Author Topic: Prepping to Buy Next Home  (Read 3384 times)

snshijuptr

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Prepping to Buy Next Home
« on: January 07, 2015, 03:36:20 PM »
So we are hoping in 30-33 months to move and upgrade our house. We currently have a tiny 2 bedroom townhome and need to buy a bit bigger and closer to my husband's job. We bought this one without a 20% down payment, which I'm not beating myself up over, but I want to buy our "forever home" with at least 20% down. The thing is, there is next to NO advice out there on how to buy your 2nd home. First time homebuyers get all this help! So here is what I've gathered:

- Need earnest money (3% of new house), moving expenses ($2000), and home improvement ($5000-$10000) in cash
- Need realtor fees (6% of old house), closing costs (5% new house), and down payment (20% new house) minus the earnest money (3%) in home equity

So my situation is moving from a $300k to $600k home (I'm in Southern California). Looking for deals when we go to market aside, I figure I need:

- $18,000 + $2,000 + $10,000 = $30,000 in savings
- $18,000 + $30,000 + $120,000 - $18,000 = $150,000 in home equity

Is that how this works?

mak1277

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Re: Prepping to Buy Next Home
« Reply #1 on: January 07, 2015, 03:46:55 PM »
Full disclosure, it's been 6+ years since I bought my home.

Is 3% earnest money a legal requirement in CA?  I don't think I've ever put down even a full percent on any of the three homes I've purchased in my life.

What is the purpose of the home improvement cash requirement?  Is that simply your estimate of money to have set aside for upgrades to your new home?  That seems entirely optional to me, but I've also (purposely) never purchased a house that had obvious immediate repair needs.

Based on your calculation, you're obviously planning to close the sale of your existing home before you settle the purchase of your new home.  That timing can be ...tricky.  Just have a plan for dealing with interim housing and realize that if you have a contingency that you sell your existing home before you close on the new one, you become a less attractive buyer.

TerriM

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Re: Prepping to Buy Next Home
« Reply #2 on: January 07, 2015, 04:00:58 PM »
Is 3% earnest money a legal requirement in CA?  I don't think I've ever put down even a full percent on any of the three homes I've purchased in my life.

No.  But if you're in a bidding war, the higher the earnest money, the better off your are.  In the case that you back out of the deal after contingencies have been waived/signed off on, the seller is allowed to keep all the earnest money you gave them up to 3% of the value of the house.

So if no one else is putting in offers, and it's a slow market, then you could get away with less or no earnest money.

TerriM

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Re: Prepping to Buy Next Home
« Reply #3 on: January 07, 2015, 04:02:18 PM »
BTW, if Redfin is servicing your area and you don't fall under their minimum, you can save on the realtor's fees big time otherwise you should try to negotiate 5% fees if you have a reasonably fast moving area/easy to sell house.

SwordGuy

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Re: Prepping to Buy Next Home
« Reply #4 on: January 07, 2015, 04:27:02 PM »
Since this is the MMM website, not "Buy-A-Dream-Home-For-A-Bundle.com", I just have to ask:

Isn't that a whole heck of a lot of money that could be put to better use making you financially independent instead of deeper in debt?

And remember, it's not just $300,000 more (the purchase price), it's $300,000 more you are going to pay interest on for years and years...

Depending on interest rate and loan terms you could be paying an extra HALF A MILLION DOLLARS for that home.   

That's almost half what I need to be financially independent on before I get Social Security...

TerriM

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Re: Prepping to Buy Next Home
« Reply #5 on: January 07, 2015, 05:43:07 PM »
Since this is the MMM website, not "Buy-A-Dream-Home-For-A-Bundle.com", I just have to ask:

Isn't that a whole heck of a lot of money that could be put to better use making you financially independent instead of deeper in debt?

And remember, it's not just $300,000 more (the purchase price), it's $300,000 more you are going to pay interest on for years and years...

Depending on interest rate and loan terms you could be paying an extra HALF A MILLION DOLLARS for that home.   

That's almost half what I need to be financially independent on before I get Social Security...

Please accept for a moment that certain areas in California (or many US cities even) are expensive.  The question isn't "isn't that a buttload of money" the question is "can you afford this."    Quite frankly, $600K looks cheap from where I live.

I can probably buy a 4BR 2000 sq ft house in the middle of nowhere for $100K.  But what is my job going to pay and is there one nearby?   People in HCOL areas will be compensated a lot more than people in LCOL areas.  Their housing will cost more too.  For some, this works out well--if you can save 30% of your income no matter where you live, then you're better off retiring after living in an area where you make $150K/yr than $50K/yr, and you will have more options as to where to move for retirement.

SwordGuy

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Re: Prepping to Buy Next Home
« Reply #6 on: January 07, 2015, 07:33:03 PM »
True, but you already have a house that's half the cost.   Is it really going to save you half a million dollars in commuting costs?

TerriM

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Re: Prepping to Buy Next Home
« Reply #7 on: January 07, 2015, 07:48:16 PM »
True, but you already have a house that's half the cost.   Is it really going to save you half a million dollars in commuting costs?

OP called the house "tiny" and said she/he wanted "a forever home."  Shouldn't we trust them a little that they need to upgrade?  If the jump in cost was $100K to $200K would people still be questioning it?  What if OP is making $200K a year?  Then a $600K house meets the 4xsalary number....

Shouldn't that be the real question--not whether the price is ok or not--but what the price to income ratio is?

(I guess I don't personally think someone needs to stick in a 2BR the rest of their lives, especially if they intend to have kids.)
« Last Edit: January 07, 2015, 07:50:25 PM by TerriM »

snshijuptr

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Re: Prepping to Buy Next Home
« Reply #8 on: January 08, 2015, 08:49:00 AM »
I know that housing prices in California can be shocking. I find the rest of the nation shocking. I live in ~900 sq ft townhome with a small patio, carport, and 2 bedrooms that cost $300k. We want to have another baby, and I figure around elementary school the tiny kids room just isn't going to cut it. Moving closer to DH's job is actually moving to a LESS expensive area, if you can believe it. I'm planning for $600k with the hope that I can find something closer to $500k. I'm looking at a smaller 3 bedroom+ office house (I work at home) with a garage and backyard.

And before anyone asks, we won't leave the area. DH is a public school teacher and both families live here. Don't think that Texas housing hasn't made us drool/cry a few times.

The $10,000 in home improvement assumes that we might get a fixer-upper and also we will need extra furniture for the extra bedroom and office.

So otherwise, those numbers look relatively accurate?