Piti %

[LivingAlmostLarge]

I am waffling between buying a new home and just adding an extension on our current place. I really like our neighbors and where we are (location) and my husband doesn't want to move. I'm that stupid 0.1 mile person on house hunters. We don't even like some neighborhoods in our school zone to show you how picky we are being.

That being said quite a few of our friends are still buying homes. I think they are stretching to buy so listening to them seems a bad idea. How comfortable have you guys been with what percentage? We are at 15% PITI of gross and it's pretty comfortable. ok really comfortable and we are able to save and spend without a budget or worrying. I wonder if we moved up to say 20-25% how much tighter would it be? I don't think our income will go up a ton more. I think my DH is done unless he switches companies and he's being stubborn.

How are other people feeling at their %? And yes I know it's crazy but I feel like people here are more reasonable. A lot of people would say it's not a big deal and yes we do have a lot of wiggle in our budget. But I just want some reasonable perspective.

Background my kids are in 2nd and 4th grade and I feel college is on the horizon and i have about $45k saved for each. And the extension I could do $100k cash but I think it shouldn't be more than $50k maybe it's just a room under our deck and rebuilding deck so 150 sq ft. If we bought a home I think we'd add 1000 sq ft and maybe a extra garage bay.

[disneysteve]

At the end, we were right around 7%. Most of the time we were around 13% but my income doubled the past couple of years.

We were very happy at 13%. I wouldn't want to go much higher than that as it would have interfered with saving for the future, paying for college, and day to day spending.

[breathemusic]

I think the best way to figure out what you're comfortable with is to work backwards from your budget. You said that you're currently at 15% and that you still have plenty of room for savings and spending without a budget. So take a look at what you spend and what you save each month (on everything except PITI), figure out what your comfortable limits are, and the leftovers is your budget for buying. If that's an extra 5%, then 20% is your number. etc.

[jIM_Ohio]

Is there an ROI on increasing housing cost?

theoretical examples

1) Have an existing house, and want to add on an addition of $50k which will cost $75k (after interest and taxes).
pro- moving costs are low, increases value of existing property which is already closed, no different risk in title.
con- the $75k will not be recouped until property is sold in X years. Increases PITI in form of a HELOC. HELOC can be paid off sooner. pro- HELOC can be used for other things once paid down, con- adds debt

2) Buy a new house, increase PITI with a single mortgage. Pro- only one loan, can reexamine many life decisions (school district, mortgage length, housing size). Could also transition (for example first floor master would let 60 yo adults keep house longer) Con, need to do a title search, resets mortgage payoff timeframe, stress of a move.

3) Have existing house and do not remodel- keep as is.


In all 3 scenarios, the same budget should be used

1) what are house maintenance costs? Maintenance on option 2 should be lowest (newer property).
2) what are closing costs in all 3 scenarios?
3) what is the house value in all 3 scenarios?
4) is the value in #3 liquid? Likely no.
5) when can value get tapped? HELOC or selling?
6) what is ROI on tapping the value?
ex investing from HELOC, investing from paying off notes, proceeds from selling property.

I think to get a financial perspective on OP question, use some numbers to determine ROI.
Adding space can make this the best house in neighborhood and generate a premium when sold. Most remodels won't recoup cost though ($75,000 remodel for $38,000 gain is more likely).

[kork13]

I think the best way to figure out what you're comfortable with is to work backwards from your budget. You said that you're currently at 15% and that you still have plenty of room for savings and spending without a budget. So take a look at what you spend and what you save each month (on everything except PITI), figure out what your comfortable limits are, and the leftovers is your budget for buying. If that's an extra 5%, then 20% is your number. etc.

That's a great idea. Basically build a budget with a higher PITI, and see if you'd be okay with the side-effects (lower savings/other spending) of that added PITI cost.

Personally, I've always kept PITI below 20%. I've found that to about the level at which I'm not comfortable. We're currently at 13%, which feels "about right", which allows us to save 30-35% of gross (admittedly, we're aggressive savers). We're moving next spring, and our plans are to use a big DP & again be at around 12-13% until we pay off that house (goal: within 3-4 yrs).

It sounds like you really don't have any reason to move except for peer pressure...which you're right, probably a poor inclination. I'd 100% go with a reno/addition to the house you already like. I enjoy watching those reno shows, and you really can do alot if you have the budget (which you do). Just be sure to use a high-quality builder. May cost more, but IMO worth it to ensure everything is stable, up to code, and looks like it was always there.

[LivingAlmostLarge]

The market is flat. I haven't figured out DH's new income because he got a weird promotion and money halfway through the year. Because we haven't seen what his salary is so it's likely lower than 15%. So that may weigh in our factoring what we can afford.

[Jluke]

26% of my gross for PITI.

I also max my Roth and 401k.

[riverwed070707]

I think the percentage of your PITI is irrelevant. You're obviously in a position to upgrade if you want, but do you need to and does it align with your long term goals? Moving is a super personal decision. Until August of this year I was in a home that was 10.5% of my gross. I tried really hard to convince myself to stick it out because it was ultra affordable, I don't plan to stay in this area after DD graduates (8 years), and I knew it would be a great rental when I'm ready to leave. After two years in the house I was miserable. It was crowded, had a poor layout, small kitchen, 1 car pull under garage, basement laundry with no logical way to move it upstairs, and a number of other things that got under my skin and weighed on me every.single.day. Made the decision to move to a slightly larger home (1500 sq ft vs 1100) with an infinitely better layout, AMAZING higher end and spacious kitchen, 2 car garage, great sunroom and back deck, bigger yard, and in district for DDs school so she can bus in middle school (she was previously open enrolled). I'm now paying 19% of my gross in house payments (I also increased my income when I moved because I kept the old house as a rental) but I wake up every morning and think "I love this house". I seriously love it and ultimately for me it became a concession of enjoying the now vs putting everything into saving for the future, even if it means I have to keep my corporate job a few years longer.

That said, I agonized over it for about a year, and just from what you've described, I'd carefully analyze whether your current home isn't working for you or if you're just getting starry eyed looking at the nicer, newer home. I certainly wouldn't move because that's what my neighbors are doing and I still tend to fall on the side of modest over big and showy. But that's just me. Will upgrading your home impact your ability to continue to travel like you do which has always been important for you? How long do you plan to be in the new house? How old will you be when it's paid off? I don't think moving is strictly a financial consideration, but make sure you're not sacrificing other things you love in order to make it work while also taking into consideration whether it will improve your day to day life. None of us can answer that for you by sharing what percentage of our income goes toward housing.

[cypher1]

My PITI is 20% of gross. I would agree with riverwed that PITI can be irrelevant if you're not happy with current layout of house or convenience of location.

I wouldn't let others around you buying and selling their homes influence your decision, no matter how minor it may seem. Three of my sisters all bought houses within a few months of each other recently. For me it was tempting to sell and take the cash, but I'm also renting it out so I'm in any hurry for change when someone else is paying my mortgage. So it really goes back to your long term goals.

[LivingAlmostLarge]

I'm wavering because a friend pointed out a large mortgage seems daunting right now. I may not love our layout but I think if we did the addition we can make it work. I really do love two houses in our neighborhood from the outside. Doesn't mean I want to spend that much.