Author Topic: Can we afford this house, or are we being dumb?  (Read 3002 times)

KelStache

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Can we afford this house, or are we being dumb?
« on: December 08, 2017, 10:07:04 PM »
Hi all,

I'll try to keep this short and sweet. Husband and I own land which we will be moving into shortly. The value is $200,000 for a lot of beautiful acres. Most of our saving and 'frugalness' have been made in order for us to make our homestead a reality.

Now, we need a place to live on this land, and have looked into many options, including modular homes, but believe that a permanent structure is best, as we plan to be here long-term and do not want it to depreciate. We are in discussions with a builder now, and after lots of comparisons can get a perfect 900sqft home all in (including septic, finishing, running electricity, rain water harvesting system, etc.) for a maximum of $200,000. So this would result in a total value of $400,000 - we have $50,000 saved for the down payment, so mortgage would be $350,000. 

Income wise I am going on maternity leave soon so will make approximately $30,000 for one year before tax, then would prefer to stay home with baby and manage the homestead (husband is supportive of this) I have a number of skills and ideas to generate money from the farm, but would not like to rely on these just in case.

Husband makes $68,000 before tax. Likely more with differentials and overtime, but again, would prefer not to rely on this.

Please be honest, is this too much mortgage for us? I'm not sure how we could manage to get a home onto the land for much cheaper. Or do I need to suck it up and work after my maternity leave is up, even part time?

Thank you for reading :)

joonifloofeefloo

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Re: Can we afford this house, or are we being dumb?
« Reply #1 on: December 08, 2017, 10:13:19 PM »
1. What are the additional costs of "owning" this? Property taxes, utilities, garbage removal, share of rural road maintenance, etc?

2. What do (and will) your other expenses total?

These are the only things that can tell you whether you can afford it :)

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #2 on: December 08, 2017, 10:22:07 PM »
1. What are the additional costs of "owning" this? Property taxes, utilities, garbage removal, share of rural road maintenance, etc?

2. What do (and will) your other expenses total?

These are the only things that can tell you whether you can afford it :)

Thanks for the questions!

1. Property tax of $3,000 per year; this should decrease drastically once we get farm status. Utilities will be electricity only, which will be a maximum of around $75 a month. We have sepctic, rain water, and wood stove heat. Since the home will be new, maintenance should be minimal, although of course we will have to set some money aside each month.

2. Currently our monthly expenses less housing are $1,400. We would hope to decrease this once we move by growing our own food, and less "stress" spending from having both of us working full time (ie. takeout, ordering groceries, etc.)

joonifloofeefloo

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Re: Can we afford this house, or are we being dumb?
« Reply #3 on: December 08, 2017, 10:40:09 PM »
Is there someone in the area (direct contact with someone in that area, Facebook group, etc) that can tell you what other costs you'll face? Actual insurance costs, etc?

Which of your expenses will go up after baby?

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #4 on: December 08, 2017, 11:01:22 PM »
Is there someone in the area (direct contact with someone in that area, Facebook group, etc) that can tell you what other costs you'll face? Actual insurance costs, etc?

Which of your expenses will go up after baby?

Yes, I have family living there now. Our property taxes cover any other expenses linked to the property itself (garbage, road maintenance, etc.) so I guess just insurance costs, which we're budgeting $100/m for, although we will get an actual quote once we make our final decision.

I know it's unrealistic to say "zero" expenses for baby, but so far we've managed to fit things into our current budget as necessary. We are getting hand me downs, buying everything used, and plan to cloth diaper and breastfeed. We are very minimalist and plan to keep it simple. Baby won't impact our health insurance expenses. I know costs will increase once they enter school and join activities and such, but I'd likely be working or making some sort of income by then. In the meantime we'd focus on free activities like the library, mom groups, etc. Luckily we have family support in the area, and I have a feeling baby will be spoiled by grandparents ;)

I forgot to mention that we do currently have almost $85,000 in investments for retirement as well.

joonifloofeefloo

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Re: Can we afford this house, or are we being dumb?
« Reply #5 on: December 08, 2017, 11:07:42 PM »
Sounds pretty good so far!

