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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: tsmith321 on June 20, 2017, 05:28:27 AM

Title: How much house should I afford?
Post by: tsmith321 on June 20, 2017, 05:28:27 AM
My wife and I have been considering moving out of our townhouse for quite some time.  Our current mortgage payment is $1,350 per month and will go down to $1,050 in October (losing PMI).  We are in a nice community and would be looking to purchase a re-sale, if one comes up.  Our yearly combined net income 120k.  This is after a fully funded 401k, Roth IRA, and Pension contributions.

I have been to several websites that state we can "afford" a house that is 450-475k, or a mortgage payment just over 2k per month.  Currently we would have 90k in equity in our home, if we sold right now.  Less real estate fees and taxes. Home value is 260k.

So after all that, should we just stay where we are and keep saving cash in a Vanguard account (VTSAX), or can we safely start looking for an upgrade in our community.  We do not have kids and will not be having kids, so we will never out grow our current space.

I keep coming back to the thought that spending an additional 150-200k to have a single family house with a backyard and screen in porch doesn't seem realistic.  We do not need a 4-5 bedroom house, our current 3 bedroom townhouse has enough room.  So I am in a mental bind.

Thanks for the feedback!

**We have also thought about renovating our townhouse (if we stay long term), but that would bring zero value back in terms of equity.  We would simply be doing that to make it more our style. 
Title: Re: How much house should I afford?
Post by: theadvicist on June 20, 2017, 05:43:42 AM
If you don't need or want more space, I don't really see the rationale behind upgrading, which increases not just your mortgage, but also your maintenance cost, and overall hassle level (cleaning, furnishing etc).

Is it that you want more privacy? A yard? Surely there is somewhere you can get that without a 4/5 bedroom house? If you are keen to stay in your specific community, and that option isn't available, I guess you just have to decide
1) is it worth staying in your community when they actually don't have what you want/need (ie smaller house with private grounds)?
2) if yes, how much is it worth to get a yard? $1000 a month? Really? If not...
3) if your current community is the only place you want to live I guess you're stuck with no yard.

I'm not trying to be mean. I guess you just haven't made a compelling (or any) case really about why you want to move.
Title: Re: How much house should I afford?
Post by: tsmith321 on June 20, 2017, 06:09:14 AM
I completely agree with you, and its the same conclusion I have been coming up with myself.  On a side note by my parents and mother-in law own properties (single family homes) in our community.  We have discussed the possibility to buying either one of their homes way down the road (10-15 years at least).  Both of them have 3 bedroom homes oddly enough.  If and when they are ready to move we would get first option at it.

So I guess its good to have choices.
Title: Re: How much house should I afford?
Post by: Rufus.T.Firefly on June 20, 2017, 06:47:19 AM
My wife and I have similar financial metrics to yours (income, house value, etc). When we bought our house last year, I personally didn't want a house payment more than $900/month. I settled for ~$930/month, cringing all the way.

I think what is "affordable" is the wrong perspective. With your income, you can certainly swing a larger house payment. But the goal is to optimize your housing expenses - getting the most bang for the least buck. Keep in mind that a bigger house comes with other expenses too. More insurance, taxes, repairs, utilities, etc.

It sounds like your current home meets all of your needs and then some...because of this, I would lean away from the upgrade. I think it's easy to get dissatisfied with your current living situation when you are actively searching for a house. My recommendation - put away Zillow, Redfin, and the rest of the house-for-sale sites for a month. After giving yourself a mental break, see if that changes your perspective with your living situation.
Title: Re: How much house should I afford?
Post by: former player on June 20, 2017, 07:41:52 AM
I'm not really clear on your figures.  Current home value $260k, equity $90k.  Why are you still in PMI?  If you do buy a new house, you need to avoid PMI, so the size of deposit available to you could be a limiting factor.

Renovations on a townhouse would cost $90K?  Really?  Just to change the "style"?

