How much house can we afford?

[seawitch]

I posted here a while ago about a somewhat messy situation as far as selling a house. A few months have passed and we have some updated scenarios and I'd like some feedback. You guys' advice was spot on last time.

So. We have our house on sale. It is being listed for maybe 210K. Then we have to pay 6% commission on it, and 5% buyer's closing costs, and misc. fees... We will probably, maybe, net about 185K from it. (Sigh. Bought it for 215 K in 2008 and put at least 40K into it. This hurts.)

We have about 20,000 in credit card debt. About 4,000 in medical bills in collections. I hate having debt and have never had any before this year. I want to get it paid off ASAP - but I don't know whether I should just pay it off right now altogether out of the house price, or just set it aside and pay minimum payments.

We live on a fixed income right now. It's low. It covers the basics and pretty much nothing else. Definitely not a lot of credit card payments. That's not going to change for the time being although it is altogether possible that in the future we will have more income - but probably still not going to be rolling in it. I don't want to depend on that to pay off the debt in case it doesn't come through.

We are going to be looking for a forever home at this point. I am tired of moving. Tired of putting money into a house and then having to move. I want to set up a garden and an orchard and put down roots, literally and figuratively. Thus it makes sense that if we buy a house I want to buy the best we can afford. We also need a cushion for buying country-living type equipment, costs to set up a garden/chicken coop, and furnishings for the house, as well as for money we might need to fix up the house - such as putting in hardwood floors (we can't have carpet due to allergies) and such.

Moving costs, priced out, are going to run about 6,000 for a full service mover across the country. I'm thinking of 10,000 for home repairs and 10,000 for farm/garden set up stuff - rain barrels, fencing, chicken coops, freezers, etc. That might be too high, but if there was extra money in that I could set it aside for later costs.

If I paid off all the debt at once, I'd have about 150,000 after moving for house and supplies.

Does that make sense? Then in theory we could... buy a house for 120,000K. Fix it up for 15,000 or so depending on the condition. And leave the extra in supplies or savings? Or should we try to look higher and try to figure in that we'll likely be there forever and try to get things together more slowly / put up with a less-than-ideal condition house? Or buy a cheaper house and try to upgrade it more ourselves?

I have worked out various scenarios from trying to find something for about 100K and be debt free and with a good cushion for repairs... But then I'm thinking, if we're going to be there forever, we might as well buy something a lot more comfortable for maybe 140K and just make small payments on the debt until we receive some sort of windfall and/or more income.

(BTW, in the areas we're looking at in the country, 100 K will buy a modest home, i.e. small - 3 bedrooms, 1 bath, no basement. Not horrible quality but not brand new, either. I am not looking at anything under 1 acre, but some have a bit more space. 150 K would buy maybe a 4 bd 2 bath, maybe with a few acres, a bonus room or two, etc.)

I'll link examples of houses in a bit, if that's allowed. Not ones we're actually interested in, but just to get an idea of the difference.

Or should I stick somewhere in the middle?

When we sell our house we have to find a new one fairly quick so if we're going to be working with an agent I want to be able to narrow it down to a realistic price range.

[seawitch]

Here is a house that would be on the upper end of the price range (140K) - http://www.landwatch.com/Hardy-County-West-Virginia-House-for-sale/pid/145013323

And one on the lower - (110K)
http://www.landwatch.com/Mercer-County-West-Virginia-House-for-sale/pid/174096480

Those were just two random ones I pulled up based on a search. I know they vary based on area etc.

[rachieface]

I think those both look lovely, and I am impressed/jealous that where you are you can get that kind of land and house for that kind of money.  If I were you, I would probably buy in the lower price range and pay off the debt as soon as possible, but I hate debt.  The peace of mind that I would have from knowing my debt is GONE would trump house space.  If you want, you could always add-on to your house in the future, if some kind of windfall does happen.  I think that's a safer bet than somehow hoping you will somehow be able to pay off 24K in bills with ease.

The only thing giving me pause would be the one bathroom.  I would definitely shell out a little bit extra if you can get a 3 bedroom with 2 baths.  But obviously, that's a personal preference!

[Mosaic]

Wait, so you don't have a loan on your current home you'll need to pay off from that $185k? I'm super-impressed that you could pay off $175k in 3 years (assuming the 40k was the down payment, but rereading I'm not sure anymore)!

Otherwise, I think we need to revisit your math a touch.

[seawitch]

Wait, what? I'm confused. There's no loan - we bought the old house in cash and we're going to be buying the new house with cash as well. We don't want a mortgage. We happened to lose a lot of cash in the house, though. =(

ETA: The 40 K was work we put into the house. We got the basement finished, the floors redone, some appliances, yardwork, etc. On second thought I'm not sure it was a full 40 K but it was at least 25-30.

