photoguy
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Another way to think of the $100k is it maybe the equivalent of 400-500 bucks a month. Is that tradeoff worth it to you (increased obligation to MIL).
Taking on more than I can handle?
- Thread starter EvrClrx311
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My house is only 15% of my net worth. It is far smaller than I could afford (gross income is 344,000 per year) , but I feel much more comfortable in my modest home that is paid off than I would strapped to a huge mortgage - I would tell grandma thanks for thinking of us, but no thanks.
I always remember my Dad's answer to my question, "why don't we have a bigger house?" His answer: "Son, you can't eat your house."
I always remember my Dad's answer to my question, "why don't we have a bigger house?" His answer: "Son, you can't eat your house."
Calico
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OP:
In one breath you say you don't think there are strings attached to this "gift" and in the next you say that you would feel obligated to pay it back somehow, and that grandma would someday like to move into the basement. If she has the ability to apply this kind of pressure now, imagine your life choices being dictated by her when she is ensconced in the basement - in the house which she will never, ever let you forget she helped to pay for.
This is not a gift from the heart. If it were, grandma would be fine with you putting it into the college funds, or paying down the mortgage.
This "gift" has so many strings attached it is impossible to see them, let alone count them. Each string will be tugged tighter and tighter by grandma as the years go by.
My father often used to say "he who pays the piper calls the tune." Change the word "he" to "she" and I fear you will soon deeply understand the meaning of that expression.
I offer these words as someone who had a wealthy grandmother who kept several family members hopping to do her bidding thanks to the financial "gifts" she bestowed on one and all. I declined all her "gifts" and ended up very glad that I had done so.
If the dream home is so important, just be aware that you will likely be paying for it in ways you cannot imagine, and some of them won't have anything to do with money.
In one breath you say you don't think there are strings attached to this "gift" and in the next you say that you would feel obligated to pay it back somehow, and that grandma would someday like to move into the basement. If she has the ability to apply this kind of pressure now, imagine your life choices being dictated by her when she is ensconced in the basement - in the house which she will never, ever let you forget she helped to pay for.
This is not a gift from the heart. If it were, grandma would be fine with you putting it into the college funds, or paying down the mortgage.
This "gift" has so many strings attached it is impossible to see them, let alone count them. Each string will be tugged tighter and tighter by grandma as the years go by.
My father often used to say "he who pays the piper calls the tune." Change the word "he" to "she" and I fear you will soon deeply understand the meaning of that expression.
I offer these words as someone who had a wealthy grandmother who kept several family members hopping to do her bidding thanks to the financial "gifts" she bestowed on one and all. I declined all her "gifts" and ended up very glad that I had done so.
If the dream home is so important, just be aware that you will likely be paying for it in ways you cannot imagine, and some of them won't have anything to do with money.
Milton
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Exactly.
Bimmerbill
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Seems like the "gift" is to sponsor you as you begin your race to keep up with the Joneses.
obgyn65
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chris2008
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I dislike the inflation argument to justify house investment.
The inflation argument IMO assumes that your income increases at least with the inflation rate or even more and that the house value increases with or above inflation rate.
If not, each $ of debt will still have to be paid off with a $ equal to the same % of salary as today. So where is the benefit of inflation?
Today lots of people see their salary increase below inflation while cost of food, commuting and other necessities increase above inflation rate.
If my grandmother offered me such a gift I would say "Thank you so much for offering, but your gift is not for us. Our priority is not a more expensive house".
The inflation argument IMO assumes that your income increases at least with the inflation rate or even more and that the house value increases with or above inflation rate.
If not, each $ of debt will still have to be paid off with a $ equal to the same % of salary as today. So where is the benefit of inflation?
Today lots of people see their salary increase below inflation while cost of food, commuting and other necessities increase above inflation rate.
If my grandmother offered me such a gift I would say "Thank you so much for offering, but your gift is not for us. Our priority is not a more expensive house".
kaudrey
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I won't opine on what you should do - your priorities are probably different than mine. But, FWIW:
For me, that high of a mortgage would cause me to lose sleep at night, and I don't have kids. I make about the same as you. I live in NoVa in a townhouse, but I bought back in 1999, when R.E. was much more reasonable. I am not afraid of R.E. - I bought a cabin in WVA about 3 years ago - but even with that my two mortgages (PITI) are about $3K.
And, the only reason I felt I could do that is because I will get a FERS (fed gov't) pension when I retire, and have my health bennies covered if I don't retire until my MRA (56 years, 10 months). That, plus my savings, gives me comfort that I can afford what I have. Without that scenario, I probably wouldn't have been comfortable buying the cabin and adding that second mortgage.
We all have different levels of financial comfort zones, and goals. My cash/investments goal is a lot higher than what you project in your bigger house scenario.
For me, that high of a mortgage would cause me to lose sleep at night, and I don't have kids. I make about the same as you. I live in NoVa in a townhouse, but I bought back in 1999, when R.E. was much more reasonable. I am not afraid of R.E. - I bought a cabin in WVA about 3 years ago - but even with that my two mortgages (PITI) are about $3K.
