Sold our house...what next?

[TheInsuranceMan]

Alright everyone, I've documented a bit on here about us trying to sell our house, and what we might do if it sells (I'll get to the numbers shortly), and we just had our counter offer accepted.
So, we sold for $119k, minus $3k in closing, so sale price will be 116k.
We owe $55,562 on our mortgage, $47,600 on our student loans.

If I run all the numbers correctly, including abstract costs, deed costs, septic being pumped, etc., it looks like we will net about $107k.
Now, the question is what do we do.
**Let me preface this with we are both 28 years old, not really into the early retirement stuff, but are looking to get, and stay comfortable money wise

Of those student loans, 12k are at 3.15%
Our other problem is whether we are going to buy, or going to rent (as we are planning to build in the next 3-5 years).
Now, we aren't in your typical city.  Rent will be approx $350, or we can probably buy the place we would rent for 25-27k (if we bought, there'd be stuff we'd want to update).
So, knowing all that, do you recommend paying the loans off completely, or maybe keeping that 12k in our bank account, for buffer and downpayment money (for the build, or for buying the new, extremely cheap house)?

I will try to answer any questions anyone has, and am looking forward to some feedback.

[GrowingTheGreen]

Keep the extra cash handy since you may have a need for it soon. Even if you do this, it seems like you could pay off the remainder of your loans relatively soon. How long would it take?

[neo von retorch]

So if I understand correctly:

• Cash: $107k
• Mortgage: $55.6k
• Student loans: $47.6k

So after the mortgage, you'll have $51,438. If you pay off the $12k 3.15% loan, you'll still have $39,438. You expect to only need $27k or less total for all costs associated with buying land/building? So you could still pay an additional $12k of student loans off and only owe $23.6k. Then any budget surplus each month could continue to go towards paying off those loans.

[TheInsuranceMan]

So if I understand correctly:

• Cash: $107k
• Mortgage: $55.6k
• Student loans: $47.6k

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So after the mortgage, you'll have $51,438. If you pay off the $12k 3.15% loan, you'll still have $39,438. You expect to only need $27k or less total for all costs associated with buying land/building? So you could still pay an additional $12k of student loans off and only owe $23.6k. Then any budget surplus each month could continue to go towards paying off those loans.

We'd keep the 12k in the 3.15% loans, pay off the rest.  So, we'd net about $15k cash, if we use that option.  If we buy the house that we are going to look at, instead of renting, it's purchaseable for 25-27k.  We'd live there for awhile before building, would allow us to save a BOAT load of money before making the committment to building a house.

That, or we pay everything off, don't have much left in the ole kitty jar.

[TheInsuranceMan]

Other numbers to note.
We gross around $7k a month in income
After all hsa/401k/insurance costs, we net about $4000-$4500 as our cash-in-hand paychecks per month.
Mortgage payment, after a 20% down payment on this house would be sub $200 a month.  With 12k in student loan debt at 3.15%, if we don't pay them all off.

[neo von retorch]

Ah OK - what's the interest rate on the other student loans? I assumed the HIGHEST was 3.15% :)

More importantly, what's your budget for building a house? Let's assume it's $200k, and you want 20% plus another 5% for closing costs. That's $50k you want to have on hand, in 3 years (or as many as 5, but let's plan conservatively.) Of course, saving $4k per month over 36 months is $144k. That's uh... more than enough. So I'd definitely just pay off enough loans to leave you enough to buy this intermediate house (assuming the long-term cost including transaction costs of buying/selling don't eliminate the savings over rent), then continue paying them off rapidly, saving some (maybe 25%, arbitrary number made up and doesn't mean anything) and then when the loans are fully paid off, full on savings.

But then there is the question of the longer view. Is your 401K maxed? Have you started any taxable investments if you plan to retire before 59.5 years of age (assuming US or similar retirement rules in your area)? Maybe put a small % towards that as well, as it seems you'll have no issue saving up the down payment you'll need for building. (Though I know the rules for building are different - maybe having more than 25% is wise... maybe 50%?)

