Downsize to townhouse?

[Anonymous]

One thing that the shutdown has highlighted for us is that we need a much bigger emergency cushion.

DH and I have been discussing downsizing from our Fairfax County SFH (worth about $600K, we owe about $350K on the mortgage, current monthly payment is $2525 at 3.375%) to a townhouse (we can find a reasonably nice one slightly farther out in a good school district for about $465K). The idea would be to take a large chunk of the proceeds and put it in savings, and put the remainder toward the downpayment on the townhouse. With the lower price and the downpayment, we would also have a smaller monthly payment and be able to save more, even with a higher interest rate on a new mortgage--I am seeing 4.375% on a VA loan, so this would be only a percentage point higher than our current rate.

Our current SFH is a ranch-style house with a finished basement, and honestly we only use the upstairs, so in terms of space I am not sure it would be that different. Also, I think this probably makes sense financially. However, I find myself very resistant to the idea; to me SFH = middle class = not a failure.

Advice?

[Anonymous]

We live in a SFH in Chantilly. My neighborhood homes are selling for 950-1 million. My parents live in a townhouse, and their townhouse is worth more than our home (Arlington).

[Anonymous]

Are you not originally from the east coast? Townhouses are pretty common among the UMC (and even some UC) on the East Coast. My brother just bought a 2 million dollar townhouse.

[Anonymous]

We are in a similar spot OP - considering downsizing because we just don’t have enough of a cushion IMO. Except in our case we don’t have an option of a cheaper home in an equivalent school district - we’re in the Churchill cluster and already in one of the cheaper homes there. Given your already low rate and mortgage, I personally wouldn’t move. Our mortgage is higher and we just bought two years ago so we nowhere near paid off.

[Anonymous]

I don’t think it makes a lot of sense financially. Moving is VERY expensive. You’ll spend thousands moving and on commissions, taxes etc

Townhomes historically don’t appreciate like SFHs do, which is there is a stigma. HOAs will increase over time

You’re much better off looking at your budget and cutting costs somewhere else.

[Anonymous]

You’d go from. $2525 payment to what? 2000?

This seems like a horrible idea. You’re going to spend at least 30k on the realtor and taxes at closing. So you’re going to spend 30k to save $500 a month? It will take years to make the move worth it.

[Anonymous]

Look at it this way - One way to be “not a failure” is to plan responsibly for your future. If the townhouse fits your needs, it sounds like s good long term plan.

[Anonymous]

Maybe work on paying down your current mortgage to get it below 300K. I agree with the others that moving is expensive, your mortgage isn't terrible now.

[Anonymous]

It would make more sense to rent out the finished basement, if there is a bathroom and an outside entrance. Or find other ways to lower expenses, or using the finished basement to somehow generate income.

Plus if you moved, you would have a higher interest rate, and a townhouse further out, where it might not appreciate as much. Plus the costs from the sale.

We bought a sfh as a couple without children (we would have loved a ranch house but couldn't find one!) because we didn't want to deal with HOA fees, loud neighbors, and people who were stuffing a couple families into townhouses near us but the HOA would not act on. Which is what happened when we rented a townhome.

We would rather have a sfh and live with cheap smartphones, a super limited data plan, and eating at home every night, etc...

[Anonymous]

Anonymous wrote:You’d go from. $2525 payment to what? 2000?

This seems like a horrible idea. You’re going to spend at least 30k on the realtor and taxes at closing. So you’re going to spend 30k to save $500 a month? It will take years to make the move worth it.

Plus every townhouse has HOA fee, so you have to factor that in.

[Anonymous]

Thanks for the input -- this is very helpful.

[Anonymous]

I live in a TH and I would not do what you describe, unless you want to move for other reasons like schools. Stay put with your low interest rate and appreciating house, and find other ways to save.

FWIW, I don't feel like a failure in a TH but it "lives" much differently than a SFH. Especially with kids, I'd love a ranch with ample parking.

[Anonymous]

I probably wouldn't move because of the transaction costs and higher interest rate. But you have to get out of the TH = failure mindset. The type of home that works best for you should be decided based on location, cost, maintenance, etc., not some idea of what financial success looks like. For many people, a smaller home with less maintenance is ideal.

[Anonymous]

I guess here is my concern: so much of what would otherwise be our emergency fund is tied up in the house. Is the alternative when this shutdown mess is over to get a HELOC that we could tap in an emergency if this happens again? We already do many cost cutting things like have discount cell plans (Mint Mobile 2GB for $15 per month) but do not have enough of a cushion.

[Anonymous]

Take it from someone who walked and walked and walked around the world in her 30s and was struck with arthritis in her 50s and literally has to crawl up the stairs of our townhouse - don’t trade in a nice, flat ranch for a tall townhome! You don’t know what health woes might strike, and it is much better to have to negotiate fewer steps when you get older, not more.