1. It's one of your top life priorities.
2. You have a solid history of financial awareness and care.
3. You have family in the area that can give you solid info on the costs of owning there.
4. You saved for it.

I'm a huge believer that babies can cost next to nothing. Like you, I did cloth, breastmilk, etc -no extra stuff like playpen, bassinet and so on. Some families have a medical need for formula and some families are positioned to have to return to work thus need child care. But without those, babies can cost basically $0. I'm with you there.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #6 on: December 08, 2017, 11:17:38 PM »
Sounds pretty good so far!

1. It's one of your top life priorities.
2. You have a solid history of financial awareness and care.
3. You have family in the area that can give you solid info on the costs of owning there.
4. You saved for it.

I'm a huge believer that babies can cost next to nothing. Like you, I did cloth, breastmilk, etc -no extra stuff like playpen, bassinet and so on. Some families have a medical need for formula and some families are positioned to have to return to work thus need child care. But without those, babies can cost basically $0. I'm with you there.

Thank you for all of your replies! It's definitely a huge priority for us, and I'm really hoping that by being conservative with regards to husband's income and my potential earnings that we'll be setting ourselves to exceed expectations. I'm just a bit worried because this is a huge expense and I know that based on my husbands income it exceeds the general advice of "30% of your  income should go to housing". Lots to think about!

Abe

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Re: Can we afford this house, or are we being dumb?
« Reply #7 on: December 09, 2017, 05:34:58 AM »
Two points Iíd like to chime in with: house maintenance costs are almost never minimal, especially with a working farm. The baby you can theoretically have a low budget for, but that is assuming a healthy child. Always hope for the best, of course, but be prepared for the worst. Even with our child being healthy we had several unanticipated expenses that are into our savings.

Jacana

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Re: Can we afford this house, or are we being dumb?
« Reply #8 on: December 09, 2017, 06:51:36 AM »
Just an FYI with the baby costs... I fully intended to cloth diaper and breastfeed both my babies. I was unable to do either. For either child. I was also unable to accept many hand-me-downs because both had eczema related to laundry detergent, and I have to use old-fashioned soap for everything and mostly cotton clothing or they get terrible eczema outbreaks. Yet another blow to the frugal/environmentally-friendly plans I had. Oh, and we've had now 3 ER visits between the two children; not cheap, even with insurance. So, in conclusion, hope for the best, plan for the worst.

My second is about to turn 1 in a week, and I kept track of her formula this time because friends had asked how much it cost. I can tell you it has been over $1500 for her first year just in formula alone, even using coupons (sign up with Enfamil or whoever to get more) and buying in bulk. Diapers I didn't track, but not cheap. To be safe, you might want to assume you will have these costs for your calculations (maybe 200 a month for diapers/formula), and then if you don't, hurray, bonus money. Oh, and grandparent spoiling is awesome :)


KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #9 on: December 09, 2017, 08:29:56 AM »
Thank you Abe and Jacana, you're both very right- hope for the best, but plan for the worst. It's great to hear first hand experience from people who have been through it!

We've already made our 'big' farm purchases (equipment), and we have a fund set aside for future farm costs- I think there is currently about $5K in there. We plan to add to this monthly by renting out an area of our land to a tiny house dweller, but of course nothing is guaranteed! I think the biggest struggle we're having is that we have all these plans but they aren't able to be guaranteed or implemented until we actually move.

You're both completely right that my baby budget is based on a healthy baby, and that may not be the case. Even the use of formula is no big deal in the grand scheme of things, but would impact the budget substantially. We're lucky enough to be in Canada with good supplementary health insurance, so hospital visits and medication costs wouldn't affect us directly, but I know there are other issues that could crop up and increase spending (needing behavioural therapy or a wheelchair for example).