And, the only reason I felt I could do that is because I will get a FERS (fed gov't) pension when I retire, and have my health bennies covered if I don't retire until my MRA (56 years, 10 months). That, plus my savings, gives me comfort that I can afford what I have. Without that scenario, I probably wouldn't have been comfortable buying the cabin and adding that second mortgage.
We all have different levels of financial comfort zones, and goals. My cash/investments goal is a lot higher than what you project in your bigger house scenario.
OP
OP
EvrClrx311
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Thanks for all the continued advice and cautions. We've decided that if we cannot keep our current house and move it isn't worth it. We're going to hold off for a few more years. DC Metro is building a new line out to our area in the next 5 years, and our townhouse is within a mile of the stop. That makes our current home a good thing to hold onto. In theory. Great place to rent.
In regards to the inflation example...
Engineering average salary (Chemical, Electrical, Aerospace):
1960 - $15,500
1970 - $18,000
1980 - $36,000
1990 - $57,000
2000 - $76,000
2010 - $92,000
I'm in computer engineering with a masters in cyber defense... soon to be working on a PhD in Artificial Intelligence. Appears that those who are more senior than I am are making 30-40% more, so room to grow. No crystal ball here, but the profession has been growing for the last decade and projections have that trend accelerating through 2030.
I would think it to be highly unusual for anyone to start at $25,000 a year in 1960, and still expect to be making $25,000 in 1990 with 30 years experience doing the same work. If that person making $25,000 in 1960 bought a house and had a 30 year mortgage of $700 a month (34% of gross income)... its safe to assume things only got easier for them over the next 30 years. That is assuming they continued to remain employed.
I think the real key for us is when DW starts working again (2-5 years from now)... that will raise our household income by 50% or so. I do think that inflation is going to get a little out of hand in the next decade... real estate would be a good hedge against that. Still hoping to make a move in the next couple years.
In regards to the inflation example...
Engineering average salary (Chemical, Electrical, Aerospace):
1960 - $15,500
1970 - $18,000
1980 - $36,000
1990 - $57,000
2000 - $76,000
2010 - $92,000
I'm in computer engineering with a masters in cyber defense... soon to be working on a PhD in Artificial Intelligence. Appears that those who are more senior than I am are making 30-40% more, so room to grow. No crystal ball here, but the profession has been growing for the last decade and projections have that trend accelerating through 2030.
I would think it to be highly unusual for anyone to start at $25,000 a year in 1960, and still expect to be making $25,000 in 1990 with 30 years experience doing the same work. If that person making $25,000 in 1960 bought a house and had a 30 year mortgage of $700 a month (34% of gross income)... its safe to assume things only got easier for them over the next 30 years. That is assuming they continued to remain employed.
I think the real key for us is when DW starts working again (2-5 years from now)... that will raise our household income by 50% or so. I do think that inflation is going to get a little out of hand in the next decade... real estate would be a good hedge against that. Still hoping to make a move in the next couple years.
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haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I cannot see your argument. No matter what the house value does, if your after tax salary is increasing, the burden of your mortgage loan will be decreasing. You can think of it as hours of work needed to pay one monthly installment.
All you need is that your salary keep up with taxes and costs on the home, and the house and neighborhood remain a good place to live.
OTOH, if your main interest is in turning a real profit on sale, the rate of home appreciation may matter.
To me the bigger problem with serial buying a home and selling and rebuying as a planned strategy is that the costs and disruption of selling, rebuying, moving, and making desired repairs/changes to the new place can be very large.
I am thinking back to 2006 when the house price implosion had not yet hit Seattle and realtors were suggesting that you not buy unless you planned to hold for 2 years. What a joke. Turning houses, and paying ~10% vigorish is likely not a good plan, except for skilled professional flippers, who are not trying to find a house to live in, but a house to sell.
Ha
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Brat
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
With a bigger house comes more maintenance, property taxes, and insurance. If you are not uncomfortable where you are I would ask grandma to put that money in a 529 college savings plan for your children.
Only she knows the amount of your mortgage (unless you told her). If you can find a better house without spending all of her 'gift' in addition to the sale cost of your house it might work, in effect she would be helping to pay down your mortgage. Remember, today's dream house is tomorrow's dated abode -those of us who purchased our first home in the 1970s can attest to that.
If there is any hint that if she gives you this money she expects to live with you in her final days.. don't do that. You may want her to live with you then but don't accept the money with that arrangement because it isn't a gift.
Only she knows the amount of your mortgage (unless you told her). If you can find a better house without spending all of her 'gift' in addition to the sale cost of your house it might work, in effect she would be helping to pay down your mortgage. Remember, today's dream house is tomorrow's dated abode -those of us who purchased our first home in the 1970s can attest to that.
If there is any hint that if she gives you this money she expects to live with you in her final days.. don't do that. You may want her to live with you then but don't accept the money with that arrangement because it isn't a gift.
Oh, geez, $150k income and $850k house or even $625K house would scare the heck out of me. How secure is your job or how easily could you find another one with the same or better salary in case you're laid off?
