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cash on hand

June 12th, 2017 at 09:26 am

So we bought our house. We still have about 1.5-2 years of living expenses in cash. But we are planning on doing some extensive remodeling of the basement. We also have to stash another $15k for 2017 Roth IRAs and college savings. I'm thinking also that we should start $2k for each DK into a 529. That would take our savings to $19k plus $18k into the 401k.

I find myself hesitating because I don't want to not enough cash on hand to do a remodel cash. But it's a strange feeling after sitting on so much cash to be down to a more reasonable number and still hesitating to invest it.

Plus I feel like we have a tentative spending budget but there are a lot of variables we can't account for yet. Maybe by the end of the year I'll feel comfortable enough to invest some of our cash.

What about everyone else? My goal is 6 months cash on hand and the rest is invested. We used to live like this but when we moved without income we bumped it up to as much as possible.

Mortgage Retirement Plan

June 10th, 2017 at 10:41 am

No way will my DH go along with paying down the mortgage early. It goes against all his brain power. It's an emotional thing and I get it. Paying down the mortgage isn't logical nor mathematically correct. But it feels good emotionally. It makes you mentally happier I think personally. But he's data driven so no way am I getting around him on this.

But being 38 and 39 and starting a 30 year mortgage is annoying. I don't care that it makes sense. I don't care that even after retiring it makes sense to draw from a portfolio and pay our mortgage. I like the idea of not owing anyone on our house when we retire. But marriage is a compromise.

So instead I'm going to track our progress to having enough money in our taxable accounts to pay our mortgage in full. Since every penny and bonus we don't spend we invest/save it's reasonable to assume I might be able to talk him through cashing out and paying the mortgage when we retire.

I also think at that point we'll be really FI. Right now we are can pay off 18.93% of our mortgage.

Do I have any goals? I'd like to have 10% of our mortgage a year saved. That is a very big stretch goal. We are on track with principal paydown to paydown about 2% a year in the beginning. Adding another 10% seems like a lot. That would put us at 10 years until we have enough to pay off our house. Life has a way of happening. Plus having enough to pay off our house isn't enough to retire on. That's just a start.

we bought a home...we'll be rich!

June 9th, 2017 at 11:26 am

We closed on our house yesterday. Nothing different. Didn't even move. Just said thanks and ate dinner. Little less than 2 years.

Someone said to me "buying a home is the road to being wealthy." I said "I feel more poor because our mortgage is way more expensive than renting." The person rolled their eyes at me.

I said it doesn't matter whether you rent or buy. The person who becomes wealthy is one who can save in either situation. If you can save the difference between the rent and mortgage then you'll become wealthy. Truth is that anyone who saves the difference and invests it will come out ahead.

But owning is nice stability. FWIW renting probably put us behind because of the appreciation of homes in the areas we sold and bought in. But at the same time we did bank all the extra money and in 1 year we're back to where we should have been financially before we took a sabbatical.

So owning is NOT the end all be all to becoming wealth. Saving money is.

Renting can beat homeownership

May 10th, 2017 at 08:38 am

I was thinking a lot about friends discussing how renting is throwing away money. It's really, really not. I can see how people think buying a home builds wealth. It's an enforced savings plan. Every month you build up savings by paying down the principal of your house.

But here's the truth! If you saved that principal payment and invested it, as well as invested the entire down payment of your home I'm pretty sure you'd come out ahead of the home owner. But the reality is three-fold.

One how many people would actually save the principal difference between renting and owning? So in that sense yes homeowners do tend to build wealth faster because they are forced to. And typically renters don't have the discipline to save. This is usually true as well because renters often times lack the discipline to save the principal for a down payment on a house. So home buying will build wealth but renting often doesn't because of lack of discipline. I see it too often with most of my long term renter friends they say "i could afford the same monthly payment as rent but I have no down payment." My point to them is then why aren't you saving?

Second, usually people's mortgages are more than rent. Renting often is less perhaps due to the fact that many people will rent the minimum space needed but buy a home much bigger because they are stretching the budget. I can attest to that. Our townhouse we sold was 3bd/2.5 bath townhouse 1500 sq ft. We were DINKS without kids. We didn't need that much space but we bought 5 years before kids to "grow" into to. Probably would have been smarter to rent a 1 bd apartment (like we had just sold) and then moved into something bigger 5-6 years later when we had kiddo #1. So for sure we were pretty dumb, but we liked owning and having dogs. I'm sure our rent would have been something like $1600/month (it was $1400 for a month to month studio at the time) instead of our $3k/month mortgage. But we could afford it and enjoyed the space. So if we had invested the $1400/month difference? We'd likely have made more money. Granted out of the $3k we were paying down I think $700/month principal so we were saving about half the difference. But still $700/month = $8400/year for 10 years is $84k and we could have invested that. So renting would have built up our wealth just as well.