Based on what I'm hearing, I think that if we want to purchase this house I need to go into it with the plan to go back to work after a year. If everything is working well (low budget and we've found additional sources of income), great, and maybe I won't go back (or go back part time, etc.). That way if things are costing more due to ANY reason, I won't be disappointed having to go back to work.

gaja

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Re: Can we afford this house, or are we being dumb?
« Reply #10 on: December 09, 2017, 09:21:32 AM »
If you already own the land - why do you need a mortgage for it?

waltworks

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Re: Can we afford this house, or are we being dumb?
« Reply #11 on: December 09, 2017, 09:35:13 AM »
I think you can afford it, albeit just barely. But keep in mind that actual construction costs rarely match up with bids/estimates, no matter how well done. They always, always, always go up.

So for the purposes of planning, I'd assume the structure will actually cost you 20-50% more than you think. You can always be pleasantly surprised if it stays under budget.

-W

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #12 on: December 09, 2017, 10:31:39 AM »
Hi Gaja, the land is currently on a line of credit, and the interest rate is slightly higher than what we would get with a mortgage. We can't get a mortgage on empty land, so once we have something on the land we can add this to the mortgage.

Thanks Waltworks. I agree, the "just barely" is what's making me nervous. The reason I said "max $200k" for the structure is that we've built in a 20% contengincy for that reason exactly. My parents recently used the same builder so we have a pretty good idea of what the contract and final values will entail.


mousebandit

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Re: Can we afford this house, or are we being dumb?
« Reply #13 on: December 09, 2017, 01:27:54 PM »
I'm a homesteader, and love it.  I would want to make sure you've factored in the costs of all the affiliated infrastructure that a homestead needs.  Septic, well, power, barns, irrigation lines (trust me, hauling water to livestock and gardens, or dealing with hundreds of feet of hoses is not pretty!), fencing and cross fencing, ponds, the list is pretty endless. 

The biggest frustration for me when we bought this homestead and set it up, has been the never ending add in costs.  Well pumps, pump houses, irrigation lines underground, spring development and constant repair, etc.  I expected to be able to hammer down on savings once we got here, since it was paid for.  Negative!  The infrastructure budget just never slows down. 

All that said, homesteading is a wonderful lifestyle for us, and we wouldn't trade it for the world.  Run your mortgage calculators to see where you're at with PITI payments, and make sure you have plenty left over to build out your infrastructure and purchase livestock and feed, plus equipment. 

Best wishes!  I'd love to follow your journal if you make the jump!

2Birds1Stone

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Re: Can we afford this house, or are we being dumb?
« Reply #14 on: December 09, 2017, 01:43:50 PM »
I just wanted to ask a clarifying question.

You say you own $200k worth of land.

The house will cost $200k to build, you will put down $50k.

Why is the mortgage $350k, if you already own the land?

FINate

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Re: Can we afford this house, or are we being dumb?
« Reply #15 on: December 09, 2017, 02:08:44 PM »
My concern with a "just barely" scenario is if your husband needs to keep working to make ends meet. Maybe I'm just a big wuss, but when our kids came along DW and I were both totally exhausted. Infants are more than a full time job. Running a farm is more than a full time job. Perhaps you're a tough as nails badass, but personally I would be worried about trying to do both if your husband is still working elsewhere.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #16 on: December 09, 2017, 02:28:55 PM »
I'm a homesteader, and love it.  I would want to make sure you've factored in the costs of all the affiliated infrastructure that a homestead needs.  Septic, well, power, barns, irrigation lines (trust me, hauling water to livestock and gardens, or dealing with hundreds of feet of hoses is not pretty!), fencing and cross fencing, ponds, the list is pretty endless. 

