Help me explain this to my husband

[Anonymous]

Anonymous wrote:Your reasoning is off, OP. you should not be thinking about this in terms of equity in your home, since most likely having to sell your home or have your home foreclosed on to get the equity out to pay off the loan would be a complete disaster for your family, right? Your home is collateral for a loan you would be paying out of your family's existing income. Your home is NOT a source of income. So what you need to do is figuring out if there is room in your current budget to make payments on that $100,000 loan every month. At 130k HHI if you guys are trying to save for retirement, college, have car payments, etc, there may in fact not be that much extra in your monthly budget. And don't forget that you have to budget for normal home maitainence too!

It's reasonable to put some money in the house for upgrades if they are really going to make a big difference. But 100k is a lot!

At 130k HHI, if there isn't room in OP's budget to make payments on a $100k mortgage, then they need to re-assess their budget. they don't have daycare expenses because OP stays home. If they don't have student loans and/or private school tuition to pay for, then I would assume the biggest possible expenses are, saving for retirement, and college savings.

I'm not entirely sure if a HEL HELOC is the best avenue. Maybe taking out a 15 year 100k mortgage on the house would make more sense. Rates are low, and they could deduct the interest on their taxes. They'd also be able to pay it down sooner if they wanted by applying extra to principal every month.

I had a $165k loan at 5.5 percent when I made $50k. I also had a car payment and saved toward retirement.

I agree that the issue isn't how much equity they have in the house, but rather, they need to look at their budget and expenses. But there is no reason why they shouldn't be able to budget for that amount. They might have to scale down on other things -- like vacations, et cetera.

I'm curious what the renovations are. I wonder if they are frivolous renovations. In that case, if I were OP's husband, I wouldn't go for it. But if they are necessary renovations (i.e. things that will improve insulation, energy efficiency, et cetera, better use of space) or if the house is really outdated (i.e. kitchen and bathrooms from the 60s or 70s), then I think it makes sense to spend money on renovating.

One word of caution to OP, renovations always ended up costing more than the original projection, ALWAYS. So if you are getting estimates for 100k, I would at least budget for 125k (if not leave a little room for even more than that). Often it isn't until a renovation begins that contractors realize the full extent of what needs to be done, especially for older houses.

[Anonymous]

Anonymous wrote:

Anonymous wrote:If it takes you 10 years to save up $100k, it will take you a lot longer than that to pay off a $100k loan. I would save more aggressively for the renovations ($100k in 5 years seems doable) and try to do the renovations part at a time.

I agree. I wouldn't do any renovations that I couldn't pay for out of pocket. I sure as hell wouldn't do any renovations that would take me 10+ years to pay for. Live within your means.

I wouldn't either, but that's because I have a mortgage! If I didn't have a mortgage, that's a different story.

[Anonymous]

Anonymous wrote:Sell the house and buy one that doesn't require renovations.

Horrible idea. Because you never really know what a house needs until you live in it.

We bought a house we thought didn't require renovations, and then we moved in and slowly realized all of the things that needed renovation.

the only house you know won't need renovation is a house you have built (because even a house that is new may not suit your needs). If OP's husband isn't okay with a 100k loan, then I don't think he's going to be okay taking out a loan to have a house built (because they would have to take out a loan, unless they are willing to be homeless or rent while the house is being built) and then selling their house when it's done and paying if off then.

Not to mention, on paper, OP's house is worth 900k. but if it really does need renovations (let's say it's got dated kitchen, bathrooms, other issues), then OP might not be able to sell it for that amount.

[Anonymous]

Anonymous wrote:Hi- I'm the OP. Here are more details-
Our kids are very young (newborn and early preschool and I was not a high earner before we got married). I would likely be working to pay daycare costs.

We are in a $900k fixer uper. We bought it in 2008 knowing that over the years we could grow into it and make it ours. It's the smallest and least updated home on our street.

Renos would include bumping out our kitchen, moving the laundry room upstairs and carving out a spot, reworking the mudroom. I picked $100k as an amount but it could prob be done for $80k. I'm not looking for high end finishes. Just trying to make the space functional for our family.

The contractor we met with said that most people take loans for this type of work. DH seemed ok with that at first but then got cold feet.

