Can I afford a new home in this market?

Submitted by Tenmaru45 t3_zzejzy in personalfinance

We bought our current home in 2015 for $139k @ 3.625% interest. My FIL gave us a $20k gift for a downpayment. We currently owe ~$84k on the home. Mortgage is $465/mo; homeowner's and property tax gets self-budgeted by me at $140/mo for tax and $72/mo insurance.

We have about $10k liquid in our emergency fund. We maintain a tight budget and are saving ~$400 per month. I'm the sole breadwinner and we have 5 kids so don't want to do anything stupid.

I don't see how we could afford a downpayment on a home, nor float the line item on the budget with interest rates etc.

Am I wrong? We are in our first home so I've never moved before to know if there's anything I'm missing. My only thought is we move out with family then sell the home to get the cash back for a downpayment but even then I don't think it's worth it at all.

Thanks for any insight!

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biondablonde t1_j2bcj6y wrote

There's not enough information here for us to give you any sensible advice. Why do you want a new home? Has your old home appreciated at all? What is your annual income?

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Tenmaru45 OP t1_j2bf1g9 wrote

Ah, good point. I make $75k pre-tax.

My home has appreciated due to updating our kitchen and being close to an area of regentrification--although how much it's worth now I don't formally know.

Basically my wife wants to have a bigger yard for our family/boys and to get away from some neighbors, an extra room since I've been WFH, etc. However, I think this is more of a long-term home if not a forever home due to the financials.

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Interesting-Dish8894 t1_j2bh69v wrote

Making 75 k gross and no other debt with todays interest rates then a mortgage of 225k would be a stretch with seven mouths to feed

You’re going to have to sell your house before buying a new one

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biondablonde t1_j2blsxp wrote

You have sufficient equity in your current home to cover the down payment on a larger/more expensive new one, most likely, but given that you are a sole breadwinner for a family of 7 I don't know that I would feel comfortable spending more than you are now. Given interest rates, you'll pay quite a bit more monthly for the same size loan you have now anyway. If you change locations, can you get a larger place for around the same price? How many years before your spouse intends to re-enter the work force (if ever)?

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Tenmaru45 OP t1_j2dgpgv wrote

That's what I'm thinking too. Maybe we if move more into the country, but then again getting more land than what we have now will probably counter any savings not living in a nice area of the city.

Depending on homeschooling etc., wife may not enter back into the workforce for at least 17 years.

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KoastPhire t1_j2b57j0 wrote

Your house is already stupid cheap monthly and you're barely getting by being the sole income source...and you're asking if you can afford a new home?

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Wisdom_In_Wonder t1_j2dm2h2 wrote

How many months’ expenses does that $10k EF represent?

Do you have additional savings in the form of Sinking Funds (for home / vehicle maintenance, vehicle replacement, clothing, child activities, etc)? If so, what do those funds amount to?

Are you saving for retirement? How much is currently there & what are your monthly contributions?

If you get the EF up to 6mo expenses and you have well-funded sinking funds and retirement is on track… you could possibly consider a different house. With interest rates double what you currently have, I doubt it would be any bigger unless you go much, much further out from the city - at which point you might struggle to find a small enough lot to keep it affordable. Perhaps as you save they will creep down a bit more, but I wouldn’t anticipate seeing sub-4% rates again for many many years. Low housing expenses offer your family a ton of security & flexibility, particularly while raising several children.

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Tenmaru45 OP t1_j2dp5f4 wrote

Thanks for these thoughts. My emergency fund is about 5 months worth of expenses, maybe 5.5. We're saving about $500 a month, and $12k is where I'd hit 6 months without being on rice and beans, but still cutting back.

That said, at the time there isn't another separate sinking fund which also worries me as the EF is sort of a both/and deal.

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Wisdom_In_Wonder t1_j2dy23a wrote

You are in a stable financial position - no new house is worth risking that. I definitely would not consider moving until the EF is at $12k and you have filled sinking funds beyond that and you are saving 15% monthly to retirement.

Home Maintenance: 1-2% of home value/year

Vehicle Maintenance: $75/vehicle/month

Vehicle Replacement: Estimated monthly payment

Personal Care: Annual clothing + haircuts/12

Holidays/Birthdays/Gifts: As you see fit

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