Reaching a Personal & Financial Goal

This Monday, we started work on a long-planned house addition!  We purchased our house in November 2010, 5 months before our first child was born.  As with all large decisions, we set some parameters for the property:

• 1 acre minimum
• Closest proximity to Washington, DC possible (inside the beltway)
• $400-500K 
• Livable (had to have running water and heat)

In all of the Washington, DC metro area, just nine properties fit this requirement.  It made house hunting easy.  The house was old, and we knew most things would need replacing within five years.  It was a fixer-upper, but we had completely gutted our first property, so we figured it would be fine.  We did the math, and calculated we could save enough money to do a big addition and update in five years.  We would take out a home equity loan, which combined with our savings, would cover a solid $200k of work.

Unfortunately, our timing was just a touch off, primarily because we had a few more babies than we had initially planned on.  We also did not know that the cost to connect to sewer and water would increase dramatically in Fairfax County within a year of purchasing our property.  If we had connected in 2011, we would have saved $10,000.  As it is, the fees alone to connect, not including any work, were $35,000, which we ended up paying for in cash, rather than financing.  We also learned that working on an older house was different from a condo, since we wanted to make changes to load-bearing walls.

Our financial goal was to have $70,000 saved prior to starting the house project.  We would take out a home equity loan for $200,000.  We already put $59,000 in to the house cash (roughly, $19,000 – water, $30,000 – sewer, $5,000 – DIY bathroom upstairs, $5,000 – DIY new heat pump/electric work).  All told, in 8 1/2 years we saved $129,000 toward necessary home improvements. The additional $200,000 home equity loan was for an addition and some other work.  We also paid off about $45,000 in a line of credit that we used toward the down-payment.

Our number one goal was to ensure that we could pay all house debt (mortgage + home equity loan) along with other living expenses on a single income.  We also want to pay off the home equity loan in 10 years, or no later than when we pay off the mortgage (15-20 years). We do not plan to refinance, as the terms of our current mortgage are 3.87% interest, and we cannot get that good of a rate now.  We also want to pay of the home equity loan, with a variable rate, faster than the loan terms (30 years total).  Since we saved/paid off debt to the tune of $174,000 in eight years, and our childcare costs will decrease by $20,000/annually in five years, we figure paying it off in 10 years is very reasonable.

A couple of thoughts at this point:

• It feels amazing to have achieved a concrete financial and physical (house) goal!
• The peace of mind that we have plenty of cash on hand, as well as very manageble house debt is invaluable.  
• I wish we had been just a bit less aggressive with saving, and taken a couple short vacations in the past five years – it wouldn’t have made that big of a difference in retrospect.
• If we had to do it all over again, we would still go with our fixer upper option, but we would have started considering finances and the project much earlier – that would have saved us $10,000.
• We made some great decisions, particularly focusing on location.  I never regret having a commute 30-45 minutes to work (that’s considered very good for our area).
• Having a philosophy of living on one income helped keep us grounded, and has provided welcome parameters to know how much cash we needed prior to starting our project.
• Being our own contractors is saving us a good 20%, and that is worth some headaches.
• Building a strict house budget was helpful: I developed a best, likely, and worst case scenario, and we based our required financial scenario on the worst case.  
• Thinking through the absolute worst case scenarios (job loss, for instance) provided more peace of mind, as we have two contingency plans already in place.

Slow and steady is far from sexy, but boy does it work every time.

Photo by Bryce Evans on Unsplash