Buy a new house or keep this one?

The wife and I continue to go back and forth on buying another house.

We have a small (1100sq ft) 3 bed, 1 bath, 2 car garage home we purchased 3.5 years ago for $99k, on a 30 year note at 5.675 (we've thought about refinancing, but if we aren't going to stay, no point in spending that money).

It's a very cheap payment vs our monthly take home pay. However, we could easily afford a $200-225k house in our area and just be touching 25% of take home on the house payment and I would still be putting 30% in savings/401k.

With that kind of scratch, we could buy a nicely remodeled older home in a good neighborhood, or build a new 2000sq ft 4bed, 2 bath, 3 car garage home with a PROPER kitchen. My wife cooks a lot, really enjoys it, and our current kitchen is TINY. House was built in 1974.

The wife really wants a real kitchen, I want to be able to park all 3 of cars inside. And of course, setting up the house how we want, with flooring, cabinets, etc just how we want them is appealing.

So we could refinance our current house to a 10 year note, pay what we would on ~$210k home, and pay our current house off in roughly 7 years.

Or sell our house, likely break even, buy a house we REALLY want and just pay it off by the time we retire.

Obviously the "smart" thing to do, is pay off the current house, then buy our "forever" home, and keep this as a rental, or bank the sales money, put it in to the new house, buy a used Ferrari, whatever.

But we both would like to be in something with more room and the features we want. And could do so without affecting our current lifestyle.

What does GRM think?

Going through a letter for letter similar problem, different price points but really the same problem. Short answer; to our current house does not meet our needs, but yes it is cheap. But I cannot keep building cars and my wife needs a bigger kitchen and garden.

As long as you keep your back-end ration under 30%, and you have a good solid job with the possibility of other work in the area if you so choose then I see no problem with moving.

We were looking at paying cash for our current home and both of us going back to consulting 10-15 hours a week if we stayed. I think eventually both my wife and I will get tired of the larger home, which will be 60-80% paid off up front and we will sell it and move to a much smaller place, pay in cash and just checkout of the work world in our late 50's.

What can you afford on one salary spending 30%?

z31maniac wrote: Obviously the "smart" thing to do, is pay off the current house, then buy our "forever" home, and keep this as a rental, or bank the sales money, put it in to the new house, buy a used Ferrari, whatever.

Why is that "smart"?

Sounds to me like you are perfectly capable of affording the house you want. Just buy wisely, and you'll have the same appreciation in the new house that you could have in the old one after 10 years of misery.

wearymicrobe, yes, we would stay ~25% net. My current job looks very solid well into the forseeable future. And our parent company (Dover) is investing more in us all the time.

Datsun310Guy, our current house. And that's why we originally purchased it, was so if something happened to either of our incomes, we wouldn't have to worry about losing the house.

I know anything can happen, but my job is stable and my wife is self-employed with a stable and growing income as well.

Datsun1500, yes. In fact, we are having the bathroom remodeled when we go on vacation in April. But adding sq ft or a 2nd bathroom is PRICEY, and there is no way to get an extra garage space on our current lot.

Remodeling the kitchen to any larger space means making the "breakfast nook" or living area smaller. Spending $15-20k on kitchen remodel in a neighborhood of $85-120k houses...........doesn't seem like a good idea.

SVreX, from a financial standpoint, I mean, not necessarily a happiness standpoint. If we stayed, refinanced and paid extra, we could have the house paid off by the time I'm 38. If we bought another house, it would be paid off at ~55 with substantial money spent on interest to the bank.

Money that we could save, invest, take more or more exotic vacations on, etc. So that's what we are trying to determine, what will make us happier? Nicer/new house that we really love, or a nice, small house, but more money in our pocket.

Also one reason I'm considering it is just how cheap money is right now. I know when we applied for refinancing ~1 year ago (off the mark by a few thousand and didn't want to pull money out of savings for the fees) we were approved at a 2.875 rate for a 15. So conceivably, we could do even a touch better on a 10 year loan.

My wife and I and our four kids live in a 1400 square foot 3 bedroom 1 bath house. Going by income we could afford one about ten times what we paid for this, which is what a lot of her coworkers live in. People always ask us what happens when in-laws come visit, where do they sleep? They sleep in our bed and we sleep on the floor. People think we're insane and should buy a bigger house so we can have a guest bedroom. On a busy year we have guests 10-15 days a year. There is no way we could move into a bigger house and not end up spending an extra $1000 a month considering this one is paid off. Basically it would cost us $1000 per night to not sleep on the floor. For us it's not worth it.
Figure out how much extra it's going to cost you in insurance/taxes/interest and divide that by 365. An extra $1000 a month over what you pay now would be about $33 a day. You can afford it, but is it worth $33 a day to you? If it is, then go for it.