Third I've noticed and perhaps I'm wrong when you renter you get a better location than when you buy. Most people have to compromise on something. So everyone I know compromises and has long commutes of 1-2 hours to get a "big" house. This means if they rented they could usually get something closer to where they needed to be but to afford to buy?

Right now if we wanted to save money DH and I could buy the place we're in for $600k. Instead we're buying something closer and more expensive but about the same size. So we compromised on size of home instead of location. We are paying for location. Also the $600k home would probably break even with our rent which we are overpaying because we had a dog. It should have been $2k/month we paid $2400/month for a dog. Our mortgage now is quite a bit more. But we also could have tried to rent in the same neighborhood we bought at it would have started at $3500 and we probably couldn't have a dog. So to us it's a wash.

But I don't think renting is losing money. I actually think to buy a home many times you are paying a premium to own. I think that many renters don't take advantage of the financial side to keep up with savings and match a homeowner. I think if they did it would become clearer how renting can be financial advantageous.

Have you ever considered renting if you own? And have you ever considered buying if you rent? Did you run the numbers?

For us we banked the extra money so renting we easily matched a homeowner. But I like owning with the stability and I like having a dog. I like feeling like we can do something to the house and not worry. Will we be paying a premium? Absolutely but it's one that my DH and I are willing to make because we want to. We know the financial disadvantages and advantages but still want to.

FWIW I think buying property and being a landlord is different. I think it's different numbers and cash flow and it's an investment not a primary residence you live in. I think it's something that can match stocks easily but you have to know what you are doing for arguments sake we aren't talking about RE investing.

What I've been up to?

September 27th, 2016 at 09:15 am

Getting the kids back into school has been busy. I've been ironing out their schedules and it's pretty crazy. DH has been on the hamster wheel getting up to speed on a new job. It's always a big learning curve with a new job. As for me? Well I started taking the HR block tax prep course 2x week at night. It's until December so we're on a kid handoff at night at the park and ride so I can make my 6 pm class!

I'm trying this out as a way to see if I like tax prep and if I can possible land a seasonal tax prep job. I need something on my resume after 6 years out of the workforce to get back in. I figured this is better than nothing. I'm also hoping that perhaps this is a way to landing a part-time job in bookkeeping or accounts payable I see on craigslist.

I'm not looking to go back full time in my field. I think that 1.5 jobs for our family would be best. I've already gotten push back from DH for taking this job because he doesn't think it's worth my time. But I'm hoping to get back next fall into a part-time work routine when my youngest might go to kindergarten. That's not decided yet.

I also won month 5 of my dietbet! I lost my 10%. Now is the real struggle. I don't know if I can maintain it. I find it easier to lose but it's so hard to keep the weight off. I missed month 3 and month 4 from traveling so i couldn't weigh in. But I kept at it and made month 5. Now can I keep it off is the question?

And we're deep in the house hunt. That's the next post. It's so hard to find something we like and finding the time to house hunt. UGH.

I am also on the decluttering challenge of 465 items in September. It is getting rid of 1-30 items over the month daily increasing as the days go on. I am at I think 380s items. I am going to make it. I have an appointment at the consignment store to get rid of 30 items. And they usually tell me what else they won't take. And I sell 6 items there daily. Apparently I've sold over $100+ there in mostly clothes.

So now back to my regular programming...

HCOLA versus LCOLA

July 20th, 2016 at 11:44 am

People always ask why do people live in HCOLA versus LCOLA? Does the salary support the difference in cost of living? Absolutely not. The HCOLA usually salaries aren't commensurate with the higher cost of living. I can say that with absolute certainty. Until now I've only lived in expensive cities so I've never experienced anything else. I grew up in HCOLA and started a family in a HCOLA. But now we are able to buy a home.

So people think it's only about the home prices. But there are so many factors involved. Small things you don't think about. Right now we pay for a SFH electric/gas bill a high of $150/month, currently it's $80/month. I was previously paying $250/month for electric alone monthly plus my heating bill was $250/month balanced and during the winter we spent around $600+/month. We pay $125/month for water now and our portion previously was around $200/month. The food bills I think are around the same.

We pay $190/month now and used to pay for the same days $390/month. So double and even if I priced out full time it's around 2x the cost. It even translates to babysitters charging $10/hr here versus $20-25/hr where we were. Private schools are also much cheaper. Average private school costs around $12-15k versus $30k where we were.

All these small things contribute besides the cost of homes to the cost of living. When we were looking at places to live, I admit I only looked at the cost of homes. But the truth is that there is so much more to it.

Should people move from a HCOLA to LCOLA? It depends. If you want to yes. But on the same token should people move from a LCOLA to a HCOLA? It depends.