The biggest frustration for me when we bought this homestead and set it up, has been the never ending add in costs.  Well pumps, pump houses, irrigation lines underground, spring development and constant repair, etc.  I expected to be able to hammer down on savings once we got here, since it was paid for.  Negative!  The infrastructure budget just never slows down. 

All that said, homesteading is a wonderful lifestyle for us, and we wouldn't trade it for the world.  Run your mortgage calculators to see where you're at with PITI payments, and make sure you have plenty left over to build out your infrastructure and purchase livestock and feed, plus equipment. 

Best wishes!  I'd love to follow your journal if you make the jump!

Awesome to hear from a homesteader, and thanks for the reality check. Yes, my husband and I both grew up in the country and I'd like to think we're taking into account most expenses. Septic and power are included in our costs (we have actuakly spoken to the contractors and have solid prices on these), for water we are doing rainwater catchment, and have already spoken with that company as well.
We aren't planning on having any animals, so that helps a little bit with set up costs. For irrigation, ponds, etc. that will come out of our 'farm fund', but we may have to develop everything slowly so that we can keep up with costs.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #17 on: December 09, 2017, 02:30:10 PM »
I just wanted to ask a clarifying question.

You say you own $200k worth of land.

The house will cost $200k to build, you will put down $50k.

Why is the mortgage $350k, if you already own the land?

The land is on a line of credit currently, for $200,000 and will be transferred to the mortgage once the house is built since we can't get a mortgage on raw land.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #18 on: December 09, 2017, 02:36:59 PM »
My concern with a "just barely" scenario is if your husband needs to keep working to make ends meet. Maybe I'm just a big wuss, but when our kids came along DW and I were both totally exhausted. Infants are more than a full time job. Running a farm is more than a full time job. Perhaps you're a tough as nails badass, but personally I would be worried about trying to do both if your husband is still working elsewhere.

Yes we've definitely had this conversation. My husband is very passionate about his job, and basically has to be full time regardless of our financial situation due to the realities of his career. His shifts are 12 hours, so he usually works 3 days per week (long days, but it is nice that he gets so many days off).
We definitely realize that we'll have to start small with the homesteading, which is why I don't want to take any farm income into account for our calculations. I never mentioned this, but my parents are semi retired, and retiring fully soon. They will be involved in the farm and associated businesses/income as well, so we do have some support there which is great.

We also will not have any animals on the farm; our focus is fruit, specialty produce, and other veggies/herbs.

Fishindude

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Re: Can we afford this house, or are we being dumb?
« Reply #19 on: December 12, 2017, 07:54:15 AM »
That's more debt than I would want with the income you indicate.
Something that I have seen work very well in these scenarios is to build an economical pole barn first (you will need one anyway), then partition off part of it into a finished apartment where you can live until you can build the house with cash or with a very minimal mortgage.

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #20 on: December 12, 2017, 11:49:05 AM »
That's more debt than I would want with the income you indicate.
Something that I have seen work very well in these scenarios is to build an economical pole barn first (you will need one anyway), then partition off part of it into a finished apartment where you can live until you can build the house with cash or with a very minimal mortgage.

Yes I think youíre right- itís a little too close for comfort. Iíll be making $30,000 in maternity leave pay for one year, so year 1 should be no problem. I think that will give us some time to see what our actual budget looks like, and how husbandís income looks with differentials and overtime. Then, I can go back to work (likely part time), to help give us a bigger comfort zone.

We did look into a similar idea (garage with apartment on top), but it was going to be almost the same price as just building the house itself. The only real way to start small is either to build it ourself illegally (as lots the expense is in the permits, electric hookup, septic, etc.) or to live in an RV. Weíve considered both, Iím just not sure it makes the most sense.

Thanks for your reply, everyone had really got me thinking about our options and the realities of the situation.

backyardfeast

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Re: Can we afford this house, or are we being dumb?
« Reply #21 on: December 12, 2017, 01:52:35 PM »
Kelstache, I'm so excited for you. 

