Throwaway account as I use my main and don't want financial info on there.
My husband and I just turned 34, two young kids in a starter home. We want to upgrade our house eventually, but I'm fine with having a better plan before we do that.
Current home: can sell for 450k, owe 160 at 3% interest
Retirements (401k/ Roth IRA/ Trad IRA): 510k
Brokerage: 500k
Savings Cash: 200k
MISC other cash (travel, kids repeat expense account etc) 40k
529's : 10k each kid- both kids are under 3
Paid off cars, no CC debt or other debts.
House we would want would likely be 800-900k.
The tricky thing is one of our incomes is highly variable, could go away completely. Once it does that person wants to be SAHP to the two young kids. It's a higher income but for this reason we do not include it in our "daily living expenses".
The other person has very stable corporate job. Stable corporate job pays 175k/yr including bonuses.
Part of me is thinking to just ride out the variable income as long as it is available and try to stock away around 1-1.5M brokerage. This would then likely be 2-3M by the time we're early 40s with compound growth, kids would be 6+7 and we move then. Another part of me is tired of our starter home and seeing a good time to buy and thinking upgrading our daily living would be more worth it.
Any advice appreciated. I grew up in a VERY poor household and have some financial insecurities that I'm in therapy for. I have a lot of trouble navigating big financial decisions.
Would you upgrade the house? What would you do in this situation?
byu/One_Confusion3766 infinancialindependence
Posted by One_Confusion3766
6 Comments
If I were you I’d go for the upgrade. You can afford it and kids growing up in a bigger place will be more comfortable. We don’t know what the future brings, but you have the assets and time to cushion yourselves.
You’re essentially asking can you afford a $600,000 house on $175,000 income, assuming you put your current equity towards the next house. How much is the variable income? Can you pay a lot on a mortgage over the next few years while they have the job and then refinance back out over 30 years or recast the loan?
With taxes and insurance, you’d be looking at a $4,500-5,000 a month payment (depending on where you live and how much your taxes are). If you are comfortable with that is a question that only you can answer.
Personally, I would try to avoid moving once my kids were in school. So, if you’d have to change school districts is also a question.
Assuming you roll all equity into the new house, you’re likely to see a mortgage payment that is $1,000 more a month just on principal. Property taxes will be higher/much higher, utilities higher, and insurance higher/much higher.
If you factor all those in and the total expense makes sense in your budget then go for it, just don’t lose sight of the extra costs beyond your loan.
If it were me, i’d be inclined to stay and bank the high income into a brokerage like you mention. Toddlers are also hell on your house…
Here’s one way of thinking about it:
Selling your current home should net you around $250k assuming nothing funky happens with the sale and your estimated sale price is accurate. You also have $200k in cash savings as well as $500k in your brokerage. This means, after selling your current home, you’d have enough cash on hand to buy a $900k home outright.
You obviously *don’t* want to do that, but if you decided to buy the house and you lost your high-income, you could, in theory, afford to just buy the house and sit on a solid (albeit illiquid) asset that *should* still appreciate in value. Of course, there’s a lot of options on the table before even having to do that.
Considering that’s “worst” case scenario, I think you can effectively afford it. I *would* agree that you’d ideally be able to comfortably afford the mortgage of the new home with income without having to touch your savings/brokerage, so it’d be important for the person with the higher income to stay working as long as possible. But, again, there’s options. If they can ride their current job out a bit but then move into a more flexible position, that could be enough to keep things moving along without issues. Similarly, by the time something like that occurs, the other person might be able to improve their own income to help mend the gap, etc.
Really, the question is whether or not it’s worth it on a personal level. Sounds like it might be. You have two young kids. The next ~20 years of your life will probably be the most important for you and your family on a personal level. Racking up a huge nest egg is great, but if it comes at the cost of not getting the best experience out of the most important time span of your life, then it may not be worth it.
I think it’s important to consider all of the branching scenarios over different time frames to get a better understanding of how things might shake out in the long run. It’s just not prudent to assume all of these factors will remain static, especially if the two of you are capable of each earning >$200k *now*. That leaves a lot of options on the table over the future if you all end up needing to adjust. Similarly, that $900k house should also be considered an investment as well, especially if you play the financing game effectively, so it’s important to not just consider it a straight expense.
You’re doing really well for your age. I would probably upgrade the house. I think you can afford to based on your investment and savings rate.
I’d say go for it, I also have two kids under three and we upgraded our house last year. Our quality of life is SO much better. I was also nervous about it and still with sometimes we had more disposable income. But since we are home a lot with the young kids it makes me happier on a day to day.