large downpayment or investing instead?

[phoenix123]

--------------------------------------------------------------------------------

hello everybody! please share your opinion on the following situation: we are a couple in their late 20's with a baby. we want to have another baby as soon as possible. we currently live with a friend and want to buy a home. we live in phoenix, az. husband works from home and therefore needs an office. his father is in financial trouble and has health problems, so will therefore have to move in with us somewhere in the next 10 years. we need a bedroom for us, one for each child, an office plus a guestroom/ room for dad. that makes 5 bedrooms. yeah, we don't NEED 5 bedrooms NOW, but we will eventually. so we found this house that costs 216K. we have 174K in savings. husband makes 50K annually. i am a stay-at-home-mom and would prefer to stay home until kids start school. question is: is it reasonable to buy this 5 bedroom, 216K house in our situation? we are considering buying it and making a 50% downpayment. we would have to pay the mortgage down that much in order to afford it. if we deduct our anticipated fixed costs (mortgage, hoa, utilities, cell phone bill, cable, insurances) we would have $1150 leftover for variable monthly expenses like groceries, clothing, gas, entertainment, baby items, etc. for bigger expenses, vacations, medical bills and emergencies, we would have to dip into our savings. we realize that a budget of $1150 for 2 adults and 2 babies is very tight and that we would probably have to go into our savings quite frequently. if we end up buying the house anyway, we will make a 50% (108K) downpayment, spend some more money on furniture and flooring and invest the rest of our savings (about 50K). probably into stock index funds. but it seems like financially, it would be wiser to buy a less expensive house where we could make a smaller downpayment and have more money left for investing. however we really like the house... it is the kind of house that we want to live in eventually. if we bought a smaller house, we would have to move again and buy a larger one in 10 years from now. if we're going to buy that kind of house anyway, is it smarter to do so now, while interest rates and home values are low? if we have more money to invest, we will have significantly more money in 10 years than if we use more on a downpayment. but maybe houses are a lot more expensive now and interest rates are so high then, that we wouldnt be able to afford a house of that size anymore? please let me know what you think! by the way, the inspection period ends tomorrow which means a definite decision needs to be made by then. so reply quickly please!

[creditcardfree]

You are in a different situation than most with that much cash available for the downpayment. However, you are locking in a lot of that money just to be able to afford it. Then you don't seem to have any money left over to invest and may need to dip into savings to survive living there. I think you are getting in over your head.

[Ima saver]

I think a 5 bedroom house would be very difficult to resell.

[jIM_Ohio]

we would probably have to go into our savings quite frequently. if we end up buying the house anyway

NO do not buy
if this is true, you cannot afford it

do one of three things

1) change how you think about money
2) increase income (second job for husband or part time work for wife)
3) decrease expenses so you do not have to dip into savings.


Here is what I would
show us your current budget...
3 things
1) expenses (monthly and annual)
2) income (gross and net, monthly and annual)
3) savings (how much, invested in what, retirement and cash accounts)

Then once we analyze present expenses, we can do the same for the new house.

[Joan.of.the.Arch]

Did you know that cable is not a utility? I would not put it in the same category as mortgage, utilities, HOA fees, insurance, or even cell phone. It probably belongs in that category you call "entertainment." If cable is a necessity to your husband's work, it should probably come out of his business budget rather than your household budget. If cable would be in your house for entertainment, then it is definitely not a necessity. In fact, it is sometimes one of the first expenses to be done away with when on is having to save money or cut back on expenses.

Now maybe you only put it in that category because it is a fixed amount, and the other things seem variable, as you say. Well some of those other things might not need to be as variable as you think. They can be predicted fairly well, month to month. They can be budgeted for. And certainly some of them need to be purchased more than does cable.---One should be certain of having food expenses covered, for example, before one thinks of buying cable services.

That may seem like a small matter, but I think it might be an example of how you could benefit from taking some months to learn more about good ways to handle your money and make decisions about it.

edited to add: I just went back and read your previous posts. It seems you do have more experience with the Phoenix housing market than this present post might indicate. I think others might want to read of your previous experience with being in "underwater" in Phoenix. Please be very cautious.