We just went through a long process of trying to buy land, then do a major home renovation, and now are beginning to look at building the farm.

You've got some great advice here, but most importantly, it doesn't sound like anything that's been raised is something you haven't thought of.  You have a strong financial and family base; you are planning to go slow; husband is happy working; you have the *option* of going back to work.

The financial picture is tight, but not impossible.  Personally, I would say go ahead, because it's the dream and if you are planning to be there a long time, and if husband and farm income can both go up over time, this should be the most challenging time.  If you can get through these next years intact, life should get easier and this will have been a solid plan.

I would think and plan carefully though about back-up plans.  We did this extensively and it helps me sleep at night!

*make sure you have lots of life insurance for DH as sole breadwinner
*make sure you can afford all of your costs to live if the farm doesn't get up and running (ie you have to buy all your food, pay for heat, etc.  We're having to do all of these things right now as it takes time to get other systems up and running)
*make sure your home will have reasonable resale value.  IE don't make it SO personal that it will be difficult to sell or too expensive for your area. 

Your biggest back-up plan if you decide you can't or don't want to make a go of this will be to sell.  What you're taking on is a LOT, even going slow.  If one of you gets sick, or you end up with more children or a special needs child, or just burn out, or something else comes up that becomes a bigger priority than farming, you may need to move sooner than expected (I have seen all of these happen to young farmers in my area).  Make sure that what you're putting most of your money into remains an *asset* financially.

*have ample funds for farm infrastructure and set up.  Know the labour costs in your area for renting excavators, building fencing, etc.  $5000/year is ample for setting up gardens and maybe a greenhouse.  Fencing our two acres alone will cost $5000 for us to do and would cost $15000 to hire someone else.  Many things can be done cheaply or for free in the short term (as I'm sure you know), but cheap and free falls apart and has maintenance costs and the short term comes to an end at some point.  I would encourage you to create a farm plan that envisions what you want to do, the time and labour involved, the costs, and how LONG it will take to implement, realistically.  This includes working toward farm status.  Time becomes a limiting factor very quickly, IME, and then money becomes an issue.

It sounds like you are on top of all of these things and moving cautiously.  With that attitude, the odds are in your favour, and it's likely worth the risk.  But back-up plans are really important.

On an aside, I'm curious about your decision not to keep animals.  I get not wanting to take care of more creatures with baby on the way! :)  But animals are often far more profitable, less time/labour-intensive, and create a faster path to farm status out here.  Annual crops are serious labour for lower pay, often.  Just curious! :)

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #22 on: December 12, 2017, 04:05:55 PM »
Kelstache, I'm so excited for you. 

We just went through a long process of trying to buy land, then do a major home renovation, and now are beginning to look at building the farm.

You've got some great advice here, but most importantly, it doesn't sound like anything that's been raised is something you haven't thought of.  You have a strong financial and family base; you are planning to go slow; husband is happy working; you have the *option* of going back to work.

The financial picture is tight, but not impossible.  Personally, I would say go ahead, because it's the dream and if you are planning to be there a long time, and if husband and farm income can both go up over time, this should be the most challenging time.  If you can get through these next years intact, life should get easier and this will have been a solid plan.

I would think and plan carefully though about back-up plans.  We did this extensively and it helps me sleep at night!

*make sure you have lots of life insurance for DH as sole breadwinner
*make sure you can afford all of your costs to live if the farm doesn't get up and running (ie you have to buy all your food, pay for heat, etc.  We're having to do all of these things right now as it takes time to get other systems up and running)
*make sure your home will have reasonable resale value.  IE don't make it SO personal that it will be difficult to sell or too expensive for your area. 

Your biggest back-up plan if you decide you can't or don't want to make a go of this will be to sell.  What you're taking on is a LOT, even going slow.  If one of you gets sick, or you end up with more children or a special needs child, or just burn out, or something else comes up that becomes a bigger priority than farming, you may need to move sooner than expected (I have seen all of these happen to young farmers in my area).  Make sure that what you're putting most of your money into remains an *asset* financially.

