Hello all,

My wife and I recently sold our first home for a handsome profit. We lived in the house for 5 years, put 22% down, and paid an extra $200 every month towards our principal.
We now plan on building a home that we will likely live in for the rest of our lives.

Now that I have experienced the benefits of having plenty of money in our account, I would like to figure out a way to remain liquid through this process. We were never broke before, but larger purchases, such as new tires, or new phones when needed would be stressful.
It seems to me that owning our forever home will be like putting cash into a bank from which I can never make a withdraw.
Should I forgo what seems to be common sense and put the minimum possible amount down on our next home, stop the extra principal payments etc. in order to remain as liquid as possible?

Thanks for any advice on this.

$ and budget on forever home would be helpful, but here it goes.

Congrats on cashing out! Depending on what the forever home looks like, you'll need liquidity throughout the build - building yourself, custom builder with draw loans, one-time close, etc.

My advice, depending on credit and rates you can get... do a 80/10/10 loan (80% standard loan, 10% 2nd lien loan, 10% down)... stash enough cash or buy a cash-balance life insurance policy for emergency funds. 3 months or whatever you feel comfortable with but the purpose is to "have enough dry powder that if you lose your job, you've got time to figure it out and survive"...

then, see what the math has as being left over... decide to invest, pay down consumer debt, forego the 10% 2nd lien, hookers and blow? buy your bride some new t!ts, lots of possibilities.

I think a good target for home equity is around 30-40% of your net worth with under 40% debt to income.

Some are more aggressive with both of those numbers

YouBet said:

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BMCaginLTX said:

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Hello all,

My wife and I recently sold our first home for a handsome profit. We lived in the house for 5 years, put 22% down, and paid an extra $200 every month towards our principal.
We now plan on building a home that we will likely live in for the rest of our lives.

Now that I have experienced the benefits of having plenty of money in our account, I would like to figure out a way to remain liquid through this process. We were never broke before, but larger purchases, such as new tires, or new phones when needed would be stressful.
It seems to me that owning our forever home will be like putting cash into a bank from which I can never make a withdraw.
Should I forgo what seems to be common sense and put the minimum possible amount down on our next home, stop the extra principal payments etc. in order to remain as liquid as possible?

Thanks for any advice on this.

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May I ask how old you are? I'm asking because I'm assuming you are younger. And if you are the odds are high that this won't be your forever home, so I would plan accordingly.

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Such wisdom in this. As you age, your family needs, perspective, and financial circumstances change. So does your forever home

The average length someone owns a home in the US is 7 years. As another poster said, plan accordingly.

I'm in my 3rd forever home in the last 10 years and we're already talking about the next one.

I've been in mortgage a long time and financed many forever homes. It's common to hear from those same people 3, 5, 7 years later and find them ready to move again.

I'm working with a long time client now that bought the forever home in May 2022. It went under contract over the weekend and they're back on the hunt for the next one.

ktownag08 said:

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The average length someone owns a home in the US is 7 years. As another poster said, plan accordingly.

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I was going to mention this. When we bought our first house my banker told us we would be moving in year 7. We just kind of said, Ok, and shrugged it off.

Sure enough in year 7 we sold and moved.

I've watched a lot of these fellas on YouTube. They've got a similar approach to Ramsey, but are far less debt averse for those that can keep themselves out of trouble. One of the things they talk about frequently are their Financial Order of Operations.

https://www.youtube.com/@MoneyGuyShow

https://moneyguy.com/resources/

Comparison of Ramsey Baby Steps vs. FOO


Financial Order of Operations (FOO)

1. Deductibles Covered -- Enough in savings to cover insurance deductibles. Not each individually necessarily, but be able to handle a wreck and medical or a home issue and an auto, etc.
2. Employer Match -- Stop leaving that free money on the table.
3. High interest debt -- If you've got CC or other high interest debt, make it go away
4. Emergency Reserves -- I believe they recommend 3-6 months, this varies by your individual families situation. Are you single income, kids, unique field that would be slow to secure a new job, etc.
5. Roth & HSA -- Start funding those highly tax advantaged accounts
6. Max out Retirement accounts -- Put (as they call it) your army of dollar bills to work growing in your tax advantaged accounts.
7. Hyper-Accumulation -- Non retirement accounts. 25% of gross income
8. Pre-Paid Future Expenses -- Kids college funds, etc.
9. Low Interest Debt -- Here is where you start paying off the house

These guys are really big on time in the market. They have really drilled down average rates of returns over the last century and coupled them with average risk tolerance by age bracket as you move through life towards retirement. From that they develop a wealth multiplier to hammer home the power of compounding.

