When hubby and I bought our home, it was to be a true starter home (small 3 bed, 2 bath ranch.) Of course thanks to greed and stupidity of others, the housing market is terrible in Chicago for sellers. Buyers have it made, so made, in fact, that I am contemplating trying to figure out if we could just rent our current home (there are other rentals on our block, we'd be able to do it, and break even) and buy ourselves a bigger home.
Hubby and I had decided to just stay put and horde money until we see where things are heading, but now that I am pregnant, I'm torn. Our plan was to either do a big addition or to move in 3-4 year time. But since properties are so discounted, I'm wondering if we shouldn't at least take a look at what is out there and figure out the logistics to see if it's truly possible. We have excellent credit, some money in saving (not a lot, but some). Hubby has a very secure job, so there are no worries about us losing our shirts.
Our ARM is just to adjust down next month, so in some ways we are better off waiting another year. We'd then have a lot more money.
I guess I'm a bit hesitant about "upsizing." Right now we don't worry about money. Our current mortgage is a lot less than we can afford, so we have lots of breathing room. This is a good thing since my In-laws are in Ireland and we have to go visit them every few years, at the cost of 1k per ticket, and another 1k for a car rental (which will go to 2k with a third child). So a visit home to see the folks literally costs us thousands upon thousands of dollars!
We are a weird mixture of financially conservative and liberal. Our 401k is very aggressive, but we live frugally and watch (almost) every penny. The frugal part of me thinks that staying put is smarter, but we could literally pick up a great deal (a 600k house for close to 400k).
What would you do?
Also, we need a bigger house, we just do. I am going to home-school, and I need space for the kids to do projects. Right now we have a galley kitchen with a very cramped eating area. We have a nice basement, but we need more space, especially as the kids get older.
Refinancing our Arm would cost us money at this point, since we Will get a lower rate by letting it adjust down.
I've spent all morning thinking about this and I am going to propose to hubby that we see if we need 20% down to take on a second mortgage, and I think we shoud pull back on retirement savings. We put aside tons of money, and we are safely on track, but we need a bigger house. I think we'd be better off buying a house in this market, and not waiting it out. So we will wait a year, but I think we need to really position ourselves to be able to rent and buy within a years time. If we decide to then stay put and do a build, we will then have a large chunk to put towards that.
You will have to qualify for two mortgages and they will want to see that you have enough in reserves to cover 6 months mortgage payments on both houses.
One thing I know from being a landlady for a while is that you have to factor all kinds of problems into your budget.
* Expect the house to be vacant for at least 1 month per year, so you'll be covering both mortgages that month.
* Figure out what houses rent for in your area -- it may or may not be equal to your monthly mortgage payment.
* Figure out a realistic budget for repairs (more than you'd spend if you were living there.)
*What about utilities? Will you be paying those, or the tenant? Most landlords pay at least the water bill, since the city can put a lien on your house for nonpayment.
* What about yard work? Will you do that? Ask the tenant to do it? Hire a service? (I personally did it myself, which worked really well, since it was a discrete way I could keep an eye on the property w/o disturbing my tenants or invading their privacy, but that's not for everyone.)
* Factor in a small cleaning budget -- tenants -- even good tenants -- almost never leave a residence ready to show to the next tenants.
* Worst-case scenario, if you have to evict someone, can you afford a lawyer? You'll need one. You should also have a lawyer on-hand in the event that a tenant sues you for some kind of house-related injury.
* Now, the clincher is: What if all these things happen at once? Tenant breaks lease or you need to evict. Place is a mess and in serious need of repairs. Do you have enough elasticity in your budget to handle all that? If so, great. It really can be a good option. But don't let problems take you unawares.
Quality people figure they can always rent their home. They figure the renters will take care of their home AND pay their rent on time. After all, that's what the home owner always does, right?
I have had lots of rental property as investments and had stocks in the stock market. The average renter, from my experience, will pay the rent after they have all their critical bills paid. And AFTER their creature comforts are taken care of. example:, they will buy several cases of beer and a large number of ribeyes so they can have the friends over rather than scrimp and save (and not entertain) and have hamburgers and pay their rent.
I have had much better success with good dividend stocks paying their dividends on time.
Good luck to you and yours.
Wait till you have the baby and decide after things settle down. Bigger houses come with more work, more property taxes, new neighbors, more yard work, etc.
If you rent your current home, that comes with a lot of headaches too. Renters don't pay, they ruin things and you get calls in the middle of the night.
You may be better off in a small space but happy.
As others have stated, you just NEVER know. Life presents obstacles you can never be truly prepared for. (I found myself moving cross country to care for my terminally ill mother at age 28. Found myself unemployed from a secure job at 8 months pregnant after buying a house 40 miles from the city (but close to the place I worked at.)
You don't mention how many kiddos you have. A 3 bedroom/2 bath WITH a basement sounds do-able. You have the space to do an addition?? Bonus.
Let me throw out some questions for you.
