Just torn between NICE and FREEDOM

[syracusa]

Mortgage payment shouldn't be more than 28% of net or 36% of gross. Clearly you should use income numbers from when you think you'll be working less.

My husband says that this is still liberal, and he goes by the more conservative rule which is ALL house-related expenses (including HOA fees, utlities, ect) should be no more than 33% of net.

That would be approximately 33% * 6300 = 2079.

With 100, 000 down, we would be at around 1500 a month all household-related expenses.
So affordability is there. I should have titled the thread "Torn between mere affordability and freedom".


Overall though, my dilemma was not about affordability but rather about "affordability vs. true freedom".

Affordability is when you can easily make your monthly payment as long as the counted-on income flows.

Freedom is when you can still float for a good while - even when the income stream stops due to job loss, and this without having to move for a new job all over the country in complete desperation; just sitting in place and living small until another job becomes available in the area for a better standard of living - this would qualify as "freedom".

We are a family that has been seriously hit by recession when my husband lost his job due to lay offs. We had to move cross country, in a very high COL place, no family there whatsoever, hated the place, we were forced into a short-sale...just horrible.
We eventually came back and I swore to never let this happen again, regardless of the profit-driven imperatives of some freaking employer or the almighty "Economy".
This business of uprooting the entire family to move wherever the Economy's needs dictate and as many times as it takes, doesn't sit very well with me. Hence the "freedom" quest.
Then again, I've seen many people setting up their lives in such ways that they are ready to move cross-country as soon as the earner loses his job, and as many times as it takes - and if you asked them, they would tell you they are just as "free" as anyone else.

As Humphrey Bogard or some other classic American actor once said: "the only reason why it is great to have money in this world is to be able to tell every SOB to go to H".

It is so true.

My husband, however, argues that even in the worst case scenario where I will have switched to part time making the 20,000 a year whooper, and he lost his job after that ...between my 800$ a month net and his unemployment, we would still be able to float a while until something else came up in the area or telecommuting; but we are determined to NEVER move again for another job.

This is the only thing that still allows me to be tempted by option A.
Otherwise, I wouldn't consider it at all.

[syracusa]

Personally, I like the idea of financial freedom a whole lot more than the niceties.

Yes, I do too; but when you have kids, you feel like you owe them some "niceties", including a "nice" environment to grow up in and good schools.
Plus I can't deal very well with the "no man's land" aspect, psychologically speaking.
Apparently, these psychological "maladaptations" cost money.

[JoeP]

How about option A, but with the ability to add on as needs arise? You could potentially have a dedicated work area in a finished basement or an addition. This could give you a house with character, while giving you the ability to set up the perfect office enhancements in a separate area.

[Petunia 100]

Yes, I do too; but when you have kids, you feel like you owe them some "niceties", including a "nice" environment to grow up in and good schools.
Plus I can't deal very well with the "no man's land" aspect, psychologically speaking.
Apparently, these psychological "maladaptations" cost money.

You don't want to live in Area B.

So, buy a house in Area A. Put down 20% + closing, nothing more. Take a 30 year mortgage and make only the required monthly payments. Save your extra money, possibly investing some of it conservatively in a taxable account as well. A lot of liquid assets is ALSO very freeing. You can't pay for food, medical care, or utilities with home equity, unless you borrow it. But you can use your cash and other liquid assets for anything at all, including mortgage payments.

[syracusa]

You don't want to live in Area B.

So, buy a house in Area A. Put down 20% + closing, nothing more. Take a 30 year mortgage and make only the required monthly payments. Save your extra money, possibly investing some of it conservatively in a taxable account as well. A lot of liquid assets is ALSO very freeing. You can't pay for food, medical care, or utilities with home equity, unless you borrow it. But you can use your cash and other liquid assets for anything at all, including mortgage payments.

Hmmm...interesting point. Something to think about.

And I just wanted to say thank you so much for everyone's input, it honestly helped with the "larger perspective".
I think that option A will probably win. We have a few more months to go until we are actually able to close.