[jIM_Ohio]

edited to add: I just went back and read your previous posts. It seems you do have more experience with the Phoenix housing market than this present post might indicate. I think others might want to read of your previous experience with being in "underwater" in Phoenix. Please be very cautious.

Joan good job doing homework on past posts

I went back and re-read them...

I am seeing a trend of people coming to board, asking for opinion, then doing what they intended to do all along, regardless of feedback.

LOL

[disneysteve]

we are considering buying it and making a 50% downpayment. we would have to pay the mortgage down that much in order to afford it.

This is a HUGE red flag. If you have to put down 50% in order to afford the mortgage, you are way out of your league. Find a home that you can afford with a 20% down payment and no more than 28% of income going to housing costs. That might mean your kids share a bedroom. That might mean your husband works on a desk in the basement or you convert part of the garage to an office. My father worked from home for 35 years - on our dining room table.

You need to better distinguish your NEEDS from your WANTS.

[jIM_Ohio]

This is a HUGE red flag. If you have to put down 50% in order to afford the mortgage, you are way out of your league. Find a home that you can afford with a 20% down payment and no more than 28% of income going to housing costs. That might mean your kids share a bedroom. That might mean your husband works on a desk in the basement or you convert part of the garage to an office. My father worked from home for 35 years - on our dining room table.

You need to better distinguish your NEEDS from your WANTS.

Putting more down to afford a payment should not be a flag. Based on prior osts OP got a lump sum for something, and think its the cure all to getting a big house.

I agree OP needs to distinguish needs from wants
Location could impact this decision more than 5 BR does... but it does not appear OP wants to compromise or logically think thru problem financially.

[disneysteve]

Putting more down to afford a payment should not be a flag.

I do think it is a red flag because a more expensive house generally comes with higher expenses, higher utilities, higher taxes, higher maintenance costs, higher furnishing costs, etc. There is a lot more to it than being able to afford the mortgage payment. OP could easily get stuck buying this house by depleting savings for a big down payment only to find that they are unable to afford to live there.

[jIM_Ohio]

I do think it is a red flag because a more expensive house generally comes with higher expenses, higher utilities, higher taxes, higher maintenance costs, higher furnishing costs, etc. There is a lot more to it than being able to afford the mortgage payment. OP could easily get stuck buying this house by depleting savings for a big down payment only to find that they are unable to afford to live there.

I see that side of it, but we don't see the budget which is the details behind it to know for sure...

[creditcardfree]

we would have $1150 leftover for variable monthly expenses like groceries, clothing, gas, entertainment, baby items, etc. for bigger expenses, vacations, medical bills and emergencies, we would have to dip into our savings. we realize that a budget of $1150 for 2 adults and 2 babies is very tight and that we would probably have to go into our savings quite frequently.

The big red flag to me is that after their lowered mortgage payment because of a large downpayment they would still need to dip into savings frequently. That alone isn't right. It's too much house if the income can't support the payment and the expenses.

[disneysteve]

we would have $1150 leftover for variable monthly expenses like groceries, clothing, gas, entertainment, baby items, etc. for bigger expenses, vacations, medical bills and emergencies, we would have to dip into our savings.

The big red flag to me is that after their lowered mortgage payment because of a large downpayment they would still need to dip into savings frequently. That alone isn't right. It's too much house if the income can't support the payment and the expenses.

Another problem is that they consider clothing and entertainment ahead of medical bills and emergencies. I think the priorities need some work.

[creditcardfree]

Another problem is that they consider clothing and entertainment ahead of medical bills and emergencies. I think the priorities need some work.

Absolutely!

[EconoMutt]

I wouldn't do it. I own property in Phoenix.
I think real estate in this area may continue to go down
for the next two years.

[amarowsky]

Sounds like if they did need a house, it would be safe to say to look for simply a cheaper one. I'm not too sure on the real estate in phoenix, but around where I live 217k will get you a TON of house. You can still get like a 2300sq foot house where I live around for 120-180k.

If you want a house downsize to one that is more affordable. So you can live more financially comfortable instead of aesthetically comfortable.