That's an interesting way to think about it!

Hmmm, works out to about $20 a day for what we are willing to pay on a new place........

I meant financially.

You are not including any appreciation. House values are down right now. If you buy smart, it is reasonable to assume it will appreciate.

If your $100K house appreciates at a modest rate of 2% per year, you will have about $122K in equity in 10 years.

But if your $200K house appreciates by the same 2% per year (and you make the same $100K in payments), you will have about $144K in equity.

However, it could be more. The $200K house is probably discounted right now to $180K (markets are down), but is also likely to be more desirable than your basic starter home to the buyers in your area 10 years from now. That could likely equate to an appreciation rate at a higher percentage than the lower priced home.

That's a complicated way of saying that starter homes are not currently discounted by as large a percentage as move-up houses, and that move-up houses will likely increase by a higher percentage in the 10 year window. Its a good time to sell a starter house, and a good time to buy a move-up house.

Yes, you will pay more interest and taxes. But remember, rates are really low right now, and you will recoupe 1/3 or so of the amount paid (depending on your tax bracket) when you claim the tax deduction.

If you sell the small house in 10 years and buy the big one, you will still be trying to finance $122K of the big one, so there is no difference long term.

Please understand, I don't recommend anyone count on appreciation. But even so, in your case it is a likely scenario.

I think you would come out ahead financially. But even if you didn't, there is the "10 years of misery" thing.

mazdeuce wrote: My wife and I and our four kids live in a 1400 square foot 3 bedroom 1 bath house. Going by income we could afford one about ten times what we paid for this, which is what a lot of her coworkers live in. People always ask us what happens when in-laws come visit, where do they sleep? They sleep in our bed and we sleep on the floor. People think we're insane and should buy a bigger house so we can have a guest bedroom. On a busy year we have guests 10-15 days a year. There is no way we could move into a bigger house and not end up spending an extra $1000 a month considering this one is paid off. Basically it would cost us $1000 per night to not sleep on the floor. For us it's not worth it. Figure out how much extra it's going to cost you in insurance/taxes/interest and divide that by 365. An extra $1000 a month over what you pay now would be about $33 a day. You can afford it, but is it worth $33 a day to you? If it is, then go for it.

You are doing things the smart way imo. I use to think a big house was a sign of financial success. Now I see them as a white elephant and overindulgence in many cases. I prefer to do more with less but thats just me. Not that you are, but I can't stand the keep up with the Jones' philosophy. People who think the housing market will bounce back to what it was pre '08 are sadly misled. They will never be the golden investment eggs they were then. Don't forget about monthly utilities, property taxes, insurance,, etc. The bigger and newer the home, the more those costs typically go up.

Not trying to talk you out of the newer place, just make sure its done within a reasonable expense range that you can afford in this roller coaster economy.

My thinking:

Comes down to this. If you stay in the less expensive house, will you either save the difference or pay off the loan aggressively? If not, there's something to be said for the "forced savings" going into a more expensive house. But if so, I'd vote for stay where you are. It kinda, sorta looks like the real estate mess is behind us, but going out and investing in a nice house isn't on my list. I count my blessings every time I see a house sell in my neighborhood that we didn't get hit like some places. But I'm not counting chickens just yet.

The logic of living simply is undeniable.

However, in the first post you said:

z31maniac wrote: The wife and I continue to go back and forth on buying another house.

And:

z31maniac wrote: The wife really wants a real kitchen, I want to be able to park all 3 of cars inside.

And:

z31maniac wrote: But we both would like to be in something with more room and the features we want. And could do so without affecting our current lifestyle.

You also called the house "small" (not quaint, lovely, or charming), and said that the kitchen was unacceptably TINY.

AND, you said you could afford TWICE the house and still keep it under 25% of your income (30-36% is recommended), WHILE continuing to save 30%.

You AREN'T EVEN CLOSE to having a balanced approach to this.

I applaud living simply. I do it all the time. But you are making sacrifices that are beyond what you are comfortable with while bankrolling huge amounts of cash.

You could spend the next 10 years dreaming of the house you wish you had, and the next 30 living with the regret of it.

