Buying a More Expensive House – Smart Financial Move? April 16, 2007Posted by pf in Expenses and Savings, Goals, Uncategorized.
I have written in previous posts that we are in the process of saving and researching for the purchase of a newly built custom home. We are very serious about this. We have already purchased a lot and have paid an architect an initial sum to begin drawing up preliminary plans. As I go through the process, however, I am struggling with whether or not this is really a good financial decision.
We bought our current (and first) house with a 30 year mortgage of 8.25%. From a financial perspective, it was all we could reasonably afford as my wife was no longer going to be working so she could be a stay at home mom full time. However, we did manage to provide a healthy down payment of over 25%.
Since our initial purchase, we have refinanced the house quite a few times where we are now on a 15-year mortgage at 4.75%. Amazingly, this payment very similar to our original payment…just 15 years shorter! For the last couple of years, we are actually feeling like we are making progress on our net worth as we are no longer making big home improvement purchases, getting healthy interest from our cash accounts at almost 5.50% APY and are paying down over $700 / month in principal in our mortgage. Also, my income has increased through subsequent promotions, etc.
Our family is growing and we feel like we need more space. To get the house we want, I think we will more than double the amount we owe on our current mortgage. In addition, we will need to finance it at a 30 year (versus our current 15) and anticipate property taxes to double. My concern is – does this make good financial sense?
Right away, I see all the minuses of this proposition:
– additional interest in the hundreds of thousands over the life of the loan
– increased monthly payment
– thousands more dollars in property taxes
– increased utility and maintenance costs
– more pressure on income needed to meet increased debt obligations
– less $$ that can be put toward retirement savings
Of course, there are also positives:
– very desirable neighborhood
– lot size twice as large
– nicer / more spacious house
– potential for accelerated appreciation versus current home / neighborhood
The most compelling argument for me thus far is that our current neighborhood is your typical younger family with a few children in houses made by a big name, production builder and I don’t think it will retain its “shine” over the longer term. We love our neighbors and our kids have plenty of great friends, but we can already see the effects of weather, etc on the homes. Further, I sometimes get the sense that as the neighborhood gets older, the demographic is changing somewhat and some are not taking as much care of their homes, etc.
In contrast, the “new” neighborhood is more affluent / desirable and the homes of better construction (custom) that I think will remain so over time. However, I am still left with this uncertainty as to whether or not it is the best move for us financially over the long term for the reasons I mentioned above. Also, I tend to be a bit of a worrier, so that certainly plays a role.
Anyway, I have started to do some research to see what others have considered in this situation when weighing the pros / cons, etc. Thus far, I’ve been pretty disappointed. While I can find a lot of material on renting versus buying, etc…I have found very little pertaining to my specific situation. However, I will continue to looking. Ultimately, in absence of anything else, I will develop my own analysis, but I would really appreciate any resources or other advice anyone could provide to assist me.