Apart from those questions, it sounds to me as though you have things pretty dialed down: good income, settled life plan, like your community, close to family.  The one thing not settled is the home: your current home is not in your style and doesn't have outside space and that has left you and your wife uncertain.  I suspect that you are not going to get happier with your current home over time, and as it seems to be the one thing left to optimise your happiness (unless of course you are projecting other issues onto your home) I'd tend to say no harm in keeping an eye out for something that would suit you both better.  Life it too short to spend it in a home that isn't what you really want, when you have other options.
Title: Re: How much house should I afford?
Post by: RangerOne on June 20, 2017, 10:54:22 AM
Avg PMI I have been quoted for 30 year mortgage on a $400k loan has been about $98. Assuming around 10-15% down conforming loan. The PMI penalty seems pretty small on this size loan.

The only super punishing PMI is the nasty one tacked on with FHA's. Those are a kick in the teeth. I would wager a guess that is an FHA based PMI?
Title: Re: How much house should I afford?
Post by: tsmith321 on June 20, 2017, 11:06:53 AM
With my PMI, we have to wait until October to have it off the mortgage.  We have enough equity, in our house right now, but it is a stipulation in our mortgage with Wells Fargo. 

Mortgage loan 215k
Current balance: 165k

Could sell our house right now for 260k.

I might not have explained that correctly in my OP.
Title: Re: How much house should I afford?
Post by: Cwadda on June 21, 2017, 06:54:21 AM
What's wrong with your current house now?
Title: Re: How much house should I afford?
Post by: tsmith321 on June 22, 2017, 06:25:16 AM
We are wanting a bsckyard. and put a stop of the constant change of neighbors...i know...i know, not very mustaschian of me
Title: Re: How much house should I afford?
Post by: Cwadda on June 22, 2017, 07:08:10 AM
Ok, so buy a house with a backyard in a different neighborhood. Are you planning on having kids? You only need a 2 bedroom.

Sure, you could buy a McMansion for $450k but if you want to retire early, it'll only hurt you.

Edit: Sorry, a little personal bias coming into play. I always cringe a little when I see "how much house can I afford" vs. "how much house do I actually need".
Title: Re: How much house should I afford?
Post by: Beach_Stache on June 24, 2017, 05:33:46 AM
The neighbors situation is really the only valid reason I see to buying a single family home.  If you never plan on having kids though and you don't have huge family gatherings and multiple people staying with you all the time then that is really the only reason.  With a single family house your taxes, insurance, mortgage will all go up, so will the rest of the utilities and expenses and the yardwork never stops.  If you enjoy yardwork (sometimes I do) then go for it, but I spend about 1-2 hours/week doing it and it does become a hassle.  You also have more to clean and maintain and furnish.  I certainly understand not wanting to be around neighbors all the time, especially if they are noisy, but could you just get some better insulation in the walls or that quiet sheet rock to create a sound barrier?  Townhouses are easy, not much work to do, hopefully no condo fees, if you have enough space are only spending 10-15% of your salary (as compared to the 28% that the bank will tell you you need to spend) then why don't you just start paying down your house faster, refinance to a 10 or 15 year and become financially independent earlier?  If you have both sets of family in the area then you have large places for family gatherings.  I don't see any reason to own a big house with much more space than you need unless you plan on having many kids.  I lived in a 2 bedroom condo (with a loft - where we stayed) with the Mrs. and 2 kids for a few years, we only moved to a single family home when we moved to a lower cost location, but if we stayed in the same area I would have been pushing to stay in that condo.  The maintenance was minimal and we could enjoy more of life rather than having to mow the lawn and trim the hedges. I live in a house, I love not having neighbors that I share a wall with, but I also used to share walls and the maintenance was much less and allowed more time to do other stuff.  We were lucky enough to move to an area where the mortgage on my house is less than the mortgage on the condo, so it worked out, but if kids are never in your future, if your neighbors aren't out of the movie "the neighbors" then I would stay put for a while and work on your investments and paying down the house, or re-finance if you can get a lower rate and pay it down even faster.