Would you use credit to invest in home

Yellow218 · October 2014

Hi. I'm a newbie here but used similar sites when planning my wedding and have just found the nest so no doubt I'll get hooked again. Hubby and I have always been pretty smart when it comes to finances. We were consious to use credit when we were students to build up our credit score, but always made sure we paid them off in time. Other than that (and student loans) we have never really used credit, and we're good savers saving for a house deposit and wedding simultaneously. We bought our first home about a year after we got married, renting for 6 yrs until that point. We got good advice from parents and a mortgage broker before committing to buying our home and to consider what mortgage options were best for us. We ended up buying the worst house in the best area. It was certainly structurally sound and was liveable but needed improvement. We viewed this positively- a chance to do some diy and invest in our home. The house was priced accordingly but our mortgage was still relatively on the high side due to being first time buyers and having a relatively small deposit. However I was mindful that we had tracked all our spending for three years previously and had researched well so we knew we could live there comfortably. We do meet mortgage payments, bills and living costs within our income. We did use all our savings as a deposit, and as I mentioned the place needed improvment. We have therefore completed most of the work required but have done so using credit cards (0% interest I might add). We viewed this as 'good debt' as we can afford to make the payments and it has invested in the house. In the long term it will also help us financially as will increase the property value. It also means we have a nice comfortable home and a sense of satisfaction from doing the majority of the work ourselves. (Helpful having best friends and relatives in the trade to do the bits we can't) Now here is the predicament. Most of the improvements have been done. With the exception of the main bathroom. It is certainly liveable but not what we would like. We have priced it up and we would need to add it on the to debt (at the rate we pay off it would add three more months extra onto our debt). We have a good rating, and have more credit available to us. We don't NEED a new bathroom, but certainly would like one. My question is. Would you add to your debt so you could have a PERFECT home now and know that you will enjoy it for the future years, is the enjoyment of the prefect home worth the equivalent of three months debt? Or would you make do with the bathroom you have, wait until the current debt is paid off, save up for it and then install a bathroom, but subsquently have less time to enjoy it?

Yellow218 · October 2014

Sorry-quite an essay. Didn't realise I was ranting so much!

Xstatic3333 · October 2014

Welcome to the board!

In your situation, I would pay off all of the current debt before the 0% promotion expires, rebuild my savings to 3-6 months of emergency expenses, and then save to pay cash for the bathroom. There are a few different perspectives going on around here, but I think most will agree that it's best hold off on the bathroom redo until you have substantial emergency savings in the bank. If I misinterpreted and you do still have some emergency savings, I apologize.

Once you have your e-fund, that's when the judgement call comes in. I'm sort of coming around to a "no new debt perspective" for myself. We have a medium income and want to TTC within a year or two, so we really want to keep our cash flow free to for baby stuff (mainly daycare) and the ability to keep saving. Others will see no problem with taking on low-interest debt (a 0% CC or a home equity line of credit) for projects that will improve your home's value. Either way though, an e-fund of at least a few thousand dollars is absolutely essential for homeowners. What if your boiler and/or AC goes suddenly (depending on where you live, chose whichever one is the biggest emergency). Or your roof? Or a car?

We're putting off a lot of home upgrades while getting our other goals where we want them to be, too, so I understand where you're coming from. We have one room that is pretty much unusuable due to a nasty carpet situation and our kitchen wallpaper is nauseating (we'll probably DIY that soon). Our bathroom is PINK of all colors. Pink. We are spending a chunk of cash to upgrade our super-old boiler and take advantage of some state incentives before the winter, but for anything cosmetic we're going to pay cash from here on out and we're going to repay ourselves for the boiler before any major upgrades over $1000. It's the approach that works for us, and we still love our house, quirks and all.

hoffse · October 2014

I think the general feel of this board is that less debt is better than more debt, especially when it's for something like this.

That said, I'm not particularly debt-adverse if taking on additional debt is very comfortable within your budget.

I'm not a fan of financing things on 0% credit cards. I understand that they work really well if you are on top of things, but they can totally bite you in the butt if you aren't careful. Many of them have terms built-in that add in interest from all of the 0% months if you don't pay it off in full within the 0% term. As in, you might be one month behind in paying it off in full and suddenly you owe interest that dates back to your date of purchase. When that happens, it's basically a balloon payment and suddenly you have borrowed that money at 20%+ interest instead of 0% interest. For me personally, I only consider them when I know I can pay them off in half the time they give me. Usually, that's a short enough time period that it makes more sense to just save money to pay cash and then I don't have to worry about it.

My other question to you would be where you guys are in terms of saving for retirement, etc. That is much much more important than a new bathroom.