[TheInsuranceMan]

Ah OK - what's the interest rate on the other student loans? I assumed the HIGHEST was 3.15% :)

More importantly, what's your budget for building a house? Let's assume it's $200k, and you want 20% plus another 5% for closing costs. That's $50k you want to have on hand, in 3 years (or as many as 5, but let's plan conservatively.) Of course, saving $4k per month over 36 months is $144k. That's uh... more than enough. So I'd definitely just pay off enough loans to leave you enough to buy this intermediate house (assuming the long-term cost including transaction costs of buying/selling don't eliminate the savings over rent), then continue paying them off rapidly, saving some (maybe 25%, arbitrary number made up and doesn't mean anything) and then when the loans are fully paid off, full on savings.

But then there is the question of the longer view. Is your 401K maxed? Have you started any taxable investments if you plan to retire before 59.5 years of age (assuming US or similar retirement rules in your area)? Maybe put a small % towards that as well, as it seems you'll have no issue saving up the down payment you'll need for building. (Though I know the rules for building are different - maybe having more than 25% is wise... maybe 50%?)

6.55% are the higher loans, like 35k of it there, if I am remembering correctly.  The hard part is, if we buy this house, there is some work that we'd want to have done before we move in.  We have a daughter, who turns 2 in May, and baby #2 coming in May as well.  There is a bathroom that NEEDS to be redone to be useable, and there is no closets...anywhere.  So, I could keep the 12k, use 5 as my downpayment, and have cash on hand for any updates that we do to the house.

The hard part, in the area that I live, is houses don't turnover.  So, if we go to sell in 2-5 years, whatever the time frame is, it'll likely sit on the market.  On top of that, there isn't any real "work" in this town, so it's hard to find a renter that won't trash the place.  So, that's why I'm up in the air on what I want to do.

My 401k is not maxed.  My wife gets state funded pension.  We have about 50k in retirement accounts at this point in our life.  And while I get the liking of maxing out 401ks, with little kids in the house and a bunch of unknowns as they grow up, I'd like to have my safety net in an account that I can access without penalty, versus stocking a bunch away in my retirement account.  In all honesty, this is probably one of the cheapest places to retire at (bum F Egypt).  I also help my wife's family farm, and make some money on that side, which will continually increase through the years.

[TheInsuranceMan]

The house building question is hard to answer as we don't know where we are going to build.  We can buy 5 acres of tillable, which is the minimum to buy in our county, but that'll be at $7-$8k per acre.  On top of that, we'd have to dig a well, dig septic, and get power brought into the acreage.  That comes with a considerable amount of money - talking land cost at $35-40k, 10k for septic, 12-15k for a well, 3-5k for digging power in.

Versus

Buying a lot in town, connection fees for all of the above are less than a grand.  However, a lot in town is going to be small, but being in town (which I work in 2 days a week) will give our kids plenty to do.  Pool and parks close by.  Our friends with kids similar age close by.  We'd be looking at a lot costing under $10k.

So, a similar house on each place is going to greatly vary our downpayment.

[neo von retorch]

The circumstances could vary enough that it's not the case, but I don't think I'd buy the intermediate house in your case. Closing costs, taxes, insurance, repairs... $350/month for rent doesn't sound all that bad. Focus all your savings/resources on the house you build.

[TheInsuranceMan]

The circumstances could vary enough that it's not the case, but I don't think I'd buy the intermediate house in your case. Closing costs, taxes, insurance, repairs... $350/month for rent doesn't sound all that bad. Focus all your savings/resources on the house you build.

That's how I'm leaning, just because the return of buying it, sticking 10g into it, just to have a house that is still only worth 35k (which is what it's listed for now) doesn't give you much return if you go to rent it out.  On the other hand, if we decide to be in there 5 years, which would give us probably enough cash to just build and not have a mortgage, it might make sense.  However, a lot can change in 5 years.

