Wow, this site can get a bit intense-- and critical! Nonetheless, I think of it as my personal record of my financial life, so I'll go ahead and post.
This morning my stomach was in knots as the mortgage broker emailed and called with messages about how it was going really well, looked good, it was going through -- and then he called and said it couldn't happen.
The down payment on a duplex needed to be 15%, he said. Could I come up with another 5%? Well, no. I'd already gathered all my liquid assets for 10% down, plus my friends had chipped in a bit.
He said he'd go ahead and send a $400K approval letter, and that we'd be approved for a single-family home at that amount, but not a duplex because we didn't have the 15%.
I was disappointed, but also relieved. This would have cleaned out our savings and it would have taken a year to get back on equal footing if we didn't sell our condo and if the WV money didn't come through. The not knowing on both of those unlikely, but possible, scenarios was stressful.
I'm still glad we tried our hardest to get that place, because it would have been the perfect home for us. I don't think another one will come up and tempt us anytime soon, at least not one that isn't snatched up immediately by a commercial buyer. If it did, our hands would be tied unless it was $310K or less -- and the ones at that rate tend to either be in less desirable (to us) neighborhoods or commercial buyers would buy them before we had chance to make an offer.
So now, we'll go ahead with the US renovations, we'll leave the UK money in the UK account (for the time being), and we'll continue to save up money (but without cutting the budget to the bone; I'd only do that if a perfect place was right in front of us).
We're going to have dinner with our friends tomorrow night and talk about the future. Hopefully they will want to keep renting where they are and wait for a better time to buy together. I still think it's a good idea; I just never dreamed it would take such a hefty down payment to do it.
Update on the house situation
May 29th, 2014 at 03:40 am
May 29th, 2014 at 06:36 am 1401341776
May 29th, 2014 at 01:05 pm 1401365140
There's more to a total financial picture than getting rid of debt (which you are amazing at) - it goes hand in hand with saving for your retirement. Focusing on "being able to make the payments indefinitely" shouldn't be the goal. Remember - you don't want to just keep your head above water, you also want to be able to start heading toward dry land and try to get out of the damn ocean.
It might end up working fine, and I wish you all the luck in the world, but you can't blame people on a financial board for being financially conservative.
May 29th, 2014 at 01:35 pm 1401366942
May 29th, 2014 at 02:30 pm 1401370239
May 29th, 2014 at 02:41 pm 1401370898
If you each need $40,000 in income today, you each need $1,000,000 to produce that income using a 4 percent safe withdrawal rate. With inflation, you will need a lot more in 20 to 25 years. If you have Social Security, that may cover a portion of your income needs, but your benefit may be reduced because Social Security is underfunded. You won't have kid expenses, but you will have higher medical expenses.
Putting more money away at 40 allows the power of compounding to work for you. If you wait 10 years, you will have to devote a much higher portion of your income to savings to achieve the desired result. Most people these days stop working closer to 60 than to 65 because of health issues or they are pushed out because of age. If the three of you left work at 60, would you have enough money?
In your shoes, with the debt paid off, I would turn my attention to asset accumulation. If you educate yourself on investing, start immediately, and work as hard at that as you did on paying off debt, you should be fine. But you need to focus on this now to be successful.
May 29th, 2014 at 03:05 pm 1401372321
Seriously not trying to be negative - but it's just that you are always so rational in your blog. It's probably my favorite blog! But ever since the house search started it does seem like you're getting a little house-crazy ;-)
Like we tell everyone, don't rush into buying a house because the market is great or there's a great house out there. The only right time to buy a house is when you're *ready* to buy a house.
May 29th, 2014 at 03:17 pm 1401373046
We have over $200K in retirement assets between the three of us. The sidebar page is from September.
We're on track to have between 75% and 80% of our income by retirement age according to the calculators.
I plan on increasing our retirement contributions not in 10 years but in about 2. And yes, that was factored in to paying the mortgage on this new home, which would only have been about $700 more than the mortgage on our current home.
If I increase our retirement contributions in 2 years, the calculators say we'll be able to have over 85% of our income in retirement. We also intend to keep the rental property in the UK to have additional income in retirement, but if we don't, we'll use part of the proceeds to further plump up our retirement.
We currently only live on about 75% of our income (the rest has been going to debt repayment and savings), and that's with paying cash for NT's college and with daycare costs included in the 75%. (Our needs, including daycare and college, take 51% of our take-home pay.)
I hope that makes you feel better, but if it doesn't, that's OK too. I feel good about our retirement.
May 29th, 2014 at 03:39 pm 1401374396
May 29th, 2014 at 03:54 pm 1401375288
2nd, I wonder why an up/down duplex with your family which includes two tykes is ideal. That's a lot of daily up stairs down stairs and down to basement lugging laundry. Perhaps I'm overly concerned because I recall you bought the condo with little understanding of what you were stepping in to.
3rd, if this is a truly old build the best home inspector cannot tell what problems lurk behind ancient walls and I'd be frightened of plumbing and wiring so far from current code. Some see charm, I see heat leakage, rotting lathe, unknown wiring and rusting pipe joins. When was the roof last replaced? What is the attic and wall insulation factor?
4th, given how hard you've worked and effort put into to creating a strong financial foundation, how will you feel carrying such significant debt? Is AS's work truly winding down requiring her to seek new employment with potential of a period of unemployment? Have you analyzed the RISK factors? Would you sleep well with a short term high debt ratio? If your friends needed to break their lease would you be happy with strangers as tenants?
5th, have you checked mortgage advantages at a CU? What interest rate? I'm disappointed that your mortgage broker 'led you on...'
5th, would you consider renting basement room to a university student? Would you consider renting the garage at least one year?
...just some thoughts
May 29th, 2014 at 03:59 pm 1401375578
I just got a bit touchy about the retirement comments that kept cropping up, because I have worked really hard to keep retirement savings on track while we've been paying down debt and saving up cash like fiends. I realize we're not on an early-retirement track, but I hate hearing that I've completely failed on the retirement side of things.
May 29th, 2014 at 05:30 pm 1401381013
As long as you don't dip into retirement or go backwards with retirement savings, you will likely be fine meeting your retirement goals. I would hate for anyone to be house rich and retirement poor. While we could afford more home ourselves, we tend to be a little more conservative than our income and savings allow. This seems to work for us!
Again, sorry this one didn't work, but I would guess there will be something even better at some point and the finances will align, too.
May 30th, 2014 at 05:18 am 1401423516
So look at this as a good practice run..
Some thoughts -
Around here it is not uncommon to find a SFH with a "granny"/cottage unit. Could that be a possiblity there?
You could make a low-ball offer on the duplex to get it into the FHA limits?
And I hope this will end up leading you to a better place with better timing.