In what price range should we be looking?

[Anonymous]

I'm not particularly savvy about this stuff so here goes. My husband and I are thinking of purchasing a property and don't trust those caclulators that tell you how much house you can afford (they seem way too optimistic). Here are the vitals:

HHI: 180K
Husband is self-employed; I am a GS-13.

Downpayment: 150-200K
Backstory - we are finishing renovations on a rowhouse that we outright own, whose value is about 350K, maybe more; we paid for the renovations ourselves minus a family loan of 40K. The plan is to take maybe 250K out of it, pay back family, pay any outstanding cc debt, use the rest as a downpayment on another house, and rent the renovated property out at about 1700/month to cover payment of the mortage we'll take out on it. We don't want to live in the house as it is in a bad school district (we had initially planned to when we bought it 2 yrs ago but now have a 1 yr old and don't want to take a chance on lotteries). As for managing a property, we've done so with some family ones, and we know what a pain it can be, but are prepared.

Debt
10k in grad school loans,
10K on credit cards (ran out of cash for renovating the house, i know, ouch, we need to pay this off),
40K mentioned above owed to family

Monthly expenses
1,700 for childcare
no rent expenses (we're living rent free in a one bedroom family property, no flaming please, I judge myself already and we do have a few things that we do in return for our free rent)
no car

Savings
No savings (we've been pouring everything into the house), about 50K put away in my retirement, my husband doesn't have anything put away, we're hoping to change that now that the house is done.

Any insights into whether we are approaching these things properly? Any idea how much house we can afford? We're very aware that going from a no rent situation to paying a mortgage is going to be hard to swallow, but we are outgrowing this one bedroom, which itself is in a mediocre school district, and are ready to get our own place... Thanks for reading my long and somewhat rambling post!

[Anonymous]

Sell the house and move to better area. That is what people do to afford where we live. GL.

[Anonymous]

^^ $350 down on a $750 house is a fairly low mortgage.

[Anonymous]

OP, here, thanks for the replies. Yeah, we are toying with selling as well. I am pro-selling so we don't have to worry about renting it out/managing it, but he would like to have it as an investment ... But even if we were to sell, and after paying things off, we would have about 275-300K for a downpayment - how much should we spend on a house? Isn't 750K a little much for our income, plus given the fact that we have virtually no savings...? Or are I being to cautious?

[Anonymous]

On $180K I'd say get a $400k mortgage, no more.

[Anonymous]

Sell the current house, payback college and family loans and pay off credit card debt. Put $200k down on a house in a better school district, use the remainder for a rainy day fund.

Or since you sound less risk adverse than me, refinance and rent current home. Take the $250k and pay off college, credit card and family. Put down $150k and use the remainder for your rainy day fund. Get a loan for a max of $450k, BUT make sure you will be able to, in a pinch, pay for both mortgages on your salaries.

[Anonymous]

OP, here. Very helpful, thank you! I'm thinking our price range will be 500-600k, which, will buy us soooo very little where we will be looking. But, we really do need to build a rainy day fund. I read the postings of others re: how much they've saved, etc, etc - and we have a ridiculously long way to go; we're definitely behind the curve.

[Anonymous]

Is there any reason you can't stay in the rowhouse a few more years & save for a bigger downpayment / rainy day fund? I understand the school issue, but your child is 1 so you have some time. And what are the PS3 & PK options where you are? No mortgage rent + 2 extra years without childcare expenses could lead to a lot of savings.

[Anonymous]

Why do you have so many loans and debts

[Anonymous]

Re: why so much debt, I didn't think that 60K was that bad, but I may be just fooling myself.

Another pp brings up a good point re: moving into the renovated rowhouse (which is two bedrooms) from our current one bedroom place for a few years until we save up money. Our PS3 options won't be good, though, but there aren't good but there are no guarantees we'd get in if we were in boundary in a better neighborhood.

So, I guess my options are: (a) sell the renovated rowhouse outright, and use the money for a downpayment on another place and rainy day fund, (b) take out a mortgage on the renovated rowhouse, rent it out to cover the mortgage, and then use the money for a downpayment on another place and a rainy day fund, (c) move to the renovated rowhouse and have no monthly mortgage, or (d) stay rent free (with all the family baggage that entails) in the one bedroom place owned by our family, rent out the rowhouse and sock away the money we bring in from the rental income.

Put the above way, even though I've been really reluctant to stay in the one bedroom place owned by family because of related family drama, it is without question the best way to put away the most money, I guess.

[Anonymous]

My quick and dirty rule of thumb for the amount of you should buy is (2.7*Net Income)+Down payment. It's conservative, but safe.

[Anonymous]

$700k

[Anonymous]

10:29 again who brought up staying. Your PS3/PK options may not be great, but if you still have to pay childcare for those years you're no worse on that front than if you move since the places you'll probably move to for good schools on a 500-600K budget probably don't offer the free preschool option, so you'll be paying childcare there anyway.

As for staying in the 1B, only you know how painful the family drama is, and getting away from that / those strings may very well be worth the money. I just wouldn't think so much about what your family needs 4 years from now when you don't HAVE to be moving / buying.

How is the neighborhood of the row house for *this* stage of your life? My kids are a bit older (elem/preschool) and it's amazing how the factors you truly value for quality of life change as kids get older. And how is the commute? A shorter commute is a real quality of life factor, and while you may need to move further for schools, delaying a long commute would be a big positive for staying.

[Anonymous]

If you take out a mortgage and rent the rowhouse, depending on the lender you will need proof that the rent is covering the mortgage so that its not impacting your debt limit when they calculate the mortgage limits for the new house. For us, DH had to have his condo rented out for 2 years to qualify and for them to not take that debt into account. Just a thought.
I would sell the rowhouse and not deal wih Renton as you are buying a new house.

[Anonymous]

If you move into your rowhome for 2 years then you will not have to pay capital gains down the road on the profit when you sell. Your child is 1. You can stay there for three years and then sell. No capital gains and a nice chunk of money for a home in a good school district.

Move into the rowhome, take out a home equity line of credit, pay back your family and your credit card and maybe student loan, depending on the rate. Save up money and move in 3 years.