I aim to never have in equity in my home other than the required 20 percent buffer required by the banks. We took out most of our equity and I put it into the market. Would agree that you should never cut yourself short because you're throwing extra to the mortgage.

NoahAg said:

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OldArmyCT said:

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I'm in my 3rd forever home in the last 10 years and we're already talking about the next one.

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Wow, are y'all just bored there? Hate the neighbors? You sound like my dad, lol. He's moved nearly 40 times in 60 years. I can't imagine picking up and leaving that often.

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My wife moved roughly 12-13 times in her first 18 years. All over the same city. Single broke mom.

Since I've been with her, we lived in our first home 7 years, and now, what I would consider our forever home where our kids were born, 10 years and counting.

When I say forever.. I mean more for our kids. I want them to grow up here, in this home. We bought it 2-3 years before they were born (with plenty bedrooms to fill), and they are 7/8 now.
When they are off in college or older, surely wife and I will cash out and major downsize. We don't need 4ksf after a handful of years being empty nesters, but I also can't imagine or understand people who move so much, unless for job/military.

We had neighbors down our street that moved after 6 years to a house like 2 miles away. Shaking my head to that.

You should check out Dustin at Jazz Wealth too. Both groups have a YouTube presence and are some of the very best.

If you follow their advice, you won't be disappointed!

Aggie_2463 said:

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RightWingConspirator said:

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I aim to never have in equity in my home other than the required 20 percent buffer required by the banks. We took out most of our equity and I put it into the market. Would agree that you should never cut yourself short because you're throwing extra to the mortgage.

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I cash out refi my home a year ago at 3.8% and took that equity and started hard money lending it making 16%…. NO brainer

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What does then mean? You are loaning your cash to someone else?

Diggity said:

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Kenneth_2003 said:

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I've watched a lot of these fellas on YouTube. They've got a similar approach to Ramsey, but are far less debt averse for those that can keep themselves out of trouble. One of the things they talk about frequently are their Financial Order of Operations.

https://www.youtube.com/@MoneyGuyShow

https://moneyguy.com/resources/

Comparison of Ramsey Baby Steps vs. FOO


Financial Order of Operations (FOO)

1. Deductibles Covered -- Enough in savings to cover insurance deductibles. Not each individually necessarily, but be able to handle a wreck and medical or a home issue and an auto, etc.
2. Employer Match -- Stop leaving that free money on the table.
3. High interest debt -- If you've got CC or other high interest debt, make it go away
4. Emergency Reserves -- I believe they recommend 3-6 months, this varies by your individual families situation. Are you single income, kids, unique field that would be slow to secure a new job, etc.
5. Roth & HSA -- Start funding those highly tax advantaged accounts
6. Max out Retirement accounts -- Put (as they call it) your army of dollar bills to work growing in your tax advantaged accounts.
7. Hyper-Accumulation -- Non retirement accounts. 25% of gross income
8. Pre-Paid Future Expenses -- Kids college funds, etc.
9. Low Interest Debt -- Here is where you start paying off the house

These guys are really big on time in the market. They have really drilled down average rates of returns over the last century and coupled them with average risk tolerance by age bracket as you move through life towards retirement. From that they develop a wealth multiplier to hammer home the power of compounding.

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damn...25% of gross income in investments, after maxing out retirement, before you start to think about funding kids school? that seems aggressive.

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I was one of the early supporters of the Money Guy podcast on Youtube back when they had like 50K subscribers. I think it's up to 285K now.

they are doing very well.

other than the fact that they are Georgia Bulldog fans (better than Buckeyes)

they are very good at their jobs. I don't think I would put my money with them because they seem a bit too much of the hackneyed Good Ole Boy kind of firm

and I would prefer savage investment brokers from Yale with PHDs in mathematics if I was going to turn over control of my assets.

but I really enjoy their shows and they have a lot of good common sense advice. most Americans are going to be HOSED when they hit retirement age in the next 20 years.