[maat55]

Under normal circumstances I would go with A. But, IMO, we do not live in normal times and things will likely not get any better. I myself would make my decision from a more defensive financial standpoint.

[dunnrobert700]

Just from how you posed the question it sounds like you don't want and would not be happy in the country home. So while cheaper, it is essentially worthless to you. Sounds like finding a way to make the suburban option work is your best path.

Also consider this...if you move out to the country and decide you just hate it you'll be looking at transaction costs and a second (ugh) move.

Also while you cannot always assume it, houses to tend to appreciate with inflation (not much more)...so putting some extra money into a house isn't quite the same as say...buying toys.

[syracusa]

Under normal circumstances I would go with A. But, IMO, we do not live in normal times and things will likely not get any better. I myself would make my decision from a more defensive financial standpoint.

I completely understand what you mean and I agree 100% that we do not live in normal times.
I am often flabbergasted about how many families set up their lives with only one income earner (certainly not large income) and a complete-stay-at-home mom (even after kids are in school 8-3pm), and they're happy and relaxed as a lark.
If husband loses the job, they simply pack up and move wherever the next gig shows up.

I wish I could live with this level of relaxation and openness to permanent uprooting :-))

[syracusa]

Also while you cannot always assume it, houses to tend to appreciate with inflation (not much more)...so putting some extra money into a house isn't quite the same as say...buying toys.

This is pretty obvious.
I continue to live by the primal principle that land is a finite resource. Houses may not be but land is. Never mind land close to "something". And houses are built on land.
That's all we need to know.

In area A, people who bought just a few years ago can already make money selling now, as there has already been some appreciation. It is a pretty coveted place and people have easily sold houses here even during the recession. Maybe a bit less fast than normal, but now it's back to speedy sales, especially if the house is in overall good shape and meets other basic criteria such as flat driveway/backyard, etc.

We are hoping to buy right before prices go significantly back up - as they've already started here.

[QUOTE=dunnrobert700@yahoo.com;351450]
Also consider this...if you move out to the country and decide you just hate it you'll be looking at transaction costs and a second (ugh) move.

Many would disagree that option B is "country", it's still considered suburban like area A, but it's "far out there suburban". It's "former country" turned into third layer of suburban sprawl.

[EEinNJ]

Option A. You seem like a person who appreciates the quality of life issue and understands that comes at a price, but you've had a tough experience resulting from the recession. Bad times don't last forever, though, and 5 years from now you'll be glad you bought a better place.

[~bs]

Under normal circumstances I would go with A. But, IMO, we do not live in normal times and things will likely not get any better. I myself would make my decision from a more defensive financial standpoint.

Not to downplay the 2 recessions we endured in the 2000s, but every decade has shocks, and every decade people think "things will never get any better". Vietnam, cold war, oil shock, high inflation of the 80s and 1987 stock market crash.

Just about the only "good" decade recently was the 1990s, which featured the gulf war and asian/mexican/russian financial crisis, which the US walked away from relatively unscathed.

[syracusa]

Option A. You seem like a person who appreciates the quality of life issue and understands that comes at a price, but you've had a tough experience resulting from the recession. Bad times don't last forever, though, and 5 years from now you'll be glad you bought a better place.

Well...it's kind of complicated. I DO appreciate "quality of life" but unfortunately, quality of life is a "thing" that comes from a mixture of "having money" with living in a way that doesn't require you to MAKE that much money, namely, working less, or in some cases, even not working at all. This is where my dilemma comes from.

If I knew we both could keep the jobs we currently have as well as the energy to pump in all the work we are doing right now to MAINTAIN this income over the long-term, until retirement, then I would have no problem with that. After all, at 170,000 family income, with 100,000 money down, YOU certainly CAN afford monthly payments for a 350,000 house.

