Buy Now When Prices Are Low? Or Wait Until Paid Off?

[Leta]

Here's the sitch:

DH works at a state university and makes $32K per year. We have great health insurance, and DH and all his dependents (including me) get free tuition. I am planning on going back to school, not sure yet if this fall or next fall, to get my BSN, which will take about 2.5 years. After I graduate, I highly doubt finding a job will be a problem. I hope to work part time, at least until my littlest is not-so-little. Nurses here start out at $18/hr.

We have three kids: DSS13, DD5, and DS nearly 2.

We owe just over $32K on our house. We bought in '08 with a 15 year note at 4.87% interest.

We get the Earned Income Credit, so we get a hefty tax return, $5000-$6000 in the spring. We can't get it throughout the year in checks, we looked into it (SIL is an account and our tax preparer).

Our plan was pay off this house quickly, then sell it and use the money to move to our dream homestead. If we put our next four tax returns down on our mortgage (as principle, while continuing to pay our regular monthly payments), our house would be paid off almost exactly four years from now.

Since the housing market went to hell, at this point I don't know if we could sell it for what we owe- and this is after thousands of dollars in work- wood floors, pellet stove, $$$new windows and doors$$$, insulating, appliance hookups, etc.

I'm wondering if this house would be worth more to us as a rental. My neighbor owns her house, and a duplex on this block, and her units rent for $500 per month. Our mortgage payment is only $315. Taxes and insurance are another $135, but would go up if we rented out.

We are saving money right now, and are on track to have about $8-$9K liquid in 8ish months.

I'm thinking maybe we shouldn't use that money to pay off our house, maybe we should put it toward a new place with acreage and rent this house out. According to all the "How Much House Can You Afford?" calculators I've played with, we can afford another $400-$500 in house payments, not including any income from renters. At regular minimum payments, no extra principle, this house will be paid off in ten years.

We have no other debt, though we will need to buy another car if I go to school this fall. We are looking at ten year old TDI Jettas, so that will be about $5500 financed.

I would love to hear any thoughts on this, excepting "push your husband to make more money", which, sadly, is what I get when I try to talk about this elsewhere. He loves his job, but they are having to pay more for health insurance, so that is eating up his raises. His take home wages will not go up in the foreseeable future, and neither he nor I wants him to work anywhere else. He's happy, and the free tuition for our kids is literally priceless.

 

[FarmerJamie]

Having worked at college for a number of years, do not pass up the free tuition. The years I worked there, we realized a value of $75K of tuition benefits, tax free. Take classes now, as much as you feel comfortable with!

A happy spouse at work is beyond value.

Renting comes with it's own set of headaches, particularly if you're using it to supplement mortgage payments. I'd pay off the mortgage first. The discipline you'll need to do that will serve you well in the future. After the house is paid off, then you might consider buying new property and then renting.

Other's mileage may vary.

 

[valmom]

It's actually a nice situation to be in. Do NOT let your DH give up his day job! free tuition is priceless!

Personally, I would pay off this house and buy a new one using this equity. I had such a rotten experience renting that I would never rent! I had to rent out our old house when we moved to the current one because it didn't sell. It was good because our renter paid the rent on time and reliably. But it cost a LOT to rehab and clean up the house after she left to put it back on the market. It took several (3, I think I remember) dumpsters to clean out the house, and a lot of expense.

 

[FarmerChick]

do you have your 'future dream land' picked out yet?

I would pay of the existing home first. if anything happens, you own your current home and that means ALOT

and you don't truly know if it won't sell for a decent asking price so if it is paid off, you can easily put it on the market and test the waters....you might get it sold for a decent price and come out ahead.

when this home is paid off you have options. you can try to sell, stay put for a while if needed, rent later if you decide to move forward on the dream land.

 

[sunsaver]

I think you should stick with your original plan of using those refunds to pay off your house. Regardless of market conditions, having a home that is paid for is a tremendous asset, especially if things get worse instead of better. If things get better and housing prices improve, then you have a larger asset. Either way, paying your house off as soon as possible is the wisest course of action. I would also build an emergency savings fund, and put off getting a car until the one you have is completely junked. A repair here or there, while inconvenient, is usually less than a monthly car note. Good luck and,

 

[sunsaver]

P.S. Leta, i used to own a couple of rent houses. If your monthy cash flow is only $100-$200 per month, it's just isn't worth the headaches.. They will tear your house up, you'll spend thousands on repairs and taxes, and fines.
Pay the house off. Then rent it out. At $500 -$900 per month, renting it out would be worth the trouble. If you and hubby are both happy right now, stick with what you're doing.

 

[Wannabefree]

I'm pretty much with everyone else. I would never think of renting out a house I owed on...EVER. Too much headache, too risky.

Pay it off, then save some cash for the home you want, and dream big! At that point...nothing would be stopping you

 

[ksalvagno]

I would pay off your current house. We kept DH's old house and rented it out. We even had great tenants but it was such a hassle. We moved out to the country and were an hour away from the rental. Not good when repairs are needed or an emergency like the water heater dying happens. We were so glad when we sold the house and got out of the rental business. Even good tenants don't take care of a house like you would.

 

[Leta]

I would love to avoid buying another car, but DH is a baker, up before the sun and before buses are running, and there is just no way to pull off his 4-2 work schedule, child care for the littles, and a nursing practicum without two vehicles. Believe me, I wish we could make it work, but being a one car family is what kept me out of school this past year, we just couldn't get to everywhere we needed to be.

I think that this house would not sell for more than $60K, and that's IF the market rebounds in a few years, so we wouldn't be able to pay cash for a house with acreage. We could buy vacant land without financing, but it would cost big money to build. Point is, we are looking at some kind of mortgage on a homestead either way. I had this fantasy that we could buy land and pay it off at the same time that we were paying off this house, but that is really just a fantasy. We point blank do not have enough income to do that.

My hope is that once we get moved, I am working at least part time as a nurse, and DH can go down to 9 months at work. That way, we'd both work part time jobs (with the same bennies he has now), but our yearly income would be $5-$10K higher than it is now. So we are not looking for affluence, we'd rather work less and have time to do stuff that we are interested in.

I like the idea of being able to sell this house and have a pot full of cash to work with, I'm just concerned about how realistic that is. Houses for sale here are languishing, but the rentals are filled quickly. I never dreamed of being a landlord, but I do like the idea of an income flow. There's no rule that we can't pay off this house and then rent it if it doesn't sell, I'm just wondering if it wouldn't be better for us to take our tax returns and buy some CDs.

 

[framing fowl]

Unless you have an interest free home loan or have found a jackpot for cd's, I would think you would still be money ahead paying on the house. Cd's around here are less than 2%.