Author Topic: Scrimp, Borrow or reduce retirement contributions?  (Read 9212 times)

Credaholic

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Scrimp, Borrow or reduce retirement contributions?
« on: May 23, 2014, 03:28:03 PM »
My husband and I are doing a substantial remodel to an 800 sq ft house that is to be our family's long term home. Here's the situation:

Owe approximately $215,000
Have approximately $165,000 ear marked for the remodel
Budget looks like realistically it's going to go $75,000 over budget
Anticipated value at end of project is $750,000 (we live in an expensive area of Seattle)

We have 3 options:
1) Cut back on what we want to do. Some of this would be stuff we could upgrade later (for instance appliances, counters, carpet, solar panels, etc.) and some of it would be stuff that would be more difficult to do later (hydronic heating) or really costly to do later (windows).
2) Obtain a construction loan, and bring our total debt in the property close to $300,000.
3) Reduce retirement contributions and try to come up with the extra cash on our own (we literally just switched my husband's 401K to max out for the year, and I'm planning on contributing another $40K-$50K to a Solo-401K and our Roths at the end of the year. We could direct this money to the house instead and come up with the small remainder.)

So, Mustachians, what do you think we should do?

Gin1984

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Re: Scrimp, Borrow or reduce retirement contributions?
« Reply #1 on: May 23, 2014, 03:29:31 PM »
How much would the construction loan be?  How much of the excess $75,000 are things you can do later?

Credaholic

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Re: Scrimp, Borrow or reduce retirement contributions?
« Reply #2 on: May 23, 2014, 03:42:20 PM »
If we obtained a loan, we'd do it for the full amount we need to complete the project the way we want to (so roughly $75K, anticipating about a 6% rate, increases our total monthly mortgage payment by about $500 or 50% of what we pay now).

We could probably shave the $75K overage in half if we really scrimped on things. The main thing we could not upgrade later is the hydronic heat. My husband is looking at expensive (and really nice) aluminum windows. We could cut that cost in half with cheaper windows, and replacing them later probably wouldn't make much sense given that cheaper windows will still be expensive and are not easy to resell. We could go with cheaper carpet upstairs, I'm fine with that since carpet tends to need replacing eventually anyway, and we just wouldn't put in nicer carpet until the cheaper carpet needed replacing. We could go with cheaper flooring downstairs where we plan to do hardwoods, but that's an area we sort of either need to spend the money now or accept a cheaper option for good. Cabinets/counters the same. We could go really cheap on the appliances and upgrade later with little issue...

Weedy Acres

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Re: Scrimp, Borrow or reduce retirement contributions?
« Reply #3 on: May 23, 2014, 03:43:02 PM »
Can you delay the project until you've got the additional $75K saved?  How long would that take, both with and without cutting back the retirement contributions?

Credaholic

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Re: Scrimp, Borrow or reduce retirement contributions?
« Reply #4 on: May 23, 2014, 03:50:02 PM »
No, we can't delay. We close on our old house next week, and are already dealing with uncomfortable living arrangements for at least the next six months while expecting our second child in August. The existing 800 square foot house just isn't an option for our family 4.