Do you really want the stress of shopping, inspecting, packing, unpacking, and getting a new place ready for your family WHILE pregnant or with a newborn???
Do you want to use up all your savings, and pay more for a house?
Do you want to deal with people renting your home? Making changes? Possibly tearing things up?
And, most mortgage companies require more for a down payment then they did before. There is no more 0 down payment (part of the bubble crisis). AND, they won'd consider the rent for the first mortgage to be considered income. You will have to show you can afford 2 mortgages.
Can you afford 2 mortgages if things go south? Without the savings you have?
Lastly, imagine changing (organizing) every room you have for your family to fit your family's lifestyle, before you can even fine tune it for the changes you naturally have (babies, kids getting older, homeschooling,etc.) (I've moved more than I like!)
Just throwing that out there. I would personally stay and feel very comfortable with my financial situation. Our life changes have made me realize how important that really is. Good luck mama!
You are one of the rare few families out there that have excellent credit, a little savings and lots of breathing room. In this uncertain economy and so many what ifs, I would leave well enough alone and continue to live frugally. We had a plan once. My husband & I had great jobs, a small affordable home and a small savings. We were married four years and decided to start a family. Our daughter was born with medical problems, much of which was not covered under insurance. 18 years and 12 operations later, we are in debt and living paycheck to paycheck and have no retirement. We have a strong marriage and take the time to laugh every day but it has been a tough journey. Plans change and you just never know what the future holds. You are doing an amazing job. Make the most of the space you have and declutter and reorganize but save those pennies for a rainy day. I would revisit this each year and see what's going on in the economy and consult with a financial advisor. Renting your home and becoming a landlord is a lot of work and can be a huge headache. Do you know how many people out there thought they had a "secure" job and they are waiting on the unemployment line? Nothing is secure - follow your conservative, frugal instincts here. Just being real.
I can't say what you 'should' do. I CAN say (after looking at tax records for 200 years)... That aproximatly every 10-15 years house prices DOUBLE. Like what 'just' happened.
Here's the pattern.
Double (bubble)
Dip/Slump for 2-3 years
Start to rise up for 1-2 years
Hold steady for 10 years
Double
Dip
Hold
Double
Dip
Hold
Double
The only MAJOR variants in this are
- Civil War
- Great Depression
MINOR variants include
- Other wars (Spanish, WWI, WWII, Korea, Vietnam,
- Influenza Pandemic
- Automobile in general use
- Airplanes in general use
The minor variants nudge things about 12-18mo
The major variants a couple of years.
Certain areas boom and go metro
Certain areas waste and die
But in GENERAL... We're in the predicted slow rise (following a dip) before things normalize... And then in 10 years, houses will double again. So 2021-2024 I'd the pattern holds as it has, and no major variant comes along.
**** PURE SPECULATION***** The cold war helped keep prices down / Americsn Suburb Dream going. Im beginning to suspect we may enter into another 'down' period with what's going on with Syria right now, but I could be entirely wrong, and it could go hot, not cold... Or we may hit another 'race' with the middle east instead of the USSR. That the US is using mercenaries now, is the wild card. I don't know how mercenaries are going to affect the housing market.
In GENERAL though... We're about midway, a little less, in the 10-15 year cycle. House prices should go up a smidge, then hold strong for a good period. It will be a little while before they double again. Which means its all about upgrading (adding on, etc), or waiting it out, in order to see a real profit.
Don't know if that helps with your decision or not, but it's good info to have. Moving all the time, this was my 2nd Double, and had I been born a year earlier, my 3rd. But this is all in the property tax public records.
We chose to stay. We can more than afford our house, its maintenance/taxes/assorted expenses/insurance and our bills. In the end having the finanacial breathing room was worth the tradeoffs associated with staying. A bigger house is more cost all around and we couldn't swallow that. Lately we have begun going through our house and rethinking space and its use - build vertical, purge, organize, etc. I had relatives who raised five kids in 1000 square feet/1 bathroom. It can be done and they were a happy bunch in spite of being cramped.
Have you all discussed renting your house while also renting a larger house (with the larger payment) for a year to see if 1. you really want/need the space (more sqft, more cleaningLOL) 2. if financially it makes sense to hold on to a house, buy another and see if your lifestyle is affected.
It seems crazy, but my husband and I actually talked about doing this as a "test."
Good luck!
We were in the same boat, except we had this dilemma when the price of houses went thru the roof. We bought our 2 bed 2 bath and paid 175. We did some updating and remodeled the kitchen. When baby number 2 was coming along, prices we're crazy! 3 bedroom houses were going for 275 and needed to be completely updated! At that point it was cheaper for us to do an addition. We love all of our neighbors. We know 95% of them by name. We now have a 5 bed 4 bath house, and we are very happy.
Not sure about doing an addition now. Do a lot of research. You need to make sure that any addition you do will appraise out in the end. If you add bedrooms and bathrooms, make sure your area can handle the upgrade. They compare you to comps in the area that have recently sold. So, talk to a real estate agent first. They know the area and they know if you add this, and spend this, what you should end up with. Oh and be warned, your taxes will go up, if you add bedrooms and bathrooms.
