Could you elaborate more about your situation and why think that housing expense is high? Which part of the country do you live in?
I also think the size of the house matters. In a LCOL area, a $4500/month PITI housing expense could mean a 5000+ sq ft house that has the energy requirements of a small village in a 3rd world country. The maintenance expenses of such a house would also be very high. In a VHCOL area, a $4500/month PITI housing expense could mean a much more reasonable 1800 sq ft house with significantly lower utilities and maintenance expenses.
I’m in lower NY area–about 20 minutes north of NYC. One of the most expensive counties in the nation (that is NOT a brag, either). I want to get out, but we have family here. For the time being, we’re kind of stuck. But that’s not forever, so I’m kind of just riding it out.
If concerned about HELOC, get a PLOC also. I have two, one is free and one is $25/year. It’s a lower limit per line (mine is 25k, others might get more), and a higher rate (~9% vs 4~, and not deductible), but still provides easy/quick access to cash.
I agree with PLOCs. We have one for each checking account at NFCU (two personals, one joint) and each have one at PSECU ($30k for me, $20k for the wife). The PSECU one offers a perpetual 2.9% BT rate too, with a $0 fee. Used that a few times as a bridge loan, of sorts.
The NFCU ones, used to be known as navChek, are nice for cash flow reasons. However, thankfully, we haven’t used them in quite some time. Back in 2009, right after the USA Fed “merger,” we used them quite a bit because we were both starting out in our “real job” careers.
If we go down to one income (intentionally or unintentionally) that is where we will be in our HCOL area. That said, we have more than enough liquid assets to either pay off the mortgage or continue to make the payments, so it’s more of an interest rate/investment arbitrage for us. If we didn’t have the asset backstop, I’d be in the same camp as you.
Even with an asset backstop (I like that term btw), I am not comfortable taking on such a payment. Different strokes for different folks, I suppose. Maybe I’m just a whimp? Haha.
It just gives us so many options, even in some of the really bad case scenarios:
Use assets to continue paying mortgage while we ride out the bad times
Pay off the mortgage, though this generally seems like a worse idea than #1 b/c of low interest mortgage.
Sell the current house and buy/rent a less expensive one. Even if the RE market is tanking and we take a hit on our current place, the new place will also be less expensive.
Rent out the current house and rent or buy a cheaper place.
We could handle the costs for a really long time in all of those scenarios, so the cash flow issue just doesn’t seem that concerning.
Now, if some of those really bad scenarios came into play it could impact our FI date or our standard of living, so I wouldn’t take it lightly, but it wouldn’t be a tragic scenario unless it lasted for several years or more.
Maybe I better qualify what I mean by “cash flow” better. I mean on a monthly basis, my incoming vs outgoing. An important piece of that, is not to let any savings go out, but only to come in. Cash flow wise, with regard to paying all of the bills, I agree with you–not that big of a concern. However, if you qualify “cash flow” to include building savings and not decreasing savings, then it becomes a concern. If I were to lose my income, we’d be fine and BK/Foreclosure would be a long ways away from a “can I pay the bills” standpoint. However, I’d view myself as heavily cash flow negative because not only do I have no income, but I’ve swung the entire opposite direction and am now depleting my savings.
Sorry, I guess my definition of “cash flow” should have been mentioned.
I am assuming your are a bit older than us (we are in early 30s), had longer time to build up your assets, and presumably you have lived in this HCOL for some time, and have equity in the house due to appreciation as well as paying down the principal. When you are young(er), sometimes you have to take risks.
In my example, this is purely a hypothetical discussion at this point, it will become more applicable in about 12 months.
Partially on target. We are older by about 10 years. We only recently moved into the HCOL area house after living in a small place in not the best area of the city for a while. That allowed us to save & accumulate assets and gave us the flexibility to be in the HCOL area. We did not get much appreciation in the old place since we lived there during the housing downturn, though we did build a bit of equity by paying the mortgage.
I think so. It used to be a LOC/VISA that shared the same CL, but reported as two different accounts, which is why I originally got it when I was building up credit. Max CL was $20k at the time, and they raised it recently to $30k. They have since shut down the LOC part of it, and it’s just a credit card now. But for a while, I had one account reporting “twice” to give me $40k of CL on my CRs.
Dave, that’s an interesting question, and something I am currently considering.
