You say one of the things you’re concerned about in regards to not using the profits towards a down payment on another house, is how long it would take for you to save up a down payment on a moderately priced house. I’d be more concerned in the fact that it would take long for two working adults to save a down payment on a moderately priced house. That is a red flag to me that there isn’t much cash flow (which you admitted as well), and I personally wouldn’t feel comfortable buying a house, even if I had the money and the income to, until I got my cash flow to a point where I could continue saving a decent amount after the house is purchased. Sometimes people are so focused on saving up for a down payment, they forget that the struggles they have to save money, will only be amplified likely, after buying the house.
Exempting high cost of living areas, I personally would not be comfortable buying a house, assuming 20% down, if it took more than 2-3 years of diverting most of my leftover cashflow to save up the down payment. And that is on a single income.
If you and your wife saved for 20% down on a $250,000 house, over the course of 2 1/2 years, then you would each need to save about $835 per month. If you have other savings, or even some of the profit from the sale to apply towards closing costs and some of the down payment, you would have to save even less per month. Don’t get me wrong, $835 per month, per income is not chump change. But if you play your cards right, and that’s limiting the debt and expenses, and increasing income, it should be a reachable goal. I would much rather be in a position to save $1000 or more, or at least have the cash flow option to, by the time I buy a house, than to get a false sense of security in the form of a down payment boost from the sale. In my opinion the best thing about saving up for a down payment, is being able to prove to yourself that you can. That way if you run into issues, or you’re not saving as quickly as you wanted, it forces you to take a look at your finhances, and to adjust accordingly before making such a large purchase.
I understand large expenses are easier said than done to save for, but have you tried? When you finance everything like education, house, car, it not only hampers your ability to save, but it takes away the motivation to save (since you don’t have to), and the pittance flow after paying principal and interest on loan, only kills the motivation more. Saving is a habit you need to practice. If you add debt instead of challenging cashflow head on, You will be caught in the cycle of having to work to pay the debt and bills, instead of working to add to your stockpile. I don’t know about you, but I get more motivation saving hard cash, then I do paying off debt. And for me more motivation means I’m more likely to fight harder to save more money.
Summary: Pay down higher percentage debt, and apply savings from that towards the down payment for a house. Continue to challenge and reevaluate every month to increase that cash flow so you can begin to meet the monthly savings requirement needed to meet your timeline for buying the house. It will be difficult, but it’s a one-shot. Suck it up and just get it done and you don’t have to think about it for a long long time. Without the buoy of that $30k towards a down payment, you’ll need to swim harder, but you’ll get there faster and stronger.