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To buy or not to buy another home?

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To buy or not to buy another home?

Old 07-30-2009, 11:00 PM
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Default To buy or not to buy another home?

Would like some input as I'm sure LOTS of folks here are pondering the same thing.

Wife and I currently live in a townhouse (w/HOA). Home is paid for, boat is paid for, no car loans, and "credit card debt" is VERY minimal. HOA fees (including exterior maintenance & lawn care, access to pool/tennis courts) are about $2,400/yr.. I have the boat in the "overflow" lot and have never had any problems with theft or other. But NO GARAGE to "tinker" or enjoy and not much yard.

We stumbled across a really NICE contemporary home (built 1985) "for sale" - 1.14acres, mostly treed (HEAVILY - like a natural forest!), single story with a full, finished walkout basement, and a carport that could easily be enclosed to a 2-car garage. About the same sq. ft. we have now, but more features and we love the layout - "looks" bigger inside, too.

Home is in a nice, well-maintained subdivision (and most ALL of the other homes are more $'s), but has a well and septic system (ALL of them in the subdivision do). Taxes are a little bit less than our current HOA fees/year. HOA fee at new place is $20/yr. TOTAL - to maintain "entrance".

Sooooooo - we are crunching the numbers, but certainly have concerns about taking on a pretty BIG mortgage - initially - as well as selling our existing place, given the current market. I am going on 63, retired, and will probably wait for 65 or so to start on social security. Wife is 60, has 40 years in a good retirement system, and will probably work another 5 years.

I'm assuming we'll get a "first right of refusal" clause on any offer we make, which I can understand. We'll surely do the same with ours.

What we DO have a problem with is thinking about the mortgage payments on the NEW place unTIL we sell our CURRENT place - I assume we'd end up with a "bridge loan" until we sell this place? I guess that's the scary part when you feel "comfortable" with little debt. We'd have to put a big chunk of change down (20%, probably) - up front, I assume - and a HUGE chunk after we sold the existing place? We'd roll ALL of the profits from the existing home into the new one.

We're kinda' familiar with the 30-yr. "adjustable" rates (mortgage based on 30-yr. loan), with the 3, 5, or 7yr. options, then, adjustments every year after that, or refinance). I THINK these usually have a MAX adjustment (cap) over the LIFE of the loan of 3% or so? So, if you started at 6%, it would never go OVER 9% during the 30 years. We certainly plan to pay it off LONG before then!

Don't want any "variable" rate loans - we're on the "conservative" side.

Questions: Are our "fears" warranted?, any other "ideas" (financing-wise) out there? Have I "answered" my OWN question?

Obviously, the best situation would be to have OUR place SOLD before we close, but it's safe to assume that won't happen, given that the new place has been on the market for a month or so, and there's no telling how long OUR place may take to sell - things are slow and there's one unit for sale (smaller) in here out of the 44 in our "subdivision", and maybe one more coming on the market soon that is JUST LIKE ours, across the street.

The new place is selling for about 6% below "assessed value", which I don't feel is really that much "discount", given the market - orginally, it was put on the market at only 2% below "assessed value". Owner "dropped" price by another $10K the other day.

Any input would be GREATLY appreciated!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

THANKS!!!!!!!!!!!!!!!
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Old 07-31-2009, 03:16 AM
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Pretty sure that except for VA loans there is no cap on adjustable rate mortgages except what your bank puts in there. Many don't even cap at 1% per year. If you could swap to fixed rate in the next couple of years you should be ok, since the economy should still be recovering by then, but I would not want to stay in an adjustable rate loan for too many years, especially if you will be retiring during the length of the loan.

You could certainly check on the bridge loan to see if they are even available, banks are still not making a whole lot of loans so you may have to take a loan out on the existing house to buy the new one.

Also, in most places the market still sucks and assessed value is a joke (other than being stuck paying taxes on a house that is not worth the assessed value). At least 10% less than that and probably a lot less would be a decent offer. Check to see what comparable homes are actually selling for (not listed for).
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Old 07-31-2009, 03:48 AM
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OK, I know I am going to get a beating for this, but this situation warrants looking into an "Interest Only" mtg note. Why? - debt level low, at least 20% down, expecting a significant lump sum in "near, short term" (say within 3 yrs to be conservative) and looking to pay off "long before 30 yrs".

The key benefit to this will be the immediate reduction in monthly payments each time a lump sum is paid towards principle, and possibly the cheapest way to go over the note life. BUT you have to watch out for any limitations imposed on the speed in which you can make principle reduction payments (for example, I was limited to annual principle payments not exceeding 10% of the outstanding loan balance for the first 3 yrs of the note).