I'm confident that we could afford $1500 a month for a loan payment. However, to save up $100k would take quite awhile. I want to enjoy the space now, when my kids are young and we truly need it.

Wait a minute, I thought you said you inherited the house?????????

[Anonymous]

Anonymous wrote:Hi- I'm the OP. Here are more details-
Our kids are very young (newborn and early preschool and I was not a high earner before we got married). I would likely be working to pay daycare costs.

We are in a $900k fixer uper. We bought it in 2008 knowing that over the years we could grow into it and make it ours. It's the smallest and least updated home on our street.

Renos would include bumping out our kitchen, moving the laundry room upstairs and carving out a spot, reworking the mudroom. I picked $100k as an amount but it could prob be done for $80k. I'm not looking for high end finishes. Just trying to make the space functional for our family.

The contractor we met with said that most people take loans for this type of work. DH seemed ok with that at first but then got cold feet.

I'm confident that we could afford $1500 a month for a loan payment. However, to save up $100k would take quite awhile. I want to enjoy the space now, when my kids are young and we truly need it.

That is a really bad idea. I don't understand why you didn't take that $900,000 and buy a cheaper house and use some for renovations or buy a done house. $1500 is a huge chunk of money when you are not used to having a mortgage. I would open a separate bank account and put $1500 a month a way and start saving. We do not take out loans for home repairs. Cash or it doesn't get done. We try to do one project a year if big or several smaller ones. I don't see how much more "space" you need if you are in a house at that price range. Or, sell, and move to an area that will give you a bigger house. If you are ding all that, you will also have to move out and rent for a while.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Hi- I'm the OP. Here are more details-
Our kids are very young (newborn and early preschool and I was not a high earner before we got married). I would likely be working to pay daycare costs.

We are in a $900k fixer uper. We bought it in 2008 knowing that over the years we could grow into it and make it ours. It's the smallest and least updated home on our street.

Renos would include bumping out our kitchen, moving the laundry room upstairs and carving out a spot, reworking the mudroom. I picked $100k as an amount but it could prob be done for $80k. I'm not looking for high end finishes. Just trying to make the space functional for our family.

The contractor we met with said that most people take loans for this type of work. DH seemed ok with that at first but then got cold feet.

I'm confident that we could afford $1500 a month for a loan payment. However, to save up $100k would take quite awhile. I want to enjoy the space now, when my kids are young and we truly need it.

That is a really bad idea. I don't understand why you didn't take that $900,000 and buy a cheaper house and use some for renovations or buy a done house. $1500 is a huge chunk of money when you are not used to having a mortgage. I would open a separate bank account and put $1500 a month a way and start saving. We do not take out loans for home repairs. Cash or it doesn't get done. We try to do one project a year if big or several smaller ones. I don't see how much more "space" you need if you are in a house at that price range. Or, sell, and move to an area that will give you a bigger house. If you are ding all that, you will also have to move out and rent for a while.

But do you have a mortgage?

I have been posting, but I assumed OP inherited the house, not that OP inherited money and then bought the house. I agree that a better solution would have been to buy a cheaper house and use the cash to renovate.

But perhaps that wasn't possible because they wanted a specific location, for whatever reason (husband's commute, schools). I don't know.

But if they don't have a mortgage, I don't see a problem with taking out an amount that is significantly below the value of the house and that is within their budget to pay off in order to get some necessary renovations done.

I'm not so sure, after reading OP's follow up, how necessary her renovations are. If the house truly does not have a layout that is functional for her family, then sure.

As an aside, I don't think "bumping out" a kitchen is necessarily a good idea. I would also add that renovations that alter the square footage of the house will have some tax implications.

Some renovations don't have as severe tax consequences.

I also suspect what OP is talking about -- including the bump out -- is NOT going to come in below 100k. Partly it depends on where OP is located, but a bump out could be expensive, not just to do but with permitting.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm with your husband, unless the renovations are for health and safety. If it's "I want a new kitchen" then I'd increase family income (pick up a part time job, sell belongings we have but don't need), increase savings and specifically earmark those savings for the house fund (cut back on dinners out, jog in the neighborhood and cut the gym membership), or simply wait until our normal saving pattern allowed us to afford it.