I can say that people who stay in HCOLA without high incomes do so for other reasons. There are other reasons like staying put to be close to family. Because they prefer the lifestyle. And sometimes because it's the fear of the unknown. The same things go for people who live in a LCOLA and are tempted to move to a HCOLA.

After meeting friends who moved from LCOLA to HCOLA I will say that it's harder to do that than go the opposite way. There are a lot more sacrifices. It's eye opening to see how much more things can cost outside of housing which everyone see immediately. I mean a friend moved from a place where her house cost $300k and is bigger than her rental that costs her $3k.

Do you ever think about moving?

my experience now with realtors so far...

July 15th, 2016 at 03:24 pm

Okay we're house hunting now. Not aggressively but slowly. We're using redfin, but we might change to a regular realtor. I haven't been impressed with the redfin agents but maybe it's because we are using a discount service. I LOVE, LOVE, LOVE the fact that I am able to see homes without pressure. I love the fact that the realtor showing me the home is being paid per house and not there to pressure me into buying. I love the fact it's based on them just being free to tour me on the house.

So what am I having an issue with? Well I've changed agents once with the redfin agent who is supposed to write the offer. Why? The first agent never wrote back to me or contacted me. The market is hot so I suppose he was too busy. Valid point since we weren't in a rush to buy and not interested in a bidding war or closing a deal fast. I actually got an email from him saying that I needed to be faster and put in offers in a bidding war style. He also wrote me an email that I needed to let go of having an inspection or mortgage contingency. He and I obviously did not mesh.

This second realtor has followed up on my tours and asked questions about my preferences. However this realtor as well has made commentary that I need to get in on this bidding war situation. I need to be ready to move.

I'm not ready. I feel like a kid being peer pressured into buying a home I don't want. Hence why I am keeping these realtors at an arms length. I know what I can afford. I know what I am looking for. I know that I am not interested in offering on a house in a bidding war period. We aren't desperate and we don't have to move. We have the financial situation to buy but we aren't going to rush in and buy without contingencies. We aren't doing it and any house we buy will allow us our contingencies or it's not the house for us.

I know this because I know myself and DH. This is a lot of money. This is a big investment and a hefty chunk of change. I am not going to buy a house after visiting it once. I am also not going to buy a place to settle and regret it. If I am buying a place then I better really like it.

My strategy is to see homes that have been sitting a month. This is not uncommon in the price range we are looking at. It also is not uncommon that people in this range are "overpriced" and I've seen many sales below asking simply because they are asking too much. I've watch price per sq foot. I've been watching the market for a year and tracking data on a spreadsheet.

I really am annoyed with these realtors. When I see something I like they'll know. They'll know because I'll drag my DH to see it and we'll see it at least 2x before making an offer. They'll know because I'll tell them instead of them asking me. They'll know because I won't be submitting an offer on an offer review date. I mean I flat out told them I'm not going in on a bidding war. But this second realtor isn't listening.

A friend recently bought a house for $680k and regrets it. It was listed for $675k, they offered $5k over asking and it had been on the market for 24 days! This is in a super hot market where the average days on market is 14. So they obviously listened to a realtor and put in an offer over list price. They say they regret buying a 30 year old house and wish they had bought a newer house. Personally I thought they nuts. I'd have gone in and offered $625k and seen where what they came back with. My DH said it's because they were first time home owners who only saw themselves making another 10% next year. Now they have doubts it'll appreciate that much in 1 year and are worrying if they bought at a peak.

Personally I think the market won't go down. But I think that perhaps appreciation will slow down or stay flat until incomes catch up. I also think for these homes to go up another 10% is a lot to pay $750k for what they bought seems too pricey, but I could be shocked into being wrong. Maybe it'll go up 10% more in 1 year. It will go up I believe, just not perhaps at the rate previously seen. Where it went up about 40% this year alone.

So how do you prevent this from happening? I think staying strong to your plan. Buy the house you want for the price you want. Don't let yourself get emotionally attached to any house. Don't let yourself get caught up on making money on the house. I'm struggling because I want to move and settle. But I don't want to make a financial mistake because I'm feeling impulsive.

I'll keep readers updated. Right now nothing I've seen has been the right house. The location, layout, yard, etc has all been wrong. There was one house but it's been on the market for 6 months since January severely overpriced. We're not ready to move and they obviously are hoping for the moon.

Do you have any more tips on how to find a house? What should we compromise on?

Lifestyle choices

June 29th, 2016 at 08:04 am

We're in the midst of another road trip so we've been chatting a lot in the car. I'll post pictures if I can figure out how of cool stuff we see.

We're doing our due diligence and starting to focus on areas we'd like to live permanently. Right now DH works around 20 miles from work he'd like to cut it down to 10 miles. I'm all for him having a shorter commute that's in line with our values and lifestyle choices.

