portfolio?

they lend money to about anyone IMO. it's just the way you manage to present the plan

why for God sake young couples arround me with less than 80k$/year gross income can borrow 400k$ for a house while carrying 2 car loans and furnitures loans?

Monkey Uncle

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Re: When should we downsize the house?
« Reply #7 on: December 31, 2014, 08:26:41 AM »
You gave some details about the house and mortgage but the "stash"...what do you mean? Greenback in the matress, GIC's, Index funds, Gold?

I am about the same age and same mortgage than you and plan to repay the house over the next 4 years (93k @ 3.49%). I have no "stash", only 525k$ in stock index funds...

See attached.  Not sure the details are all that important once we get past the fact that the portfolio should do substantially better than 3 1/8%.

you are right, it looks like you have no cash standing still and bonds are in registered accounts. it's about the same than me then. some people, even Mustachian one, have a nice 50k$ EF in a checking account at 1% and carry a mortgage at 3%??

What is the raw land??

$50k is an awful lot to have lying around losing ground to inflation.  We would need to liquidate something from the taxable account if we were going to dip into the stash.  That carries a risk of selling low if the timing isn't right, but in my mind isn't as bad as having 10% of our assets in something that generates no return.

The raw land is a mistake we made some years ago.  We purchased land thinking we were going to build a house, but then reconsidered.  We're currently trying to sell it.


Le Barbu

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Re: When should we downsize the house?
« Reply #8 on: December 31, 2014, 08:31:19 AM »
so, if you get to sell the raw land, then apply this on mortgage or continue investing the way you already did, a win-win situation

Cassie

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Re: When should we downsize the house?
« Reply #9 on: January 03, 2015, 02:33:26 PM »
i would downsize before you retire.  That way you do not have to worry about qualifying for a mortgage if you decide to take one.

Catbert

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Re: When should we downsize the house?
« Reply #10 on: January 03, 2015, 04:20:55 PM »
Assuming you will stay in the same area after retirement I would look to move about a year prior retirement.  That gives you son plenty of time to get his life started, gets you a new  mortgage while you're still working and lastestly gives you a year time cushion if it takes longer to buy/sell than you anticipate.

Monkey Uncle

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Re: When should we downsize the house?
« Reply #11 on: January 04, 2015, 04:06:24 AM »
Assuming you will stay in the same area after retirement I would look to move about a year prior retirement.  That gives you son plenty of time to get his life started, gets you a new  mortgage while you're still working and lastestly gives you a year time cushion if it takes longer to buy/sell than you anticipate.

Yes, this is probably the best option.  It would be good to start ER with a lower mortgage payment, too.  Hopefully we'll be mentally/emotionally ready to move by then.