Thanks for all of the responses. To clear up some of the questions or comments:
- Qualifying for the loan isn't a problem, but choosing to take it is another story. Both the builders lender and one other we called for comparison use the same formula to qualify which is DTI ratio under 49% on gross income. At $150,000 a year ($12,500 a month) that means keeping all debt obligations under $6,125 a month to qualify. We currently have a $750 car payment on a loan we took for a minivan (paid off in 2.5 years) and $165 in student loans. This means according to their equations we qualify for a Mortgage (PITI) amount of $5,210. Currently at rates in the 3.75% range on jumbo conforming, a mortgage of $625,500 would give us a PITI of about $3,800 - according to them that is 'very easy' for the underwriters to pass with 20% down . Again, seems getting the money from banks isn't a problem... its agreeing to pay $3,800 a year in principle, interest, taxes, hoa for the next 30 years.
- Yes, in our area houses are really just insanely expensive and that probably skews the view of this from anyone outside the DC metro area. The smallest house you can find within a reasonable commute to work here is maybe $400,000 if you're willing to go with something really old and small that needs a lot of work.
- We've looked into moving, and that would be difficult. We both have family in the area and the job market is specific to what I do and love. Moving would require me to take a substantial pay-cut as well.
For comparison on the houses:
Currently we live in a townhouse that is 1,932 square feet and is valued at $450,000. The mortgage is $358,000 and our PITI +HOA is $2,600 a month. The new house we're looking at building is 4,400 square feet with an unfinished basement on a third of an acre (lots of land for this area!) that would be built for about $825,000 on a mortgage of $625,500. PITI +HOA would be about $3,975. Factoring in the mortgage tax write off this means our total house payments would go up approximately $1,000 a month to move from what we're currently in to this new house. Looking at it like that makes it seem very reasonable... so much more house, better community, yard, easier commute all for just $1,000 more a month.
The red flag for me is the total debt on home going from $358,000 to $625,000.
(my guess is that grandma wants to move into the basement at some point in the future - she'll probably pay to finish it... which DW and I both think wouldn't be a problem. We both really like her and her husband passed recently.)
From all the books I've read, we have to be careful allowing family to start dictating our financial direction. I don't get the impression strings are attached here, but when someone hands over $100,000 its hard not to feel obligated to pay them back in some way.
One other thing to consider is that the neighborhood is just starting to be developed. Most of the homes that are slated to go into the community are a lot more expensive lots... 1-3 acres putting 1.5-3 million houses. We want to avoid getting into a situation where we feel like we need to keep up with the neighbors. Our outlook now is that we're getting in early and the new construction for the next 5-10 years will drive our house up in value... if we ever needed to move I'm pretty confident our house will be selling for well over 1 million 5+ years from now. Unless the housing market collapses again. Seems like a great community to raise a family in, in our sub-development everyone else looks about our age and also with small kids. Public school systems it feeds into are top in the country.
Let me guess. If you use the builders lender you get an incentive. And the lender who will probably charge you a small percentage above other banks has an attorney you can conveniently use for closure whose partners just happen to own the title company for the title insurance. Forgive me if I am wrong...but...I'm jaded. My daughter got into a deal like this in Virginia Beach and I gritted my teeth the whole way.
Just remember they have a vested interest and that interest is selling you the house. They don't care if you can make the payment 15 years from now...as they are gone as soon as closing and the money is moved into their accounts.
I'd also check into the HOA. I'll risk a bet that the HOA is still under the builder/lender if the development is not built up 80% to 90%...meaning it technically has not been turned over to the Homeowners Association. That's fairly standard procedure and just nice to know that it could be a while before their is a functioning HOA. Also you might want to make sure there are not multiple HOA's for different areas of the community or if there are how all that will work. HOA fees could go up if there is a master HOA (i.e., the homes in the 3million range) such that your HOA dues actually pay for something the owners living in the 3million dollar houses want.
You seem like a smart guy so perhaps you have thought of some of this.