Diggity said:

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Kenneth_2003 said:

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I've watched a lot of these fellas on YouTube. They've got a similar approach to Ramsey, but are far less debt averse for those that can keep themselves out of trouble. One of the things they talk about frequently are their Financial Order of Operations.

https://www.youtube.com/@MoneyGuyShow

https://moneyguy.com/resources/

Comparison of Ramsey Baby Steps vs. FOO


Financial Order of Operations (FOO)

1. Deductibles Covered -- Enough in savings to cover insurance deductibles. Not each individually necessarily, but be able to handle a wreck and medical or a home issue and an auto, etc.
2. Employer Match -- Stop leaving that free money on the table.
3. High interest debt -- If you've got CC or other high interest debt, make it go away
4. Emergency Reserves -- I believe they recommend 3-6 months, this varies by your individual families situation. Are you single income, kids, unique field that would be slow to secure a new job, etc.
5. Roth & HSA -- Start funding those highly tax advantaged accounts
6. Max out Retirement accounts -- Put (as they call it) your army of dollar bills to work growing in your tax advantaged accounts.
7. Hyper-Accumulation -- Non retirement accounts. 25% of gross income
8. Pre-Paid Future Expenses -- Kids college funds, etc.
9. Low Interest Debt -- Here is where you start paying off the house

These guys are really big on time in the market. They have really drilled down average rates of returns over the last century and coupled them with average risk tolerance by age bracket as you move through life towards retirement. From that they develop a wealth multiplier to hammer home the power of compounding.

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damn...25% of gross income in investments, after maxing out retirement, before you start to think about funding kids school? that seems aggressive.

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having $25k in a brokerage acct for a $100k owner seems aggressive?

That's why it's a prioritized list. If your household gross is 100k you probably aren't going to get past "max out 401k" before you are tapped out. If it's 300k or so, there's a lot of slush left after you have maxed retirement and hsa, so it makes sense to put 75k into your brokerage before you decide to lease a g-wagen

I don't envy any 30-ish year old young professional looking to buy their forever home into todays current climate. Feel for you. No way I could have done it if the market was back then, what it is today. Would have stayed in my track home for another few years probably.

Don't know enough about your situation. Rates are stupid right now though, so I wouldn't pay any extra on your principal yet. Refinance down the road when rates go back down, then start adding an extra amounts to your payments at that time. If rates go down on refinance you should have more free cash to do this.

I bought 10 years ago at 2.75% interest rate at 30 years old. My home has doubled in value. While it feels good, and looks good on paper...I also know if I sold right now, and subsequently tried to buy a new house I would be stuck buying smaller lower quality home if I intended to maintain any good portion of my profits from the sale.

Durkin Nowitzki said:

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I don't envy any 30-ish year old young professional looking to buy their forever home into todays current climate. Feel for you. No way I could have done it if the market was back then, what it is today. Would have stayed in my track home for another few years probably.

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Wife and I feel really, really lucky to be of the age that had us buying our first home at age ~25, with $0 down, closing costs rolled into the loan, and houses cheap (northwest Houston). Our PITI was about $900, not much more than the apt we were renting in Jersey village; combined income was ~$90k, so an easy payment. This was 2005.

Then the magic year 7 comes, 2012 age 32, we sell, we net ~$50k, used $40k for down payment on new <$400k house (in CO), refi'd that 3-4 years ago to 2% and change, and now mortgage is $2k which is just small fraction of net income. House is $900k valuation today. A current buyer with $200k down would have a PITI of nearly $5500. We by no means have some high end custom home, just a cookie cutter tract home on 1/6 acre in denver burbs.

That is a process/timeline that, I would think, will never be replicated again. Certainly can't do it right now, and I just don't see a time in the future, even after large crash, where housing is so cheap with income high and you need nothing down. The idea of getting a cheap starter house to build equity and then upgrade 7-10 years later is just a pipe dream.

Having some huge down payment at age 25 just seems so unrealistic. We literally brought ZERO dollars to the table for our first house, and the basic idea of gaining equity allowed us to get into a nicer, larger home. Our house didn't even appreciate during that time.. $120k purchase, $130k sell 7 years later lol. All of 1.2% appreciation per year.

62strat said:

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Durkin Nowitzki said:

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I don't envy any 30-ish year old young professional looking to buy their forever home into todays current climate. Feel for you. No way I could have done it if the market was back then, what it is today. Would have stayed in my track home for another few years probably.

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Wife and I feel really, really lucky to be of the age that had us buying our first home at age ~25, with $0 down, closing costs rolled into the loan, and houses cheap (northwest Houston). Our PITI was about $900, not much more than the apt we were renting in Jersey village; combined income was ~$90k, so an easy payment. This was 2005.

Then the magic year 7 comes, 2012 age 32, we sell, we net ~$50k, used $40k for down payment on new <$400k house (in CO), refi'd that 3-4 years ago to 2% and change, and now mortgage is $2k which is just small fraction of net income. House is $900k valuation today. A current buyer with $200k down would have a PITI of nearly $5500. We by no means have some high end custom home, just a cookie cutter tract home on 1/6 acre in denver burbs.

