Hi Saving Mom,
I appreciate the frank response. And I do realize that this scenario is a pretty glaring example of un-mustachian behavior. I do need to clarify my original post--we have an offer on the 2nd house which is a short-sale and we're waiting for the bank to accept the offer. Closing is not imminent, didn't mean to imply that. We're at a point where we can easily walk away from this 2nd house and remain status quo.
It was never our intent to own two houses, but the traditional model of buy while selling current home obviously won't work here (unless there's something I'm not thinking of).
Here's the thing: The fact that you can short-sell or walk away from a mortgage in Arizona with no repercussions other than credit hit makes buying a new house in this market and dumping our current one (either by short sale or default) an appealing path, and strangely it seems a good long-term financial move since the credit damage won't really affect us. The house we're looking at is a short sale, and property values in the neighborhood are about $25-45k higher than our offer. I'm frankly surprised the bank hasn't countered yet, but that could still be coming. We'd be staying in this house very long term (10-20 years is the plan). The house appears to be structurally sound, all systems new-ish, but we're ready to walk away if something huge comes out of the inspection. Our current house has no yard, very little room to entertain friends, no room to garden, etc. We're not out grabbing for a McMansion by any means. The houses we've been looking at are only about 300 sq ft larger than our current house but are much more functional for the kind of lifestyle we want to lead, which actually does fall more into mustachianism than not. Our commutes which are small already would barely change. In fact, it's been exasperating trying to explain to family and friends why we don't want a huge house farther away from where we both work.
Our original plan was to get into a house that fits us better, then aggressively tackle my wife's student loan ($37k, both the student loan and current mortgage are 5.75%) in 3 years or so, then start getting into the investing side of things. We're both in work pensions/401k plans so are building a 'stache but want to start getting more aggressive with that once the student loan is paid off. Mortgage rates are so low right now that aggressively paying off the new mortgage isn't a priority if we go that route.
I apologize for the verbal diarrhea. I'm trying to show that we've really thought about this and we're not just grubbing for more/bigger/better. I really do appreciate all the wisdom being shared in the forum, and I don't ask these questions lightly. I've been wrestling with this scenario and running numbers, and this truly does seem like a good move to make. Has anybody here been through this or wrestled with a similar decision?