What if you never get the opportunity to enjoy any of that cash?

Live now. Give yourself a little freedom to enjoy things.

I speak from experience. I did it the "cheap" way (or "smart", whatever). I wish I had made the choice to enjoy life a little more when I was your age. I am not suggesting going crazy. I am suggesting being a little more free.

You are richly blessed to be in the position you are in. Don't miss it.

Would you lose money on the sale of your current house? If the answer is "no", or close to it, then go buy the garag--I meant house--that you want. What is the point of making money if you don't enjoy it? Being thrifty is wonderful, but don't forget the point of working.

Datsun1500 wrote: Can you remodel the existing one?

This is what we did, twice! When we got the urge to have a bigger house we ended up putting an addition on the house.

Why? We love the location and we had paid off the mortgage a few years before each addition. So we ended up remortgaging for 30K to build additions twice.

Financially it made sense also. We purchased the house in 1976 for 42K. Add the two additions and we have 104K then add another 20K for other things(kitchen, etc). So we have ~125K in a house that is now valued at 275K.

You said you have a 2 car garage now. Can you expand it? A friend of mine had a 2 car attached to the end of his house with the doors facing the front. He put a 25' addition on the back of the garage to make a 4 car out of it.

z31maniac wrote: Datsun1500, yes. In fact, we are having the bathroom remodeled when we go on vacation in April. But adding sq ft or a 2nd bathroom is PRICEY, and there is no way to get an extra garage space on our current lot. Remodeling the kitchen to any larger space means making the "breakfast nook" or living area smaller. Spending $15-20k on kitchen remodel in a neighborhood of $85-120k houses...........doesn't seem like a good idea.

These are what would drive my decision. To 'invest' ~$145k ($99k purchase + 20k garage + $25k kitchen and bath) means that in effect you would be spending $25k over the most expensive house in the neighborhood. It's not a good idea to have the most expensive house in the neighborhood. You would not make back your investment at sale time.

Were it me, I'd take that same money and go look in a neighborhood of $145k houses.

Now, if you were in Hal's shoes it makes sense to remodel.

^^^^^ what he said. IF you can sell your house without taking a beating.

Someone here said mortgages requirements are going to change significantly next year. Right now mortgages rates are low and prices of homes are depressed. While you may have no problem getting a mortgage later on, what about the person that would be buying your house. I guess this doesn't count if you are going to keep your current house as a rental.

SVreX wrote: That's a complicated way of saying that starter homes are not currently discounted by as large a percentage as move-up houses, and that move-up houses will likely increase by a higher percentage in the 10 year window. Its a good time to sell a starter house, and a good time to buy a move-up house.

Home sales in my area would seem to agree with this. I pay attention to asking prices for houses that sell on my street. The last two that sold (generally larger than mine, but definitely "starter home" sized) were around $150K. During the height of the housing bubble, the house next to me (comparable to the other two) sold for about $180K. We paid $89K for my house 20 years ago, but it is considerably smaller on a restricted lot. Even in perfect condition with everything fixed/updated, I doubt it would be worth more than $130K.

I've considered doing a remodel and expansion (adding a 2nd floor wouldn't be too hard), but as a single guy, I don't really need the room and nor would I want to pay the additional taxes and insurance a more valuable house would likely incur.

^I think with the bathroom remodel, we'd break even after associated costs.

We'd only keep this house as rental if we stayed here long enough to pay it off, then use the income from it to help offset a newer, nicer home.

Curmudgeon, unfortunately $145k wouldn't quite get what we want.

Our ultimate neighborhodd to build in would likely cost us $250-260k, 1 acre lots, min sq ft requirements, etc. It would be "affordable" given reasonable standards, but we just don't want to spend quite THAT much.

I am in the same exact spot right now..

We have three kids.. Two of them being three year old twins.

Small 1100 sq foot main floor.. 3 bdrm 1 bath. I finished the basement.. In fact I have given the whole house a nice remodel. All new wiring, plumbing ect.. The interior of the home is by far the best on the block.

I have two acres and a rattty old pole barn (45x45) which I keep plinking away at with 'free' material and the old junk shack is really coming along pretty nicely...

While remodeling the house I kept in mind plans to expand the kitchen.. and certainly plans to expand the bedrooms, the trouble is if I spend the money to add on all that money is just something I am using for our own enjoyment instead of being able to expect any level of return.

And I run a remodeling business.