[Mosaic]

Hmm... oh, ok, got it. IMO, if you're not comfortable carrying a mortgage, I think you'd be really uncomfortable carrying the credit card debt at a higher interest rate. And counting on more income or a windfall to pay off the debt seems risky, imo.

My vote is to pay off the debt first, then either get a home near the bottom of your price range and use your "more income/windfall" amount for upgrades and improvements OR get a small mortgage to get a house that will work for you with more manageable payments than I imagine the credit cards carry.

That was a long sentence!! Did it make any sense?

[seawitch]

It made sense.

I don't think we would qualify for any mortgage, no matter how low, with our income. Plus neither my husband nor I are traditionally employed. I plan on having a more steady income in the next 2-3 years, when I start writing full-time again. Not a high income, but steadier - I suppose we could swing home improvements until income from that started coming in.
Edited by seawitch - 7/1/11 at 11:58am

[Aeress]

I would look for a house in the 100,000 range, which would leave you money to pay off debt, do some upgrades and put some money aside. If you are living pay check to pay check, having a cushion is helpful, and it will allow you to make decisions on the house that work to your advantage (like find a really good sale on a tractor etc).

[fiona2359]

Do you need to move? In terms of best financial interest it seems that staying put and possibly refinancing to pull money out of your house to pay the medical and credit cards off would be cheapest. That way you don't shell out 6% of your home value (nearly 12k) to a realtor. Is there some reason you *must* move atm? Otherwise I'd wait it out for a few more years. Mortage rates are extremely low and you are looking at only borrowing 30k or so against a 185k house...

[zebra15]

I remember some of your posts from 'before'.  I hope things have turned around for you.  Are you sure living out in the country is the place to be?  Does your DH need to be near a medical facility?  The other things I would factor in the cost of the move.  I moved x-country 12 years ago with an apt of stuff and it was 4k,  I'm not sure your 6k number is correct.  

What are your vehicle/transportation costs going to be at the new house?  Food/utilities vary greatly based on location.  That paycheck may not go as far as you think.  Also look at property taxes. 

It sounds like you are trying to go semi- off grid and self sufficient?  From what I can tell doing that has significant start up costs.

What *I* would be doing is meeting with a financial planner to map out where my money is going to be going. 

Also fee's for real estate are negotiable.   Nothing says you have to pay the whole commission and closing costs.  That all is negotiated in the offer and back and forth that happens.  What really matters is the final number.  We pay X, they pay Y... that type of thing... as long as YOU end up with the final number YOU want, that's all that really matters.

[seawitch]

What's refinancing? That's something that happens when you have a mortgage, right?

We're already moved out with everything packed up. Yes, we had to move, and it couldn't wait. =/

The 6 K was actually on the high end. It was from 4 to 6 thousand. We have everything packed up already and it wouldn't really be fully cross-country, although it is considerable. And we are on the minimalist end of things. We don't have much more than an apartment's worth of stuff, plus a few appliances. We're only taking a couple of pieces of furniture, the rest is basically personal effects - mostly the kids' stuff and kitchen supplies.

DH has disability for mental issues, not physical. He does need to go to periodic therapy and check-ups but it can be a day trip once every few months. So as long as we're 2-3-4 hours away from a VA hospital, it's not a huge deal.

We're not trying to be off grid. It would be lovely, sure. But we're not trying to be off grid. We *would* like to have an acre or two and space for a garden. In another year or so we'd like to also add chickens and when the kids are older I'd like some dairy goats. We are sure that's where we want to be - we've lived in the country before so it's not an idealized romantic thing. Well, I have lived there - DH couldn't care less where he is as long as there's a computer screen in front of him.

We are looking at easy-access homes only. We have a newer (35K miles) Honda Civic that's paid off, so we're not going to be off-roading, but that should last us a while. We got a Honda for that reason, the longevity. We may buy a pickup much later in the game if we ever get a windfall, but probably not.

We're moving from a low-cost area to a lower-cost area. We've been living off the paycheck in the lowish cost area for a few years so I do know where it goes, mostly.

Utilities where we're moving are very cheap and many places even get free gas for heating (even though it's offset by the cost of purifying the groundwater). We're also pretty low-tech (minus DH) and are bringing our energy efficient appliances with us, and since we're downsizing the home I don't imagine electricity will be very much more. We do use some off grid type things like solar ovens, etc.

Foodwise, I researched - we buy meat in bulk and it's going to cost less where we're going, by about half, typically. The rest of the stuff we buy in bulk from online, like flour and spices and such - so those will be similar. (I imagine with inflation it will go up.) Hopefully we will get our eggs at home and we will need to find a place to buy produce. The space to have a garden will hopefully help out too once the start-up costs are offset. With the dairy goats (and chickens) we will need to feed them but they will pay us back with milk and cheese. But again, goats aren't even going to enter into the equation for a while.