Moving might be more of a sure thing right now, but only if you can sell. Your nice little savings could go bye bye in a minute with a bad tenant or no tenant at all. Just something to think about.
Good luck.
If I were you, I would look into converting that ARM into a Fixed Mortgage while your credit is still good. Then I would wait about six - eight months and see where the market is.
In that period of time I would purge, I would downsize the amount of clothes, books, furniture, sheets, towels, pots, pans, dishes, etc. How many clothes do the kids really need? Do you need to hold onto certain "treasures" or will the memory of the thing suffice? How would you honor that memory which would take up less space? I say make more room in the space you already have before committing to move to a new space.
Also check with a reputable real estate agent about the rental market. Check your local paper and craigslist for the prices of comparable homes in your area are renting for to determine if the rental income you would receive would cover your mortgage.
Much to consider. I would also consider having an architect or interior designer come into the home to assess how you can maximize the space you have or alter the configuration to make it work for you. There is so much that can be done before committing to get into something bigger. Money goes out much faster than it comes in especially when you are renting your property. You would be surprised at the endless possiblities. I have owned two rental properties and was a renter as well.
We are in a similar spot with a similar financial "viewpoint". Investment-wise our accounts are considered "aggressive", but we live conservatively. Our housing market in NY is similar... and we would love to sell our house and move. We met with several agents as well as our financial planner regarding the possibility of renting our house and either renting or buying another home closer to my work.
Essentially, they told us that despite the "buyers market" and our savings accounts, we would not likely qualify for a second mortgage because you need to put down a substantial down payment on the second home AND (at least in NY), demonstrate consistent income on the rental home (AKA, your 1st mortgage can still be paid without risk of foreclosure on either property). Don't forget that you will be responsible for the "upkeep" on both homes as well. The agents we met with also let us know that you should plan on approximately $2500 per year per renter for "fixes" to the home (painting, flooring, grounds maintenance, changes in your insurance rates, etc) ON TOP of your regular annual maintance of your rental property.
The rental market is also unstable. If you can carry TWO mortgages for up to 6 months at a time AND you have at least 20% cash to put down on the second home, then you could probably go for it. If not, you won't get approved anyway.
You may be better off adding square footage to your existing home as you need the space.
I would hunker down for a year if you can.
D not add on to your home unless you plan on staying there the rest of your lives or taking a large cut in the value of your home.
Some friends of mine had a large backyard and he worked for a construction company all through his engineering degree at BYU. He was very very talented in building things.
They decided to add on a family room. It was not huge, it left lots of backyard for kids to play in. When they got a better job and they tried to out their house on the market their house was valued at less than they paid for it. They didn't understand, it was bigger and much improved.
The Realtor told them that the neighborhood they lived in had other homes and their homes value could not go much above the neighborhood values or it would never sell. For example if a home is in a low income census area and then someone builds a $250,000 home next door the house is never going to sell for even half that much because of the neighborhood and other home values around it.
My friends lost tons of money on this house when they eventually sold it. I think they still even owed money on it once the papers were complete. It was really sad. If they had not built on to their home it would have probably sold in a few months at that time.
So I would start at least looking around to see what is available. In my town right now the most expensive home for sale is $999,900. The next most expensive home is less than $400K. With most priced less than $150K. We even have frame 3 bd 2 bth homes for sale in the $50K and under range.
I wish we could buy a house right now because I would in a heart beat.
The buyer can afford to wait and be totally picky. People are having to let their houses go back to the bank all the time due to job loss and job transfers.
I have a friend who moved to Texas a few months ago and their 4 bd. 2 bath home is still for sale at $65K. And it's on a large corner lot. Almost right across the street from the best rated elementary school in this county. Stinks for them but for some lucky buyer that has kids...they are going to get a wonderful deal.
I would be going to see houses every day. Tons of them. They are only going to stay this price for a while. The election is coming quickly and either way it goes, change will happen. Perhaps they prices will start going back up but I would buy before the election for sure.
We're in the same boat - in 2003 we bought a 2 bedroom townhome expecting to stay no longer than 5 years. Well 9 years and two kids later we're still there. We paid 170k then and now it's worth about 99k - no one is going to pay close to what we still owe so if we were to go we'd lose so much and have to roll our current mortgage into another house.........ugh. And no one would rent our house for what we'd need to cover the mortgage each month so really, even though homes are cheap now it would not work - for us. So, we're stuck............
i would for sure rent your current house out and buy a bigger one to live in.
yay that you're going to homeschool!
yeah, that does take up a lot of room.
:) khairete
S.
Of course there are many other factors to consider than those that you just mentioned. Based on this information, I think you should stay where you are. If you have an ARM mortgage, then you should be making additional principal payments, or refi to a fixed rate.
What happens if renters don't pay their rent on a timely basis? Would you have enough to cover both mortgages?
