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

[FarmerChick]

yea CDs are pathetic right now. interest is non existent practically.

since the interest on your home mortgage is more than the CD, you win by paying off the home and save TONS of money. You make more money paying off the home than buying a CD, that's for sure.

 

[SKR8PN]

I also vote to pay the existing house off BEFORE you rent it out, but I would NOT use any equity you may have in it to finance the purchase of a second home. Start a small savings plan to build up a down payment on your second home.
Using any equity you may have in house #1 is foolish. Why have both houses tied up with mortgages when you can always have at least one of them paid off. That way you always have someplace to live if the SHTF and you were to lose income.
Just my $.02 worth.

 

[valmom]

CDs around here are around 0.5%. Not worth anything, really. Pay off the house- it is a great feeling! As long as you can pay the taxes, it is yours to live in and nothing can take it away. If it doesn't sell later, then think about renting it, but it really is a hassle.

 

[Leta]

Yeah, good point about the CDs.

I did manage to find an online savings account that pays 5.1%, which is THISCLOSE to the APR on our house. Honestly, I don't think it's worth the trouble the more I think about it- we'd have to pay taxes on the savings interest, and we wouldn't save the interest that we are paying on the mortgage.

Our mortgage interest isn't all that much- last year it was $1800, and this year's total will be around $1200. 2012 it should be under $1000 for the whole year. But better to lower it than not.

Part of this is, I think, I psychological problem on my part. Our mortgage payment is so low that I'm kind of like, "Eh, so we get the house paid off, big deal, it's only $315 a month." Which sounds like a made up problem, I know, but our mortgage is the tip of the iceberg. Our taxes and interest are $135, and our utilities are another $315 per month. DSL, Hulu +/Netflix, home VOIP, and cell phone minutes, altogether, cost another $32/mo., so really our monthly household bills, even without having a car payment or consumer debt payments, exceed the amount of our mortgage, which is not the case for lots of folks and is the reverse of the way both DH and I grew up.

I guess this is what we get for buying a cheap house!

I think it's good, though, that our remaining mortgage is just about equal to DH's adjusted gross. It's easier to break it down and set the goal. I mean, if you figure that we are supposed to be paying 29% of our income on housing, that works out to being paid off in... why, look at that, just about 4 years.

Moving here really has been a blessing in a lot of ways, but this is not the place I want to be if TSHTF. We want to be on a small farm. We are very lucky that our SHTF scenarios don't include job loss- DH has rock solid job security. He'll retire from his current workplace, barring any zombpocalypse, doomsday peak oil scenarios. But if that happens, a job is the least of our worries.

We bought this house as a stepping stone, 6 months before the financial meltdown. We have managed to pay off our car and about $10,000 per year in student loans and old credit card debt. Now that that's all cleared up, I guess I'm just feeling rushed. We moved here 6 years ago, and still felt young. We are both in our early 30s now, and time is starting to move like the fast train to Memphis. We really want to get out of town before we are too much older, so that's why the thought of waiting for this house to sell after we've spent seven years paying it off kinda gives me itchy feet... which I just need to be an adult and cope with. It makes it harder when everyone is shouting at you, "But this is a GREAT TIME TO BUY!!!"

But I really do think that we could rent this house out very easily, and money's money. And we are in a special matched savings program, where we set aside $30 per month, and in three years we'll have $3000. Which is not a ton for a down payment, but if we get an FHA loan, we can borrow $125,000, and a 3.5% down payment on that is only $4500 (this is based solely on DH's current income). We could come up with that at the drop of hat, especially four years from now with a paid off house and fully funded matched savings. A $125,000 loan has a payment of about $650 per month, which is only about $50 more per month than what we thinking of renting this house for. So the economics work. I just need to buckle down and commit to burning the mortgage over the next four years.

 

[FarmerChick]

why not just put the house up for sale right now?
put a decent asking price and see what it gets you?

contract for like 3 months, and see what happens...nothing says you have to 'prepare' before you list a house on the market.

but you best have some place to go if you do sell LOL LOL

 

[framing fowl]

Sounds like you are really close to your goals right now. That is the time to WATCH OUT!!! It is easy to think how close you are and start compromising. Sounds like you know what to do and yes, it is hard to go against the flow. Now is a great time to buy. But it will still be a great time to buy the right place with saved money when this one is paid off or sold.

Sometimes it helps to game plan with other people and then you find your original idea was right on track. Stand firm and review ALL of the reasons why you are doing what you do. Remind yourself of how great it will feel when you are done... the way you planned it. Congrats on being so close!!!

We are cheering for you. The hardest part of any race is when the end is in sight. Just keep looking at the finish line and don't listen to anyone unless they are in your corner and cheering for you and supporting you.

 

[Veggie PAK]

I rented out property before, and I would never do it again in my life.

Have you considered using the tax returns for buying the land you want first, then work on paying off the house? It might be a good time to buy land. If you used the tax returns for outright buying the land with no payments on it, after you sell your house you could use the land for collateral for your homestead. You might get a better interest rate that way. I don't know for sure. I'm just sharing my thoughts with you.

Any way you do it, good luck to you.

 

[Shiloh Acres]

Some pretty sound financial advice. And it does sound like your goals are in sight!

The only thing I could add is -- does the university offer any distance learning or Internet courses? Maybe you CAN get started on classes without having that second car just yet, and get into the swing of student life slowly as well as have a few credits out of the way before you start on-campus classes?

Just a thought.

Oh and yes, renting can be a nightmare. And can cost you thousands or even tens of thousands if the place is seriously damaged. No deposits will cover that, and you can have legal expenses and headaches as well. Screen your renters carefully if you must rent, and honestly I always found military renters to be the safest, if there are any in the area. But I'd definitely try to sell first, if it were me.

 

[Leta]

Well, as things have turned out, we ended up buying another car.

It's a long story, things just sort of happened.

I am actually waiting... and waiting... to find out if I can take a couple prereqs online. Either way, I have a vehicle now, so I am going to start taking classes this fall.

I graduated with a B.S. in public health from the same school four years ago, so I'll be good reintegrating. We moved up here to for me to finish school, and then DH got his (great) job at my school. We never intended to stay here forever, but now we will because of his job. By the time he got hired in, I had like three classes left, so I went ahead and finished up. Had I known that we would be here forever, I would have gotten a different degree to be more employable for this area, which is why I'm just going to become a nurse now.

 

[Veggie PAK]

Best of luck in your new surroundings. I'm sure you'll do well there.