Property taxes are ridiculous - in a good way. They're like 200 a year. Like, what? I thought the 1000 a year was phenomenal where we lived before (it was like 8000 a year where I grew up) but two HUNDRED? I triple checked with about six real estate agents and yes, it is that low. On like all the properties. A hundred, two hundred. I think the most I saw was like two seventy. Car insurance is going to go up slightly, by about 300 a year, and home insurance, but I can't get a quote on that until .

The downside is that there is pretty much no health insurance options there at the moment - BUT, and that's a big but, I didn't have insurance options at our old house either. So life isn't really going to be that different.

As far as real estate fees... he was pretty non-negotiable what his commission was. Closing costs I'm still not sure about, I don't think those are set in stone, and I hope to be able to bargain that down. How, I have no idea. Have to look into that.

[mnnice]

I think you need to do this by working backwards with what your existing income is what your expenses will be (as best you can estimate).  Which based on the things you have been sharing you started doing already.  I am still in awe of the low property taxes.  I live in a place with similar real estate prices, but property taxes that are 10 to 12 times as much.

My life experiences thus far would lead me to be very, very cautious about buying before living in and knowing a place well.  If it was my life choice to make I would rent a single family house even if it meant I had a negative cash low in the short term before commiting to living there.  The low property taxes would make me suspicious that there are extra fees for fire protection, that the schools (and the cultural resources that you would rely on if you homeschool i.e. the library) would be totally terrible. Even if better economic times in rural areas houses sell very slowly.  Dh and I have looked at 15 to 20 properties in the last year and I only know of two of them that have sold.  The rest are still available.

Also I have successfully got homeowner's quotes on a house that I was just looking at.  I really only needed the address, my and DH names,  and the knowledge of the size, type of water, heat/furnace, number of bathrooms, ect. 

Edited by mnnice - 7/7/11 at 3:40pm

[seawitch]

Well. I'm very particular about budgets and had things worked out for our old area very well, but it's not going to translate perfectly since we're moving between regions, etc.

Total Income: 1470

Utilities It was 210 on a year-round plan. 174 the year before, but then we had a really cold winter.
Internet 36.00 (Probably will go up, but there's no way around it)
Software 11.00
Garbage - 11.00 (wouldn't need this)
Car insurance 125.00 (That's the quote for the new area)
Home insurance 67.00 (Don't know if this will go up or down, maybe down since the property value will be less)
Taxes 90 (This would go down)
AAA $6.00
My cell $25.00 (Might have to switch to a land line cos I don't know if I'll get service where we go)
Dh's cell $80.00
Netflix $8.00
Warcraft 15.00 (sigh)

We used to have a Y membership for 37 a month too but probably won't bother once we move - maybe if we live close to one.

The rest goes to food, gas, clothing, stuff for the kids, everything else. It doesn't break down evenly because we buy in bulk, so some months we buy a lot, sometimes minimal. Not a whole lot makes it into savings, unfortunately, but we try to put away what we can. The health insurance thing is the kicker - the kids qualify for Medicaid in some places but not others. DH is covered, I'm not covered anywhere. If we had to pay out of pocket for health insurance that'd be like... $300-400 a month, which we cannot swing, simply. Even when we did make huge sacrifices (in food quality etc) to pay for health insurance we got so screwed over for medical bills because nothing I needed was covered anyway.

If I were to get a job, then I wouldn't really be making much more, either. I'd have to pay for childcare, for one. Not to mention, if we're living away from a city, then you'd probably need to factor in more in gas costs, a wardrobe, etc. So that's about out. I'm working on getting an income from home. We'll see how much that pays off. I should know by the end of this year, hopefully. It probably wouldn't net a whole lot but it could be put into savings.

[Ramzubo]

Hmm, I think I would go the lower price range and pay off the debts. We had unexpected medical bills this year and that really tanked our plans for our 4 acres. We really feel like we need to pay off everything before we can continue to fix up the homestead.

Putting money into starting up or improving the infrastructure adds up very quickly. Now if the more expensive house already has stuff set up then that would maybe be worth it. If the more expensive houses still need coups, garden beds, etc...then I would think that the cheaper house would be better. I think it also matters what your plans are, like time wise. If you want that garden up and running soon or chickens next year then you'll need more saved. If you have a much slower goal then you wouldn't need as much and could bump up the house price.

[mnnice]

I think I would be looking at parts of the country that have better state programs for health insurance and low COL.  What you are proposing makes you pretty vulnerable if you were to have even a moderate health emergency. I am nearly positive you would qualify for state insurance in my state (WI)  and we have some very pretty (especially if trees, farmland, and steep hills equal pretty to you), very cheap places to live in the southwest part of the state.