Should I remodel or buy a bigger house?
After a 6% commission to sell, you have $80K in equity. 20% down on a $400K house.  5% down will likely cost you PMI, and I don't know that you'll ever see a 3.14% rate.  The realtor may very well have knowledge of the cost to finish a basement, but I don't ask my doctor for tax advice, and I'd not ask a realtor for construction advice. My basement flooring was $20/sqft for a gym quality rubber tile. You can also get $2/sqft carpet. I'd take the $15K number with a grain of salt until I got real bids. What's there now? Poured cement? Is there clearance to put in a proper subfloor and still have adequate ceiling height? There are a lot of details that you need to research to do it right.  That said, the move to a bigger house impacts your ability to save to the extent that you are taking too large a risk. The basement finish, even if $20K, is just a bit more than the commission on your home. I like the idea of sticking it out. Once the nanny is gone, enjoy the extra income, and use the money to boost your savings and emergency funds.  As I read your question again, I suggest you cut the college funding in favor of the emergency fund. What good is a funded college account if you have no funds to sustain you through a period of unemployment?  There's a lot to be gained in holding tight for these 3 years. It seems that what's too small for 5 would be spacious once the nanny is gone and the basement added. The cost of a too-big house is enormous over the long run. It's going to rise in value with inflation, but no more, and has all the added costs that you've mentioned. On a personal note, I'm in a large house, with a dining room that's used 2 or 3 times a year, and a living room (different from family room) that is my dog's refuge, but we never go in there. In hindsight, a house 2/3 the size would have been ideal.   Finishing the basement doesn't just buy you time, it eliminates the need for the larger house. I am quite sure you can set up an office in your basement for a lot less than $15,000. Don't build any walls, install any flooring, or upgrade the ceiling. Just install more lights and plugs. Set up your desks, bookshelves and what not in whatever corner is furthest from noises like the laundry room or the furnace. The kids and the nanny get the main floor - just let the whole living room be a giant playroom, for example. This gives you the separation you need to work at home, but you can hear if something really needs your attention.  When the kids go off to school, you can refinish the basement into a playroom for kids who don't always need supervision, using the money you are no longer spending on the nanny to install carpeting, real walls, a drop ceiling and so on. Your office stuff can move up to the main floor or to a spare room upstairs if you had one but it wasn't usable during the baby years when upstairs generally has to be quiet. As the kids get older the basement can get tailored to what preteens and teens like. This is essentially what we did, and our square footages and child counts match yours almost precisely. We did eventually convert our garage to carpeted and finished space, and it spent time as an office with staff coming in each day, then some time as a teen playroom (think video games and loud music) after the business rented office space outside the house, but if you don't intend to hire staff for your business you don't need to do this part. We did the majority of the basement wiring ourselves and got an electrician to hook it into the panel and check our work. The budget would probably be less than 10% of the guess from your real estate agent.
Danger. The affidavit is a legal document. Understand the risk of getting caught. If you are planning on using the condo to generate income the chances that you default on the loan are higher than an owner occupied property. That is why they demand more down payment (20%+) and charge a higher rate.  The document isn't about making sure you spend 183+ nights a year in the property, it is making sure that it isn't a business, and you aren't letting a 3rd party live in the property.  If you within the first year tell the mortgage company to send the bill to a new address, or you change how the property is insured, they will suspect that it is now a rental property.  What can they do? Undo the loan; ask for penalty fee; limit your ability to get a mortgage in the future; or a percentage of the profits How likely is it? The exact penalty will be in the packet of documents you receive. It will depend on which government agency is involved in the loan, and the lenders plan to sell it on the secondary market.  It can also depend on the program involved in the sale of the property. HUD and sister agencies lock out investors  during the initial selling period, They don't want somebody to represent themselves as homeowner, but is actually an investor. Note: some local governments are interested not just in non-investors but in properties being occupied. Therefore they may offer tax discounts to residents living in their homes. Then they will be looking at the number of nights that you occupy the house in a year. If they detect that you aren't really a resident living in the house, that has tax penalties. Suggestion: If you don't want to wait a year buy the condo and let the loan officer know what your plan is. You will have to meet the down payment and interest rate requirements for an investment property. Your question implies that you will have enough money to pay the required 20% down payment. Then when you are ready buy the bigger house and move in. If you try and buy the condo with a non-investment loan you will have to wait a year. If you try and pay cash now, and then get a home equity loan later you will have to admit it is a rental. And still have to meet the investor requirements. "I recommend reading What's the catch in investing in real estate for rent? and making a list of expenses.  You have a known expense, the rent, and the assumption that it will rise a bit each year. If not each year, eventually the landlord will bump it, and on average, the rent should track inflation.  The buy side is the complete unknown, especially to us here. The mortgage and taxes are just the beginning. My ongoing issue in the buy/rent debate is that it's easy to buy ""too big"" or at least far bigger that what you are renting.  One extreme - a couple moves from their one bedroom apartment into their purchased 3BR home with far more space than they ever use. No need to paint the full picture of numbers, the house is a money pit, and they live for the house.  Other end - Couple already renting a nice sized home, and they buy a similar one. They rent out the two spare bedrooms for 5 years until they have kids and want their privacy back. They bought smart, for less than market price, and from day one, the mortgage was lower than the rent they paid. By year 5, having sent the extra income to pay down the mortgage, they've paid down half the loan. As the kids come along, they refi to a new 30 yr fixed at 3.5%, and the payment is tiny compared to the rest of their budget.  