That is a process/timeline that, I would think, will never be replicated again. Certainly can't do it right now, and I just don't see a time in the future, even after large crash, where housing is so cheap with income high and you need nothing down. The idea of getting a cheap starter house to build equity and then upgrade 7-10 years later is just a pipe dream.

Having some huge down payment at age 25 just seems so unrealistic. We literally brought ZERO dollars to the table for our first house, and the basic idea of gaining equity allowed us to get into a nicer, larger home. Our house didn't even appreciate during that time.. $120k purchase, $130k sell 7 years later lol. All of 1.2% appreciation per year.

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don't disagree, but you would be surprised (or not) at how many young buyers have lots of help from mom/dad/grandpa/grandma.

When I used to host open houses in Briargrove (neighborhood in Houston where homes range from $800-$2M+ depending on age) I was shocked with how many couples that looked to be right out of college were offering on these very expensive homes. When I would see how much they put down, my eyes would get even wider. Then you would find out that family had gifted half a million to give them a nice "head start".

I always tell my clients that's who they're competing with on these "high end starter homes".

Diggity said:

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62strat said:

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Durkin Nowitzki said:

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I don't envy any 30-ish year old young professional looking to buy their forever home into todays current climate. Feel for you. No way I could have done it if the market was back then, what it is today. Would have stayed in my track home for another few years probably.

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Wife and I feel really, really lucky to be of the age that had us buying our first home at age ~25, with $0 down, closing costs rolled into the loan, and houses cheap (northwest Houston). Our PITI was about $900, not much more than the apt we were renting in Jersey village; combined income was ~$90k, so an easy payment. This was 2005.

Then the magic year 7 comes, 2012 age 32, we sell, we net ~$50k, used $40k for down payment on new <$400k house (in CO), refi'd that 3-4 years ago to 2% and change, and now mortgage is $2k which is just small fraction of net income. House is $900k valuation today. A current buyer with $200k down would have a PITI of nearly $5500. We by no means have some high end custom home, just a cookie cutter tract home on 1/6 acre in denver burbs.

That is a process/timeline that, I would think, will never be replicated again. Certainly can't do it right now, and I just don't see a time in the future, even after large crash, where housing is so cheap with income high and you need nothing down. The idea of getting a cheap starter house to build equity and then upgrade 7-10 years later is just a pipe dream.

Having some huge down payment at age 25 just seems so unrealistic. We literally brought ZERO dollars to the table for our first house, and the basic idea of gaining equity allowed us to get into a nicer, larger home. Our house didn't even appreciate during that time.. $120k purchase, $130k sell 7 years later lol. All of 1.2% appreciation per year.

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don't disagree, but you would be surprised (or not) at how many young buyers have lots of help from mom/dad/grandpa/grandma.

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I would think this situation has always existed, and hasn't necessarily become more prevalent in the last ~10 years.
15 years ago when houses were cheap and $20k was a sizeable down payment, the young adults who had the help of daddy's down payment just got much nicer first homes, not the $150k starter.

not so sure. seems to be a huge wealth transfer going on currently.

Also, it wasn't nearly as necessary 20 years ago when home price weren't so out of whack with income.

I edited.. I agree, not as necessary back then, but doesn't mean it didn't happen; it was just allowing those select few to get into much nicer homes instead of starter.

Now it's required to get into a starter home.

Durkin Nowitzki said:

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I bought 10 years ago at 2.75% interest rate at 30 years old. My home has doubled in value. While it feels good, and looks good on paper...I also know if I sold right now, and subsequently tried to buy a new house I would be stuck buying smaller lower quality home if I intended to maintain any good portion of my profits from the sale.

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Yep, way too many of us in this same situation I feel like. Scary predicament for the marketplace.

Chipotlemonger said:

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Durkin Nowitzki said:

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I bought 10 years ago at 2.75% interest rate at 30 years old. My home has doubled in value. While it feels good, and looks good on paper...I also know if I sold right now, and subsequently tried to buy a new house I would be stuck buying smaller lower quality home if I intended to maintain any good portion of my profits from the sale.

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Yep, way too many of us in this same situation I feel like. Scary predicament for the marketplace.

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There is no good reason to do this though (sell) unless you are downsizing or relocating to a cheaper market.

Selling just to buy again laterally in same geographic location is a dumb idea at this point. You are throwing away money (selling and buying costs).

So I don't know why this is 'scary'.

I've told my wife, who has pushed to go back Texas off and on due to our equity, that it's a no-way from me.. UNLESS, I got laid off, and a handful of months passed without finding employment.

