Living in limbo - wwyd?

[Maya]

So we've recently moved cross country to be closer to my family and sold our house. Unfortunately we couldn't find jobs before coming and now are living in limbo with my parents while we look.

We're about 35% of the way to FIRE

Of our networth:


We have about 50%in Retirment accounts
10%in Tax free saving account - investments - could be used for our house but I'd rather leave invested.
40% in cash waiting to be invested in our next house. Unfortunately that can only buy a few town houses here which DH would refuse to live in. Average house price is 400-500k. So roughly 50-55%

Curious how MMM people would split up the money when we're ready to buy a house. I really want to be mortgage free but can see potential better returns and diversification advantage to keeping aside some of our profits from our house sale to invest.

Our rrsp are nearly maxed out, I think I have about 10k room, but earned very little this year so am likely holding off investing there till I'm earning more income. Have only about $20 k in tsfa room. So not a lot of room left in tax sheltered investment options.

Would you put 50% down on the next house, or invest the difference and only put down 20%.

I want to hit FIRE as soon as possible, DH wants to buy big house and keep working another 15 years or so. We are coming up to 40 soon.

Question : how much would you put down given our percentages? What is your priority mortgage payment or investments?

20% is the min down payment to avoid mortgage insurance premiums.

[human]

I would rent a cheap apartment and then move somewhere affordable when retired. Invest the cash.

You're big problem isn't the house but the fact that you and dh have different goals.

[KMMK]

Yeah, you need to figure out your joint plans first. Could you retire in a few years and DH work longer to pay for the big house if that's what he wants? Mortgage rates are so low right now- I'd put just 20% down to start, max out all RRSPs and then TFSAs then possibly put more towards the house depending on the return you are getting because you'll have to pay taxes on those investments so you might come closer to the mortgage rate post tax.
Also depends where you get jobs to see what area of the city you want. You can certainly get a house for cheaper than average. We got a 4 BR, 2.5 bath for $350,000. Not large though.

[nereo]

My biggest question is "why would you purchase a home now when your life situation is (in your words) in limbo?"  Have you run a rent vs buy calculator?

Also, with current interest rates I would never put 50% down on a home.  Use low interest rates to your advantage.  Keep a separate "mortgage sinking fund" if that helps you sleep at night.

I agree with sd that the statement "never live in a TH" is a bit odd; live where it makes the most sense to you right now.  If it's only for a few years definitely rent.  Town houses typically require less time and money for upkeep, allowing you to get to full FI-hood much quicker.  Once you are FI you can buy your "forever house," but in the meantime live as close to wherever you have the best chance of getting jobs, regardless of whether it's a TH, apartment, condo, etc.

[former player]

Firstly, you can't do anything until the job situation is sorted.  So put all your joint efforts into getting yourselves into the right jobs for you both.  Once you both have jobs then think about housing.

I would strongly suggest that whatever you buy, you buy something that is going to be easy to sell, or will be easy to sell if you put work into it.  So the old mantra of "location, location, location" is the one to follow - go to the location which has the most long-term desirability, and don't buy the most expensive house in that location.

Also, try to find out why DH wants a big house/not a townhouse.  Tease out the reasons, of which there may be several.  Prestige?  How about something smaller and historic or smaller and named-architect designed.  Privacy?  A smaller house on a larger or more private lot.  Space for hobbies?  A large garage/shed.

[Maya]

Yeah we won't be buying anything till we get jobs, but there are times I just want to be settled so bad that I think lets just buy something smaller cash.  We are forced to settle on the location due to the school ds is going too. They're aren't a lot of options for him due to the special program we want to put him in.

DH's main goal for a house is to no longer be jealous of other people's houses. He grew up in a low income apartment so it's been his lifelong dream. I used to want the big house, but now I'd rather the freedom of a small one.

[nereo]

...
DH's main goal for a house is to no longer be jealous of other people's houses. He grew up in a low income apartment so it's been his lifelong dream. I used to want the big house, but now I'd rather the freedom of a small one.

Well my immediate and glib response is that your husband can be jealous of other people's houses, or he can be proud of investment balance and financial independence, but probably not both.

A more constructive response would be that in exchange for a few years of living in a smaller, less expensive home (and dedicated saving during this time) you and your husband will be able to afford something much nicer than you can afford right now.

I'm with you though; while I used to want the big house I now love the financial freedom of owning something much smaller.

[meghan88]

You might want to ask DH if he intends to clean the big house, mow the big lawn, pay the big electricity/gas/tax bill, replace the big roof when it's time ...

[Maya]

I do get a bit frustrate with wanted the house that's bigger and fancier to not be jealous. We had a small house before and we both loved it when it was tidied up. Both were a bit frustrated most days with stuff everywhere. After moving cross-country I would rather just get rid of all my stuff LOL.

The big house has been a life long dream so I don't think I'll convince him other wise. He keeps saying I have 10-15 more years to work so why compromise on where I want to live.

Buying something small and mortgage free is just so appealing. So much freedom. But I think I'll be compromising on this one as he's just moved cross country for me.

I do just wonder if we'd be better off putting our minimum down (20%) and investing the difference. I do so love the idea of being mortgage free though!

[nereo]

...
I do just wonder if we'd be better off putting our minimum down (20%) and investing the difference. I do so love the idea of being mortgage free though!

THere was a large thread on this recently: http://forum.mrmoneymustache.com/investor-alley/paying-off-mortgage-early-how-bad-is-it-for-your-fi-date/

tl/dr with rates below 4% it's almost certainly mathematically better to put 20% down and pay the minimum while maximizing the amount you can put towards tax-advantaged accounts.  Caveats include if you get stressed holding a mortgage, if you spend rather than save the extra money (e.g. your mortgage becomes a 'forced savings account') and if you have sufficient assets already and are simply trying to reduce your monthly expenses rather than increase your NW ("playing defense").

[Maya]

Talking to DH we are thinking about buying one of the cheaper townhouses cash as we don't quailfy for a mortgage without jobs. We have enough in savings to go 11 months of living expenses, while keeping our emergency fund and car fund for emergencies and car repairs. We'd likely live there for 1-2 years and then rent it out for about 1000 a month of positive cash flow.

Once we have jobs, we'd be able to ramp up savings for our next house, and perhaps use the equity here to buy other rental properties once we have better financial security.

[Goldielocks]

Whatever you do... Do NOT leave (or keep) your home down payment invested if you plan to pull it out in the next 24 months.

We did this in June 2006 and when we went to pull it out in January of 2008 -- guess what had happened to it?   We thought we were so smart to invest it so that we would not be "outpaced by inflation" and the rapid home increases..., and could weather a short downturn by delaying a puchase  ACK! ACK!

We held out and rented for another year after our move to the new location, and pulled it out in Feb 2009, when it was still down by 30%!