*have ample funds for farm infrastructure and set up.  Know the labour costs in your area for renting excavators, building fencing, etc.  $5000/year is ample for setting up gardens and maybe a greenhouse.  Fencing our two acres alone will cost $5000 for us to do and would cost $15000 to hire someone else.  Many things can be done cheaply or for free in the short term (as I'm sure you know), but cheap and free falls apart and has maintenance costs and the short term comes to an end at some point.  I would encourage you to create a farm plan that envisions what you want to do, the time and labour involved, the costs, and how LONG it will take to implement, realistically.  This includes working toward farm status.  Time becomes a limiting factor very quickly, IME, and then money becomes an issue.

It sounds like you are on top of all of these things and moving cautiously.  With that attitude, the odds are in your favour, and it's likely worth the risk.  But back-up plans are really important.

On an aside, I'm curious about your decision not to keep animals.  I get not wanting to take care of more creatures with baby on the way! :)  But animals are often far more profitable, less time/labour-intensive, and create a faster path to farm status out here.  Annual crops are serious labour for lower pay, often.  Just curious! :)

Thank you so much for this supportive message! I will definitely follow along with your journey as well :)

It's definitely our dream and long-term vision, which is why we're considering living 'closer to the line' than we normally would.  You're right that husband's income and farm income should go up over time, so the first years would be the tightest.

Re. backup plans this is definitely a good thing for husband and I to sit down and discuss. We can write out all of the various scenarios, and hopefully that would make both of us more comfortable.
-Thank you for the reminder regarding life insurance - that's definitely high on the to-do list!
-Yes, right not we're doing all of our math based on husband working only; obviously this leaves some wiggle room for once the farm starts generating income, and any potential income I might earn.
-Thanks for the feedback regarding the house plans - something important to keep in mind. We want this to be our *forever home* but we need to be prepared for anything!

Regarding animals, the main reason is that my husband and I are vegan, so we're not super comfortable raising animals for food (we both grew up on farms / acreages, so have had first hand experience with what this entails).  I know they can be a good source of revenue, especially starting off, but we're being a bit idealistic :) We're also a little wary of the start-up costs of raising animals, as well as the restraints it places on potential travel during the winter (my husband can do very well-paid 4 month travel contracts with his job, so we may want to pursue this during winters in the more distant future).

Thank again for your insights!

joonifloofeefloo

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Re: Can we afford this house, or are we being dumb?
« Reply #23 on: December 12, 2017, 04:35:52 PM »
+ disability insurance to replace each of your income :)

KelStache

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Re: Can we afford this house, or are we being dumb?
« Reply #24 on: December 12, 2017, 08:20:37 PM »
+ disability insurance to replace each of your income :)

Yes thank you! This is all new to us since until now we've been living very cheaply on two incomes, and either income could have easily supported us both.

Lmoot

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Re: Can we afford this house, or are we being dumb?
« Reply #25 on: December 13, 2017, 06:34:22 PM »
Have you been preapproved for the $200,000 mortgage? It seems like a lot of debt total to take on, going by your plans. If the bank does or has approved this amount, is it based on you and your husband's income together? If so, I'd be wary about applying for a loan based on income I no longer plan on receiving in the near future. I guess you could always continue to work after the baby is born, if need be. It wouldn't fit with your plans, but it may be the only way you can afford this. Good luck and congrats!

canuckystan

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Re: Can we afford this house, or are we being dumb?
« Reply #26 on: February 14, 2018, 08:27:49 AM »
A mortgage of 5X salary is never worth doing.  My wife and I have been indebted like that and also mortgage-free.  I can assure you the stress of that size mortgage is not worth it, and you can't predict big life expenses that just seem to materialize out of nowhere.  Aim for a mortgage of 2X salary and have a fun life.