Then and only then I would happily take my $500k equity and we'd be in good shape to buy something like what we have, probably better (larger house/lot, pool, etc) back in Houston burbs. And it would be for cash, or mostly cash with a small, very manageable balance.

And I probably wouldn't work for a little while, especially if it was summer, we'd do some heavy traveling while kids are out of school.

I don't know why people have this thought that their equity is useless if they tried to move.. well yeh, if you move down the street it's useless. But if kids are finally gone and you're going from 4/5 bedroom house to 2 condo, or from CA to anywhere, or a place like seattle/denver to TX.. that equity is as valuable as it gets even in today's market.

62strat said:

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Chipotlemonger said:

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Durkin Nowitzki said:

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I bought 10 years ago at 2.75% interest rate at 30 years old. My home has doubled in value. While it feels good, and looks good on paper...I also know if I sold right now, and subsequently tried to buy a new house I would be stuck buying smaller lower quality home if I intended to maintain any good portion of my profits from the sale.

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Yep, way too many of us in this same situation I feel like. Scary predicament for the marketplace.

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There is no good reason to do this though (sell) unless you are downsizing or relocating to a cheaper market.

Selling just to buy again laterally in same geographic location is a dumb idea at this point. You are throwing away money (selling and buying costs).

So I don't know why this is 'scary'.

I've told my wife, who has pushed to go back Texas off and on due to our equity, that it's a no-way from me.. UNLESS, I got laid off, and a handful of months passed without finding employment.

Then and only then I would happily take my $500k equity and we'd be in good shape to buy something like what we have, probably better (larger house/lot, pool, etc) back in Houston burbs. And it would be for cash, or mostly cash with a small, very manageable balance.

And I probably wouldn't work for a little while, especially if it was summer, we'd do some heavy traveling while kids are out of school.

I don't know why people have this thought that their equity is useless if they tried to move.. well yeh, if you move down the street it's useless. But if kids are finally gone and you're going from 4/5 bedroom house to 2 condo, or from CA to anywhere, or a place like seattle/denver to TX.. that equity is as valuable as it gets even in today's market.

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You're missing the point me and the other poster were making I think. It is "scary" that a lot of people are in homes they could not afford if it was on the open market. Fewer people moving because they can't upgrade and would end up having to pay MORE than they currently do just to MATCH their current home is not good long term.

Chipotlemonger said:

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62strat said:

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Chipotlemonger said:

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Durkin Nowitzki said:

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I bought 10 years ago at 2.75% interest rate at 30 years old. My home has doubled in value. While it feels good, and looks good on paper...I also know if I sold right now, and subsequently tried to buy a new house I would be stuck buying smaller lower quality home if I intended to maintain any good portion of my profits from the sale.

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Yep, way too many of us in this same situation I feel like. Scary predicament for the marketplace.

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There is no good reason to do this though (sell) unless you are downsizing or relocating to a cheaper market.

Selling just to buy again laterally in same geographic location is a dumb idea at this point. You are throwing away money (selling and buying costs).

So I don't know why this is 'scary'.

I've told my wife, who has pushed to go back Texas off and on due to our equity, that it's a no-way from me.. UNLESS, I got laid off, and a handful of months passed without finding employment.

Then and only then I would happily take my $500k equity and we'd be in good shape to buy something like what we have, probably better (larger house/lot, pool, etc) back in Houston burbs. And it would be for cash, or mostly cash with a small, very manageable balance.

And I probably wouldn't work for a little while, especially if it was summer, we'd do some heavy traveling while kids are out of school.

I don't know why people have this thought that their equity is useless if they tried to move.. well yeh, if you move down the street it's useless. But if kids are finally gone and you're going from 4/5 bedroom house to 2 condo, or from CA to anywhere, or a place like seattle/denver to TX.. that equity is as valuable as it gets even in today's market.

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You're missing the point me and the other poster were making I think. It is "scary" that a lot of people are in homes they could not afford if it was on the open market. Fewer people moving because they can't upgrade and would end up having to pay MORE than they currently do just to MATCH their current home is not good long term.

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I don't really know what that looks like long term or what the effects are on a large scale. But again, how often are you forced to move locally? You never are really. Sure you can have kids and 'outgrow' a house.. but that still isn't forcing you to move. So why move? What be scared of a hypothetical situation that you can mostly control?

If you are forced to move, it's probably to another region and for work/military. In those cases, you are either going to a cheaper market, and have no issues, or you are moving to a similar market, where you might have a small, minor issue, or you move to a more expensive market, which is a problem unless work is compensating appropriately.

So unless you have a reasonable expectation that you may have to move for work to a higher market, and to a lesser degree a similar market, that seems like an unnecessary stress.