Author Topic: Building New Home - Income About to Drop. Sell Investments?  (Read 723 times)

LivingTheory

  • 5 O'Clock Shadow
  • *
  • Posts: 54
  • Age: 32
  • Location: USA
I'm looking to discuss our housing situation as we're scheduled to close later this month. Our city is growing rapidly and house values are up 12-15% yoy for the last few years. We'll already have equity above our down payment when we get to the closing table.

Details
Purchase Price: $373k
Cash Available: $75k (after closing costs and E-fund)
Roth IRA: $40k
Brokerage: $15k

Mortgage
Term: 15 years
Interest Rate: 3.375%
PITI: $2451 (HOA: $35/month)

We are about to have our first kid and found out after we started the building process. Walking away from the house would cost us $7500. Our combined income will drop from $120k to $95k once the kid shows up since my SO will need to go part time. My earning potential is on an upward trajectory but it'll likely take another two or three years until we can get back to $120k combined. I could always churn out OT to get there sooner but that's not sustainable.

Our other monthly expenses total about $1500. This could fluctuate a bit as we move into home ownership from renting. Let's bump it to $1800 to be safe.

This means our total monthly output would be about $4300, or $51k per year. There is still breathing room in the budget to save a decent amount each year (on top of ~$16k in principal repaid) but I am debating pulling out investments from our Roth IRA and Brokerage to bump the down payment from $75k to $130k. Taking the loan from $298k to $243k and our monthly output to $3950.

Going this route would give us a little more breathing room in the first few years and we could attack it more once our income rises. We have other investments worth over $150k. The Roth amount shown above is only withdrawing contributions.

I know some people like to slowly pay off mortgages to invest instead but I think we could use the extra cash flow when starting out. What do you guys think? Would you add the investments to the down payment or stick with 20% up front? Or would you go another route entirely?

Thanks!
« Last Edit: May 06, 2017, 09:43:28 PM by LivingTheory »

waltworks

  • Magnum Stache
  • ******
  • Posts: 4555
Re: Building New Home - Income About to Drop. Sell Investments?
« Reply #1 on: May 07, 2017, 10:35:25 AM »
If you are worried about month to month cashflow (which, as far as I can tell, you don't need to be anyway) why do you want a 15 year loan? Just get a 30 year if that's your concern.

You are really asking whether you should invest a bunch of money in an illiquid instrument that returns 3.375%. Most people would say that's a dumb idea.

When you say "building a house" do you mean you are purchasing something under construction? Or that you are going to design/GC/build a house yourself? If the latter, having a kid at the same time is going to be quite a challenge. If the former, then you are just buying a house. If you have cold feet, ditch your $7500 and walk away.

-W