I would rather wait 5 years or even 10 years to get my new kitchen than put my house at risk in case of job loss.

So you don't have a mortgage?

I have a mortgage, but we are paying it off as quickly as possible. It was cheaper for us to buy a home than rent when we were in the market for finding our own place.

We do not carry other debt. When we want to make upgrades or repairs to our home we save until we have the money. That is why even though we have tremendous equity in our home, we have not yet redone our kitchen. It would be nice to have a kitchen designed to our needs but we can certainly make do with the kitchen we have. Once our mortgage is paid off we can throw money at the kitchen fund. I suppose we could also cut back on how much extra we're paying into our mortgage and put it in a kitchen fund. But what good is a lovely kitchen if it gets taken away with the house in a case of unfortunate job loss? Much better to secure the home, first.

[Anonymous]

I'm OP. We inherited the money and bought the house with it.

[Anonymous]

OP again. We bought in FFX county for the schools and for DH's commute.

[Anonymous]

OP some people on this board/thread are extremely debt-averse. At the same time, your husband may be one of them. There are lots of different ways to relate to money/debt and you and your husband need to figure out a way that's satisfactory for both of you.

[Anonymous]

Anonymous wrote:Hi- I'm the OP. Here are more details-
Our kids are very young (newborn and early preschool and I was not a high earner before we got married). I would likely be working to pay daycare costs.

We are in a $900k fixer uper. We bought it in 2008 knowing that over the years we could grow into it and make it ours. It's the smallest and least updated home on our street.

Renos would include bumping out our kitchen, moving the laundry room upstairs and carving out a spot, reworking the mudroom. I picked $100k as an amount but it could prob be done for $80k. I'm not looking for high end finishes. Just trying to make the space functional for our family.

The contractor we met with said that most people take loans for this type of work. DH seemed ok with that at first but then got cold feet.

I'm confident that we could afford $1500 a month for a loan payment. However, to save up $100k would take quite awhile. I want to enjoy the space now, when my kids are young and we truly need it.

rule of thmb, always ad 50-100% off the estimate into your budget. It typically cost your more than your estimate/contract when doing a reno....something always come up. (unexpected plumbing that needs to be replaced, damage behind the walls, etc

[Anonymous]

soooooo...what happened if your husband has a major life event, not that I am wishing that on him, and is no longer able to work? What is your back up plan to run your house hold plus and added mortgage?

You said you were always a low wage worker...what happens if you have to work and he has to stay home because of health, loss of work, etc. How would you pay this bill in addition to the regular bills?

[Anonymous]

What does your budget look like now? How much does your DH bring home each month? What are you expenses? Do you have an emergency fund? This should tell you if you can afford the payment.

I do not think it is unreasonable to take out $100k for renovations on a house you have no mortgage on.

[Anonymous]

OP. I think you are an ass for trying to get a bunch of anonymous people to try to explain this to your husband. He isn't comfortable doing it so just accept it. $130K for a family of 4 isn't a lot in this area. What if he loses his job or just wants to explore other opportunities? Do you think the renovations are really worth the loss of flexibility and peace of mind? If you do, then maybe you should get a job until you save up for the renovation.

You could also sell the house and buy something that is cheaper and complete. Sell it for $900K, buy a nice $600K house (which is more in line with your income level) and save the rest for retirement/college.

Going into debt when you don't have to is idiotic and if you can't figure that out, then you need to take some of the financial responsibility and learn its not something that you just do because you feel like it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:My parents own their house outright and have for ~15 years. They have an HEL with their local bank and have always used it for cars (they buy used) rather than taking out car loans. I don't see a problem with it. Make sure you get a good rate.

This isn't very smart. They have made their house collateral for a car loan. Silly silly.

Only if you can't pay it. We've done that, use a low rate (2-4% after tax rate) HELOC for a smallish car loan that we could pay off in cash any day we want, and save the outlay for ongoing savings and leave it in investment accounts that are almost always doing better than 3-4% over time.

I agree on not doing it for any amount that you couldn't easily cover monthly payments for or, ideally, pay off in full at any time. You don't want to lose your house because you can't pay your car loan (generally speaking).