There are other items that need to be known before concluding if this is a good fit, most importantly, current earnings levels, earning level after wife retires, spread between proceeds from sale of townhouse and cost of new property, and realistic time-table to repay note. This is obviously important for the initial decision to purchase the new property.

Last edited by chrisjb; 07-31-2009 at 04:19 AM.
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Old 07-31-2009, 04:11 AM
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You have a conflict and being conservative by nature makes your decision tougher. I think if I was in your situation and with the housing market the way it is, I would consider selling my current home before placing a contract on another. Once my home was sold and everything looked to be on track for closing, I would begin a hot and heavy search for another home. You will be in a much better cash position with virtually no contingencies and be available for quick closing / quick move in. There are very few true one-of-a kind houses out there and who knows, perhaps the one you are interested in will still be on the market. Sure it takes some planning and might even result in a " temporary relocation " but sure would be worth it in the long run, after all, this most likely will be your last home and one you want to enjoy during your retirement years. For me, this would be the lessor of the 2 evils rather than being saddled with a " big " mortgage while my townhome sat on the market for an unkown time period.
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Old 07-31-2009, 04:57 AM
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Approaching retirement, I would be looking for "less" house, not "more" house. Less yard, less maintenence, etc.

Think about shovelling snow, raking leaves, cleaning gutters, etc. - all of the services that your HOA now provides. You can hire people to do it, but it's still a chore

Financially, I wouldn't buy anything now that wasn't an absolute steal. You will be paying 10-15% transaction fees to sell your place and in closing fees on the new place that have to be factored
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Old 07-31-2009, 05:36 AM
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^^^^ What he said^^^^
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Old 07-31-2009, 06:31 AM
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I would never purchase another home until I had my current home sold - especially in this economy.

I also agree with the "buying down" post - I want less house, not more, and I'm 46!

Where are you in VA?
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Old 07-31-2009, 08:09 AM
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Originally Posted by chrisjb View Post
OK, I know I am going to get a beating for this, but this situation warrants looking into an "Interest Only" mtg note. [...]
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Old 07-31-2009, 11:25 AM
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I own two homes now and recently sold a third vacation home. I have a contract on my other vacation home. You can sell a home, or two right now, but you will have to price aggressively. Moving up in size is not always a great deal and you will need to consider closely whther you want to do yard work and mowing for a larger yard. I buy and sell properties regularly and you should be very cautious. Both my house had contracts within 30 days, but I priced lower, because I purchased in cash and therefore didn't have loans amounts that had to be covered to break even.

I would recommend putting your place on the market and seeing what interest you have. You can almost always find a house that you want, but not always find someone that wants to buy your house. Unless you can float both mortages, I would be very cautious about buying before having sold yours.

Never ever get an adjustable rate mortgage (ARM). Get a fixed 30 year and reserve te right to pay earlier without penalty. ARMs are never worth it. Good luck!
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Old 07-31-2009, 11:55 AM
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Bruce, you and I have been here since the beginning, so don't take this the wrong way: I would not be looking at buying a bigger house at 63.

I'm 43 and I'm already tired of home ownership. I got killed financially selling a house a few years ago when we had already purchased our current house but that didn't sour me on home ownership. I just want less maintenance. Less yard, less to clean, less to paint, etc.

I think a condo or a townhouse near the city and a small house in coastal Maine is where we we will be at after our boys graduate college in 10 years or so.

However, it's your money and it it will make the Mrs. happy then friggin' go for it. Getting an interest only loan until you sell the current place is not a problem and you can deduct all of that interest on your Federal taxes anyways.
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Old 07-31-2009, 12:08 PM
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I hear ya GF. Home ownership is waay overrated. It ain't all that...unless all that is a lot of work that keeps you from doing other stuff you'd rather do and spend your money on.
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Old 07-31-2009, 12:15 PM
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If you can swing this financially , it might be a HUGE benefit to you. Finance the new house the best way you can for now. Keep the townhouse and rent it. Rent in our area is much higher than mort. payments. Once you get settled into that you can refinance for a 15 yr. loan and let the rent pay for your new house. It will surprise you how little difference there is in the note between 30 and 15 yrs.. Then, when it's paid for your net worth still includes the value of the townhouse plus your home. At that point, if your health goes south and you have to be in long term care or a nursing home, you'll have the income from the rental to pay for it, and you get to keep your house.
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Old 07-31-2009, 12:44 PM
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I'd never rent out my home again. Been there done that. The wear and tear is just not worth it.
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