Simply put, the ratio of house price to rent for that same house is not a constant. When the ratio is high, it's time to rent. When it swings very low, it's worth considering a purchase. But the decision is never clear until every detail is known. The time may be perfect, and the day after you close, you lose your job, or in a good scenario, get a raise and are relocated. Just because you bought low yesterday, doesn't mean the market will pay you a good price today, it takes time for out-of-whack pricing to come back to normal.  A simple question? Maybe. But we first need a lot of details to help you understand what you are considering." "John's answer is similar to what I was thinking. You should invest in insurance ""because there's an insurance salesman who needs to pay to send his kid to college."" I will never be a fan of any type of permanent insurance, and I think it wrong to sell a single person with no dependents such a policy. I've used the expression ""Variable Annuities are sold, not bought."" I feel the same about these insurance policies.  The best advice I can offer in a short reply is this: If you need life insurance, buy term. Save as much as you can, 10% minimum, more if you are able. A young person should be saving for retirement and to position them self to buy their first house, if that's what they wish. What good is a full up Whole Life policy when you need to raise $40K to put down on a house? Sorry to sound like I'm lecturing, this is one of my hot points." "I just wanted to give you a different perspective, as I own a house (purchased with a mortgage), with my girlfriend. I think it can be done safely and fairly, but you do need to involve legal help to do it right. There really is nothing to be terrified about, the extra cost to set this up was almost irrelevant in the bigger picture of legal costs around purchasing and the documents describing the ownership scheme are quite straightforward. Maybe it's a UK thing, but it seems rather commonplace here.  We've chosen to hold this as ""tenants in common"" and use a trust deed for this when we purchased. We had a solicitor write the trust deed and it clearly states what percentage of the house is owned by either party and exactly what the steps would be taken, should we decide to end the trust (e.g. in case of a split-up). This includes things like the right to buy out the other person before selling on the market etc.  We also had to make wills separately to indicate what should happen with our percentage of the property in case one of us died as with this type of ownership it doesn't automatically go to the other person.  Finally we're both on the mortgage, which I guess is the main difference versus your situation. But again, you could get legal advice as to how this should best be handled." It may be possible to get more cash than you currently have. For example, If you have $200,000, you could buy a distressed property for $150,000, spend $50,000 on renovations, get it appraised for $300,000 and then cash out refi $240,000 (keeping 20% equity to avoid MIPs) to invest. This would be analogous to flipping a house for yourself. Normally flippers buy a house for cheap, then sell it to someone else for way more than their total outlay in purchase + improvements. The only difference here is there's no 3rd party - you stay in the house and essentially buy it from yourself with the mortgage. "Assuming ""take advantage"" means continue to build wealth, as opposed to blow it all on a fancy holiday...  Downgrade As you already note, you could downgrade/downsize. This could happen via moving to a smaller house in the same area, or moving to an area where the cost of buying is less.  HELOC Take out a Home Equity Line of Credit. You could use the line of credit to do home improvements further boosting the asset value (forced appreciation, assuming the appreciation to date is simply market based). Caution is required if the house has already appreciated ""considerably"" - you want to keep the home value within tolerance levels for the area. (Best not to have the only $300K house on a street of $190K-ers...) Home Equity Loan Assuming you have built up equity in the house, you could leverage that equity to purchase another property. For most people this would form part of the jigsaw for getting the financing to purchase again." Having someone else paying you rent is always going to be the better deal financially. The question is, what does $450k buy in the neighborhood in which you want to live, vs $800k? I'm going to assume you can afford either option (buying a $450k home and not selling, or an $800k home and selling your current one) whether someone's paying you rent or not. Let's make up some numbers here; a $450k home, financed 80/20 (360k principal) at 4% for 30 years will cost you about $1720 in P&I payments per year (plus escrows such as RE taxes, PMI, and homeowners insurance where applicable). An $800k home financed 80/20 (640k principal) at 4% for 30yr will give you payments of about $3,055/mo before taxes and insurance. So, the worst case overall is that you buy a 450k home in the new neighborhood and are not, at any given time, collecting rent on the old property. That would (assuming the mortgage terms on both home loans were comparable) cost you $3440/mo and you'd be living in a $450k home in a neighborhood where 450k may not buy a home as nice as the one you moved out of. The question as I stated above is this; assuming you had a reliable tenant in your home for the entire remaining life of the loan on your current home, which is more acceptable to you: buying $450k of home (which might be a downgrade in sqft or amenities) and paying $2020 in P&I, or paying about a grand more ($3055/mo) for a much nicer home in the new location? Strictly from a money perspective, the renter is going to be the best option, IF you get reliable tenancy for the entire life of the mortgage on that house; you'll be paying $2020/mo for 30 years, which is $727,200, to end up with $950k of total home value (plus adjustments for actual home value appreciation/depreciation). That's the only way you'll come out ahead on any mortgage; have someone else pay most of it for you. If you don't rent, the $800k home will cost you $1,099,800, while two $450k homes will cost you $1,454,400. The percentage of home value over total payments for the 800k home would be 72% (you will have paid 137% of the value of the home), while you will have paid 153% of the value of two 450k homes. "If you don't plan to stay in it, it is never good money to try to buy a house in a bad neighborhood. The question you want to be asking is probably ""Is it smart to buy this piece of real estate,"" not ""is it smart to buy a house in college.""  In this case, it's probably not smart because you won't actually have revenue from the property (you'll break even compared to renting), you may face some expensive repairs (water heater or other appliances going out, etc.), and you may find that your startup costs in things like lawn mowers, etc. is not worth the hassle (or cost of lawn service if you have someone else do it.) On top of that, can you get a loan with your proven income and assets? Don't forget to factor the cost of selling the house again into it -- and how long can you leave it on the market after you move out if it doesn't sell without going bankrupt yourself? In my opinion, it'd be a giant albatross around your neck."