But he brought up potentially moving out of the suburbs and moving into the city. He would be within 3-5 miles of work, bikable/fast transit, one car family, convenience/urban and fun. Trade offs are smaller home, not a big deal, postage yard (big deal to me), lack of privacy, and not great schools potentially. So he suggests maybe private school instead for the kids? Something we've never really considered both being products of public schools.

So now I'm torn. Do we shorten his commute considerably and change our lifestyle drastically? Is it in line to be really close to work, 1 car, no yard, I don't mind a small house but hate having neighbors right there, and private school? Is this a lifestyle I want or does he? We're really struggling because this would be permanent.

I know it'd be cost efficient probably to buy a house in the city for less money potentially in a bad school district and do private school. We'd save on time and costs. But I'm really not sure I'd enjoy it.

I have been a huge proponent of living where you love. That people in HCOLA who shouldnt' live there or LCOLA not making much should live where they love. And now we're at that same point.

DH could love the commute and he likes walking to places. But at the same time we aren't sure about living so close to neighbors and doing private school. What happens if he loses his job? While other jobs are in the area and he'll likely find one in the same area we'll be on the hook for private school tuition no matter what. But many people pay for private school even in good school districts for different reasons. Would we consider private school anyway in the suburbs? We have neighbors and friends doing private school now.

I think I'm feeling more pressure because before we always felt we had flexibility and time to make a mistake and correct it. But now the kids are getting older and more settled and I don't want to keep on moving. This is just difficult because it really is a lifestyle decision.

More talking to commence. FWIW we've been looking at houses in the city and they are fine. The parks are cute and walkability is amazing.

Do you like where you live? Do you wish you lived in the city or suburbs or more rural? And do you do private school and why did you choose it?

So it goes

May 14th, 2016 at 04:00 pm

So is there another housing bubble? I don't know but things are nuts. Both the place we left and the place we moved to.

Our old neighbors just listed their house for $849k and over the weekend they got 4 awesome offers, 3 without contingencies. They got three offers above $900k+ without inspection contigency or mortgage contigency. CRAZY. My spiritual neighbor said these people are nuts. They didn't even bother with a bidding war the number was so high that they took it and ran before this person came to their senses she said. She wouldn't give me a final number but will when they closed. Their realtor was in tears over how high it was. For perspective this was a 3 bd/1.5 bath, 1700 sq ft house with detached garage, cute but 1920s arts and crafts home. No inspection is NUTS. Slap some lipstick on the pig. I'm so happy for them because they deserve it. Yeah I came from a very expensive area.

But then where we moved? Well people are apparently crazy stupid here. Had tea and playdate with another neighbor few houses down and she said they went $80k over asking on a house and lost it by $1500! The house was in the neighborhood we were in 3 bd/2.5 ba, 1800 sq ft listed at $550k and sold for $630k also no contingencies. She said they waived the inspection contingency but kept the mortgage contingency. OMG. I nearly died over the bad financial decision making and she doesn't seem like a stupid person.

I actually asked if they get to buy a home if perhaps DH and I could talk to their landlord about renting since they are in a 4 bd house renting for $2600 or $200 more a month than we pay. I might as well take advantage of potentially a cheap place to live if I hear about.

Talking more with DH we're getting more on the fence with buying. His take beside if you buy and hold it doesn't matter if price drops is you have a place to live. But now he said perhaps it's better to keep letting it run up then either price correct or flatten. That way if you buy at that point perhaps it's 10-20% more than now but at the same time you have peace of mind that you've preserved your equity?

I hate this feeling of unknown.

maybe we're renters

April 19th, 2016 at 06:13 pm

I know we were hoping to buy and settle in but more and more the signs I think are pointing to renting long term. Maybe even moving into another bigger rental. What brought this on?

Well my neighbors with the 4 bd/2.5, 2000 sq ft home sold today for $712.5k. That makes it $313/sq ft, highest in the area and a record. My neighbors next door in July 2015 same exact layout, same size 4 bd/2.5 ba, 2000 sq ft home bought for $570k. So in 8 months (they bought the 1st weekend of March) the house went up $142.5k in 8 months or 25% in 8 months. The annualized return is 37.5% so the house should be worth in July $783k if the prices keep rising on track.

But I wonder what sort of people participate in a bidding war and end up paying $80k over asking price. Do they have any regrets? Was that always the plan and were they planning on spending more? Did they realize they were setting a new bar for price/sq ft? Do they even care?

But I'm concerned. We left an expensive area for an area that is still cheaper but I'm wondering if in 1-2 years will be just as expensive? We sold around $400/sq ft and but that seemed to be the cap in the sense that it's going up maybe 3-5% a year. Not going 37.5%/year.

So right now I'm not sure it's a sustainable market. Maybe I'm wrong and it's time to buy before it goes up another 40%. But if it goes up another 40% then this "entry" level home will be $1 million.

Thoughts?