Right now my PITI is low, < 10% and I only owe $150K, house value is $550K. 8yrs left. Easy peasy.
But we are thinking about moving to a new, bigger, better location home. $900K for the new house, and there’s not much for cheaper. PITI would be ~30%, but we’d start the 30 yr clock over again. If we didn’t get that house we’d stay put. We’re trying to decide if it’s worth it to move.
Just not sure I’m comfortable with the finances, but I believe the quality of life will be better.
-Pak
BTW, thanks for starting this forum. I was on FWF for 15 years, and AT before that.
Over 30 years (1986 - 2017), we managed to own two houses in the same neighborhood/street (within walking distance; in Boston suburbs). The total mortgage balance is currently $100K, at 2.625%. In addition to the obvious advantages in terms of health, comfort, joy, and peace; the biggest pro for us is the family factor:
My son/daughter-in-law live with us in the bigger two-family house while my daughter and son-in-law live in another house. The fact that we can be with one another and take care of one another is priceless, especially when we just have a new-born (8-month) grandson.
We have seen that young couples cannot afford owning a reasonable house near Boston after working hard for many years, and it is our pleasure to help them out as our parents have helped us as well.
It all works out very well for us (and we live comfortably during all these years); but it is definitely to each her/his own.
Pak, first, thanks for the kind words, and glad to have you here!
[quote=“Pakaderm, post:33, topic:78, full:true”]Right now my PITI is low, < 10% and I only owe $150K, house value is $550K. 8yrs left. Easy peasy.
But we are thinking about moving to a new, bigger, better location home. $900K for the new house, and there’s not much for cheaper. [/quote]
How much down can you put on the house? Is it equity from the current place you have mostly paid off? Have you had a chance to educate yourself on the the house and the area’s appreciation potential? Is this one of the most modest houses in the neighborhood (a relatively modest but durable house in a great neighborhood is generally a safer investment than a pricier house in a more modest neighborhood).
PITI would be ~30%, but we’d start the 30 yr clock over again. If we didn’t get that house we’d stay put. We’re trying to decide if it’s worth it to move.
What are the more detailed figures, if you have them available?
Extremely common here in Southern California. Keeping our housing costs below 20% has been very important for me. I’ve done what therivler1 has done as well & bought the cheapest place to live in the best school district.
In addition I think that it is very common for people in HCOL areas who are not living comfortably with high housing costs to scrimp on house maintenance.
All that said, I’m in a similar situation as Pak. I’d ideally like to move even closer to my ‘nucleus’ which means one of the communities that are 2x the cost of my current area. And I’d be looking at 3x if I move up in bedrooms too. Once daycare costs disappear that might be more feasible, but until then no way.
And finally, houses in HCOL are often times the only ‘retirement’ some people have here. Those I know who’ve cashed out and left California have done so because they spent the last 30 years paying their house down vs saving for retirement. They have to sell to tap the equity and be able to buy a place and retire on SS and their small 401k.
Ouch. I would hate to be in such a situation. That kind of gives me anxiety, because while I don’t live in that area, I do live in a pretty HCOL area (IMO) and would hate to have a house and a condo as my retirement, with a $150k 401k or something. Not ideal.
Yeah, I don’t want to have it happen either. In addition to the financial issues I wouldn’t want to retire to place with worse weather than I live now.
Working the idea out in my head:
Even an average house here is $600k. So you can exempt pretty much the whole sale from taxes and then buy something in a LCOL area for $150k, and then get someone to sell you an annuity or some other crappy thing so you have fixed income + 2x SS + some small 401k and no monthly housing cost besides maintenance, taxes and ins. I’d rather have all that at my disposal plus a fully funded retirement.
So, I’m in Chicago, and am currently in the market for a house (or rather likely will be in the spring when some more inventory hits the market). Have owned a a condo in downtown for about 5years, our monthly all-in including HOA is about 13% of gross, before bonuses (and my commission - which is significant chunk of my total pay). When I first spoke with a mortgage agent, I was blown away by the size of the mortgage we qualify for, as it just doesn’t seem possible to me to have that much money spoken for every month. That said, we both max out our retirement savings, have a small car payment, and her student loan to pay off. The new goal is to find a place with a payment of about 20%, which will be plenty of house for us, and in a great area.
I really think that looking at housing as a percentage of net pay makes so much more sense, but the only numbers discussed with the prequalification were gross.