I'm super concervative though
To be honest, I really don't like such strings. If she were a millionaire-next-door type grandma she'd really understand how her $100k give would help you with getting ahead for your ER in case you're interested. What about $100k for your children's college fund?
I'm super concervative though
To be honest, I really don't like such strings. If she were a millionaire-next-door type grandma she'd really understand how her $100k give would help you with getting ahead for your ER in case you're interested. What about $100k for your children's college fund?
OP
OP
EvrClrx311
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As an update, we did decide to build the house. Three positives happened in May, 1) I received a significant raise (15%) at work, 2) I had the opportunity to make an additional $60,000 doing a free lance project this summer and 3) Our townhouse sold for $20K more than we expected... which brings our mortgage under the jumbo conforming (we locked 4.25% on a 30 years fixed). We're still financing 75% (or about $615K).
So far the neighborhood is doing exceptionally well and we can't wait to move in. Seems everyone on our street (we're on a side cul de sak with 14 homes total) has kids. So far my wife has confirmed 25 kids under the age of 8, 18 of which are girls (we have two girls ages 1 and 4).
Builder has raised home prices significantly this spring. Our base model is selling for about 10% more than we signed for. Guessing our home will continue to rise as the development progresses since we're early into the community and the homes going in after us are larger. (fwiw, HOA is already established and dictates rules to builder... unlike most communities where the builder builds and then hands over to HOA - because of this we have a very unique neighborhood... lots of open spaces, amenities, farms, gardens, larger lots, etc... rare for DC suburbs). Still need to watch the desire to 'keep up with the Jones' but that has never been a problem for my wife and I. We're certainly moving into a neighborhood where everyone is doing well for themselves. We chose the location for the community.
We'll have an emergency fund still in the $60,000 range, and 401K just crossed $200K, with our home equity somewhere in the quarter million range.
Adding that all up we're close to equal on the debt to wealth line. We plan to stay in this house until kids are out of college (20 + years)... and don't anticipate ever needing to refinance and don't want to touch HELOC.
Because of the raise in May we didn't need to make any changes to our budget. Conveniently, the higher mortgage payments match the raise received...
Still no regrets, we'll see how that ends up. I'm anticipating this being a good financial move in the long run. Of course we could have chosen a smaller home in another development, but I'm not sure we'd have the same quality of life raising our kids (I'm aware that could be a biased opinion based on my desire to believe this is a good choice). That said, I doubt this home will stay under $1 million for long (sale price was $840K and the same sq footage is going for around $900K now. A few years from now I'm anticipating our mortgage to be half the value of the home. That depends on the market...
(most importantly, we left Grandma out of the equation)
So far the neighborhood is doing exceptionally well and we can't wait to move in. Seems everyone on our street (we're on a side cul de sak with 14 homes total) has kids. So far my wife has confirmed 25 kids under the age of 8, 18 of which are girls (we have two girls ages 1 and 4).
Builder has raised home prices significantly this spring. Our base model is selling for about 10% more than we signed for. Guessing our home will continue to rise as the development progresses since we're early into the community and the homes going in after us are larger. (fwiw, HOA is already established and dictates rules to builder... unlike most communities where the builder builds and then hands over to HOA - because of this we have a very unique neighborhood... lots of open spaces, amenities, farms, gardens, larger lots, etc... rare for DC suburbs). Still need to watch the desire to 'keep up with the Jones' but that has never been a problem for my wife and I. We're certainly moving into a neighborhood where everyone is doing well for themselves. We chose the location for the community.
We'll have an emergency fund still in the $60,000 range, and 401K just crossed $200K, with our home equity somewhere in the quarter million range.
Adding that all up we're close to equal on the debt to wealth line. We plan to stay in this house until kids are out of college (20 + years)... and don't anticipate ever needing to refinance and don't want to touch HELOC.
Because of the raise in May we didn't need to make any changes to our budget. Conveniently, the higher mortgage payments match the raise received...
Still no regrets, we'll see how that ends up. I'm anticipating this being a good financial move in the long run. Of course we could have chosen a smaller home in another development, but I'm not sure we'd have the same quality of life raising our kids (I'm aware that could be a biased opinion based on my desire to believe this is a good choice). That said, I doubt this home will stay under $1 million for long (sale price was $840K and the same sq footage is going for around $900K now. A few years from now I'm anticipating our mortgage to be half the value of the home. That depends on the market...
(most importantly, we left Grandma out of the equation)
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Milton
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Thanks for the update. Many people ask questions, receive lots of detailed advice, and then disappear from the forum altogether. It was courteous of you to provide a status report.
Glad to hear it!
haha
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Chuckanut
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
How sweet it is!!
Bestwifeever
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Evrclrx311, your kids are going to have a lovely childhood and nice memories in their new house in the new neighborhood. Can't put a price on that.
chris2008
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Congratulations.
Just wondering: did the old lady not follow up on her offer or did you turn her offer down?
Just wondering: did the old lady not follow up on her offer or did you turn her offer down?