I've still got to talk to the people that own the vacant lots that I'm interested in to see if they'd even sell them (it's currently tillable acres right now).  So, that's next on my list.

[TheInsuranceMan]

Should also mention that we will be getting 2k back in taxes, and I'll have a work bonus next month, which should be 2-3k as well.  Hell, in all honesty, we'd be able to build within a year, I'd think

[ZiziPB]

I wouldn't bother with buying in your circumstances.  Doing renovations with a toddler and a newborn is going to be a hassle.  Plus it sounds like you will be ready to build your house sooner rather than later.  Why bother with transaction costs and the hassle of renovations and subsequent sale?  Just rent something that doesn't need repairs and is sufficient for your family, and focus on planning the next stage (the construction).

[TheInsuranceMan]

I wouldn't bother with buying in your circumstances.  Doing renovations with a toddler and a newborn is going to be a hassle.  Plus it sounds like you will be ready to build your house sooner rather than later.  Why bother with transaction costs and the hassle of renovations and subsequent sale?  Just rent something that doesn't need repairs and is sufficient for your family, and focus on planning the next stage (the construction).

Yep, if we bought it, we'd try to buy it a month prior to the closing of our house, which would allow us to get any renovations completed before moving in.  But, I agree that I don't think it is truly worth the hassle.  I've got to talk to some lot owns, some builders, and some concrete guys to get my prices lined up for building, before we decide what we are going to do in the inbetween time.

Quick numbers make it look like we'll need about 40-50k down to be at 20%.  With the sale of the house (assuming everything is smooth sailing from here) and not paying off the 3.15% loans, we'd have about 25-30k cash on hand between our accounts, bonuses, taxes, and house sale.  Tack on that we could save anywhere from 1500-2000 a month, most likely, in a renting scenario, it wouldn't take long.

[xclonexclonex]

My strong suggestion - keep some emergency money and throw everything else at debt. Mortgage and student loans. Do not worry about buying just yet. I am sure you can find a decent place to rent.

I believe you will be happier with less debt.

[TheInsuranceMan]

My strong suggestion - keep some emergency money and throw everything else at debt. Mortgage and student loans. Do not worry about buying just yet. I am sure you can find a decent place to rent.

I believe you will be happier with less debt.

I appreciate the input and love the idea, but we are moving from our acreage to a town of 550 people, 1 house for sale in the town, no rental houses available.  I grew up here, I know everyone (except the people that moved in the last 3 years).  Rentals just aren't available, no one owns houses in a town like this to use them as a rental, except for a buddy of mine, but both of his have renters in them. 

Oops, sorry, I can think of one that would be rentable.  it doesn't have central air, and we will probably be looking at it.  Totally forgot about that one.

[soccerluvof4]

My strong suggestion - keep some emergency money and throw everything else at debt. Mortgage and student loans. Do not worry about buying just yet. I am sure you can find a decent place to rent.

I believe you will be happier with less debt.

I appreciate the input and love the idea, but we are moving from our acreage to a town of 550 people, 1 house for sale in the town, no rental houses available.  I grew up here, I know everyone (except the people that moved in the last 3 years).  Rentals just aren't available, no one owns houses in a town like this to use them as a rental, except for a buddy of mine, but both of his have renters in them. 

Oops, sorry, I can think of one that would be rentable.  it doesn't have central air, and we will probably be looking at it.  Totally forgot about that one.

I agree..if you can get a rental do that. Put a window air conditioner in for a room or two if you need. Get rid of your debt

[mountainstache7]

With rent that low, keep enough cash to cover 6 months of expenses, pay off all debt with left over cash and extra cash each month, then save to build. You're in a great situation.

[TheInsuranceMan]

I want to thank everyone for their recommendations.  I haven't been on the computer since Friday, so I was just getting back to read these.
We haven't made any decisions yet, and doing so would be jumping the gun anyways, as we have to get through the VA appraisal yet.  However, we have signed the offer paperwork, and now are just awaiting the appraisal.  I doubt we'll have issues, and if we do, they'll be small.