The trouble is this income might not last forever, and even if it does, my energy might not last to make it happen. Besides, I have a hard time understanding affordability in terms of "monthly payments". This assumes you will always be in the same shape to make those payments happen.
I always look at the entire sum to be paid back (and fast).
This puts it in better perspective than "x dollars a month".

Another poster said that she/he doesn't understand why some people want to get rid of the last drop of debt. It probably takes going through the disasters of a recession to understand why it is extremely valuable to never HAVE TO make a monthly payment other than to your own stomach.

[Caoineag]

That was why I voted for Option B. My household doesn't consider income permanent and I would want the lower mortgage (we chose to go with a house that cost 50% of what we could "afford"). That said, we did choose our current house based on the commute (its close to everything). We just chose to get the house that needed a lot of work but had a great location.

[~bs]

Well...it's kind of complicated. I DO appreciate "quality of life" but unfortunately, quality of life is a "thing" that comes from a mixture of "having money" with living in a way that doesn't require you to MAKE that much money, namely, working less, or in some cases, even not working at all. This is where my dilemma comes from.

If I knew we both could keep the jobs we currently have as well as the energy to pump in all the work we are doing right now to MAINTAIN this income over the long-term, until retirement, then I would have no problem with that. After all, at 170,000 family income, with 100,000 money down, YOU certainly CAN afford monthly payments for a 350,000 house.

The trouble is this income might not last forever, and even if it does, my energy might not last to make it happen. Besides, I have a hard time understanding affordability in terms of "monthly payments". This assumes you will always be in the same shape to make those payments happen.
I always look at the entire sum to be paid back (and fast).
This puts it in better perspective than "x dollars a month".

Another poster said that she/he doesn't understand why some people want to get rid of the last drop of debt. It probably takes going through the disasters of a recession to understand why it is extremely valuable to never HAVE TO make a monthly payment other than to your own stomach.

Life IS uncertainty. NO ONE knows what a year, 2 years, 10 years holds for them down the road. If you could, of course the decision making would be a lot easier. Which is why things like EFs, not spending beyond ones means, etc are stressed right?


I think your current salary + DP is way more than enough money for this house. And if you continue to save money, you should have no trouble making payments even if times get rougher. I'd guess the house payment (excluding everything else) is $1400/month. Do you have $50k in your savings or can you be expected to save 50k in the next year? If so, it means you have 3 years worth of house payments on savings alone with 0 income coming in.

monthly payment = the amount you will owe to stay in your house. You've rented before right? The monthly payment is basically your house rent.

Regarding debt, debt (or leverage) can be abused, but it can also be a tool. IMO, there is more risk in plowing a lot of savings into a mortgage than there is accumulating the savings and making the regular monthly payment or adding a reasonable principal payment amount monthly. Because home equity is not always easily tapped, and if the housing market collapses, you're stuck because you can't pay the mortgage, and you cannot refinance if the house is underwater. Then you default on the home loan. Aversion to debt is understandable, but taking it to an extreme can also be harmful. Unless of course, you can afford to pay everything in cash.

[syracusa]

Life IS uncertainty. NO ONE knows what a year, 2 years, 10 years holds for them down the road.

I agree, up to a point - but there are DEGREES of uncertainty.

No one can guarantee that cancer won't hit you in a year just like no one can guarantee that an asteroid won't hit the Earth in a month. You can stretch it that far. Within reasonable limits however, life CAN be made less uncertain and risks CAN be reduced if you organize your life with that goal in mind, or if you live in a culture that recognizes a certain degree of safety in numbers.

People have been quite successful at reducing uncertainties and risks of life for thousands of years by huddling together, living in tribal communities, helping each other, falling back on each other, etc. The ideology of individualism killed all that and left many humans with only one tool that can reduce uncertainty, namely avarice: accumulating wealth/making provisions/saving/investing, etc. so you can at least be able to throw money at any life hurdle that may come your way. This is the only way we have left; so for those of us who do appreciate a certain degree of safety/security in life, getting rid of any debt and then investing - is the only answer out there.
Otherwise, it is largely modern slavery.