15 versus 30 year home loan?

[baymule]

'Nuff said about the mortgages, but on the retirement house..... Downsize. It's you and him, right? In retirement you don't want a lot of expense, bigger house equals bigger light bill, more upkeep and you just might get tired of cleaning the darn thing when you'd rather be outside on your farm. My DH and I have gone round n' round on this same issue. We will build next year on our land......I won. Smaller house, no formal dining or living room. Oh, and did I mention taxes?????? You are the WOMAN. Do this.

 

[Leta]

We got a 15 year note. I based this on Dave Ramsey saying that if I couldn't afford a 15 year note, I couldn't afford a house.

I was shocked at the cost difference between a 15 and a 30 year- it was less than $150 per month, maybe less than $100. Granted, our house was cheap, but I remember thinking, if we can't afford $100 per month, foreclosure is the least of our worries.

We front loaded our mortgage. We took a payment to closing and made an extra payment each of the first two years. We bought in March '08 and will be paid off sometime before 2020.

I think we will probably keep this house as a rental, unless the housing market does a stunning turn-around. We might even borrow against this house to pay for the next place, who knows. What I liked about the 15 year note was the options it gave us. But we are youngish- we bought this house (our first) when I was 30 and DH was 29.

If I was looking at retirement, it would really depend on what my fixed monthly income was. If I knew I had, say, $3000 per month to live on for the rest of my life, and the 30 year PITI+utilities on my dream retirement house was $1000 or less, I'd go for it, since there's no real downside in that scenario.

 

[Marianne]

Good points here. And I agree whole heartedly with Baymule. Our taxes shot up a few years ago, now we're in the position of having to sell our place when it's finished because we can't afford the taxes when we retire. We're still under construction and it's a bummer when I'd rather be doing something fun...sigh.

Leta, have you read the Dave Ramsey book? Does he advocate 1/3 of your income for housing expenses?

 

[pinkfox]

why not take a less expesive house on a 30yr and add an extra payment or 2 a year on the principle.

you be in charge of the money and give him a "fun money" account (each month once everythings paid off whatevers left gets divided up to whatever and some of that goes into his fun money account, though be sure any purchases are discussed first, its fun money, not FRee money lol)
se aside a little each month so you can make that extra payment every 6 months or so (more often if you can), he gets his fun money, you get a slightly less expensive house thats paid off long before the 30yrs is up...

kinda a meet in the middle type way of doing things.

 

[Leta]

No, I've never read Dave Ramsey's books, but I listen to his radio show.

Every rent or mortgage calculator comes out at right around 1/3. Some say this amount should include utilities, some don't. Some base it on gross income and some on net.

The highest percentage I've ever seen is 33% of gross for PITI (no utilities). Frankly, I think this is high, but if you had a six figure income, you'd be paying about $2500 on a mortgage, which doesn't sound bad when you consider that if you are making $100K/yr, you are netting over seven grand a month. I just don't think that income level assumption is fair or wise when the median income for a U.S. family is $50K.

I think it would be easier for people if we just stuck numbers out there: "If you make $50K, you shouldn't pay more than $1400 per month for a house."

 

[lorihadams]

Okay, here's my two cents. I say talk to the bank before you do anything. Find out what you CAN do and what your budget would be on the new house. Definitely downsize if you can. Just remember that if you buy a piece of property big enough you can always sell off an acre or two on the outer edge if you need extra money....my great grandparents did that. They started with 300 acres and when they died we had 97 left but no debt passed on to any of the children.

Now, as far as the mortgage goes. My husband and I are in our mid 30s and we did our current mortgage on a 10 yr loan so that we would have the house/land paid off before our children go to college if that is what they choose. Our new mortgage on the 10 yr loan is $922/mo and our old home (which we sold for a $20,000 profit but $25,000 less than what we had it listed for) was on a 30 yr mortgage at $750/mo. With the money we saved on gas expenses (we moved closer to town, still on a farm but closer in) we could swing the higher mortgage. We are in a 1500 sq ft home on 3 acres. It is one level and hubby wants to build another house when the kids are gone but I am thinking we could just remodel this one for waaaaaay less. I don't wanna be getting into too much debt right before we retire.

Crunch the numbers with the bank, talk to a good real estate agent that you trust, figure out what you could realistically get for your house before you even think of looking at another one. You have to have some extra money in the bank in case the first house doesn't sell right away and you need to make 2 mortgage payments. You need to let your real estate agent know how long you could afford 2 mortgages and be prepared to take a hit to get rid of the first house if need be.

Finding good renters is not impossible but you have to really get to know them and ALWAYS have a contract.

The most important thing is to have money in savings to draw on, if you don't then I would stay put. You also have to figure in property taxes and utilities for both homes.