We have looked and looked.. The trouble is that we really like our spot The city may drop me a nastygram about all my junk cars every once in a while, but the neighbors never do. The schools are the only option we have in the county for any kind of decent education for the kids, and we are required to live in the county thanks to my wifes job.

I think we are going to just add on..

But dang... Now is the time to buy a house.. and ours would rent VERY easy...

One factor that some of you are not considering.

Z31maniac didn't offer staying in the current location and being content as an option.

The options were:

1- Sell it now, and buy a bigger house

2- Pay it off, then sell it in 10 years for the bigger house.

I respectfully submit, that there is no functional difference. 10 years from now he will have an asset that needs to be sold so he can go into debt for the bigger house he actually wants.

Financially, its a wash.

This is a no brainer- buy the new house.

BTW...

2000 SF is not a big house. Average house size nationwide is currently between 2400 and 2700 SF.

AND...

The kind of remodeling being discussed in this thread (kitchen addition and garage addition) will make 98% of 1100 SF houses in this country over-priced for their neighborhood.

Unless you can offer a compelling reason that THIS house in THIS neighborhood is worth it (smallest around, perfect lot, irreplaceable family home, etc), this kind of modification is a really good way to loose money, or at least make it challenging to sell the house. Might have to give those additions away to the next buyer for free eventually.

Content, maybe. We could "settle" for staying where we are, but it wouldn't be our ideal situation.

But you do nail it with adding sq ft or a crazy kitchen overhaul. Unless it was just where you wanted to stay and the hell with ROI.

The only way adding sq ft would make sense for us (a garage still couldn't happen) would be if we could add 300ish sq ft and add a bathroom with modern kitchen..........but I'd hate to think of what that would cost.

Did you call your realtor yet and select a builder?

SVrex nailed it. Sell and move today. If anything financially it will look worse in 10 years. It doesn't sound like the plan would be pay this one off and have cash for the whole value of the next one so evenutally financing will occur. Money absolutely will not be cheaper (You basically can't loan money out for less than it's available now). Overall your not going to spend more if you move today so why wait?

SVreX wrote: BTW... 2000 SF is not a big house. Average house size nationwide is currently between 2400 and 2700 SF.

This, mine is the smallest of three houses on the homestead at 2900sq ft....the biggest close to 5k. All three are pre-1910

nocones wrote: Did you call your realtor yet and select a builder? SVrex nailed it. Sell and move today. If anything financially it will look worse in 10 years. It doesn't sound like the plan would be pay this one off and have cash for the whole value of the next one so evenutally financing will occur. Money absolutely will not be cheaper (You basically can't loan money out for less than it's available now). Overall your not going to spend more if you move today so why wait?

Agreed. Sell now.

We're doing exactly this. I'm in a very small house that we love, but it's in a neighborhood that doesn't warrant any remodeling or expansion. My family is growing, and I want a bigger garage.

It's never been cheaper to make the move. As noted, loaned money is insanely cheap, and "move up" houses are priced very reasonably. I agree home prices aren't going to "recover" to their over hyped pre housing bubble collapse values, but they also arguably aren't going any lower... so there's nowhere to go but up, even if they go up slowly at an inflation like pace, you're still buying at the right spot in the curve. Given your stability, and stellar debt/income ratio, your mortgage will just get cheaper (relatively speaking) as time goes on. Yes your taxes might increase slightly, but a fixed mortgage note stays the same while your wages should at least gradually increase over the next few decades.

So, paying off your current house to build up a cash pile is not the "sound financial move" if your future move is more expensive, borrowing is at higher rates, and any money put into your current home is essentially a lost investment... not to mention 10 years of wishing you had what you could've afforded easily all along.

^You're guys input is very much appreciated, it's always good to get an outsiders perspective.

Tulsa is likely where our roots will stay. We like it here, COL is cheap, we have good jobs, etc. My wife is a hair stylist, so any move to another city/state for us means our income drops by 50% at least until she rebuilds a new clientele in a city where she doesn't know anyone.

A vaction home, in our case something up in the Grand Lake area, is something we have considered before. But I think if I'm honest with myself, it's something we would grow tired of after a few summers, of packing up 2.5 hour drive, unload, get house ready, back up, drive home, etc.

There is also a 3rd option. Refinance our house, buy a piece of land, get both paid off in ~10 year time period. THEN, build the house we want, and keep our now paid off house as a rent house to offset the additional payment from the bigger house.

I may have made us sound miserable in our current house, but it's more like annoyed. And then more annoyance comes when we know we could have more.