Finally, I also wonder how extensive this remodel is going to be? Labor for bathroom remodels is extremely expensive. But materials are actually pretty cheap. H and I just did a partial remodel to our hall bathroom that included re-grouting the tile, re-caulking the bathtub, fixing/installing some new tiles, replacing the toilet, removing the vanity and installing a pedestal sink, and replacing the light fixture, shower trim, and mirror. The total cost was less than $1,000 and it looks like a brand new bathroom. It took us 1 weekend and about 7 weeknights to do ourselves, including demo time. If we had bothered to actually read a couple plumbing blogs before trying to install the pedestal sink, we would have saved ourselves a couple nights of work. This was the first time we had done any plumbing, grouting, wall repair, electric installation, etc. ourselves.

If we had replaced the bathtub/shower area as well it probably would have been closer to $1250-$1500 for materials. We decided to keep the bathtub because it is an antique and it was an odd size. It wasn't worth trying to find something else that would fit in that space. Even though we didn't replace most of the tile or the bathtub, our bathroom looks brand new, mostly because the grout and caulk are now clean and all the same color. That part of the "remodel" cost a whopping $27 for the grout saw, grout, and caulk. Little things like that can make a big difference, and I would encourage you to really try to pinpoint what you could live with keeping and what about the space really needs to change.

Sisugal · October 2014

First things first.
Fund your emergency fund!
Pay off the 0% cards
Save & pay cash for the bathroom.

brij2006 · October 2014

Wait on the remodel, and only upgrade things as you can pay cash for them. I would focus on paying off the 0% interest cards ASAP. Don't use them for any further remodeling. That's just asking for disaster.

Some of the girls here (me included) are avid Dave Ramsey fans. I recommend reading his book "Total Money Makeover" to get a good understanding on what to do with your money.

Yellow218 · October 2014

Hi ladies Thanks for sharing. I appreciate it - retirement planning. Both hubby and I contribute to pensions. Life assurance also, just in case. And hope that when it comes to it, we will downsize and release capital from property. - we don't have children yet, but would like to in the future. (We are in our mid-ok late- 20s (27) but enjoying our careers at the mo) But are currently working on our nappy list (things to do before having children). Part of me thinks that if we don't finish the house, we never will. I can't see myself letting myself spend a lot of money on the house when we first have children, let alone rip out walls with all the noise and dust it creates. - we do have an emergency pot just in case (but I don't want to touch it for doing up the house as is not an emergency), it's only three months so yes maybe we could increase it - why is using 0% interest cards asking for disaster? We were offered a loan against the house but this had interest on it. The way I see it as long so there is enough 0%credit cards available then why would I take out a loan which charges interest and costs me more in the long run. What we do is spend on the cards, (they have a relatively long term) and each month we put aside money into a savings account (I think this is called stooging?). Although interest is small this does make a little bit of money, which when it comes to the deadline of the 0% we then use to pay off the card. Each month I track our spending and double check the cards. I've got reminders in the diary for when payments must be made. We have direct debits set up to pay minimim each month. I E the cards are affordable for us. Obv if we didn't pay off in time then yes it would be dangerous. I suppose we therefore take as much time to save up/pay off the cost of the project (say the kitchen for example) but we get to enjoy it for longer. - we do all the work our selves. We were pretty handy. And have relatives and friends in different trades for advice. Excluding gas connections(as you need to be certified) and all our electrics are signed off by a certified electrical. we save money by doing it ourselves but we do a proper job and meet regualtions. So the cost is only the materials. I would say that the debt we have taken out for home improvements is easily covered by the increase of property value. We've added a double garage, added a downstairs bathroom, added a utility area, added double glazing, upgraded the kitchen, new carpets, renovated the feature fireplaces and decorated throughout. That's cost us approx $23000 and a lot of hard work. Having costed materials (including a worse case scenarios) I guess I'd like to spend $2.5k on the master bathroom. But in the two years we've lived here the estimated property price has increased by $124000, and that's without taking into account the improvements we've made. My initial aim was to get the house perfect(including the bathroom) get it revalued and then remortgage. That will reduce our mortgage payments as our LTV will be better (can then pay off debt faster) and at which point we have a nice comfy home and less outgoings then can TTC. But at the end of the day it would be adding to the debt. Although I think the debt is affordable and in control its still debt, and benefitting the value of the house, I do wonder how much debt is too much even if you have a comfortable plan to pay it off.

Yellow218 · October 2014

Why do my replies come out as one big block of text even though I do write in paragraphs?

How strange!

Xstatic3333 · October 2014

That's great that you have an e-fund already! Your OP gave me the impression that you didn't yet, my apologies.

How much debt is too much debt is definitely a comfort thing around here. I think the "official" recommended max debt-to-income ratio is 36% of gross pay, but most of us around here shoot for far less than that. If you guys have secure and high incomes relative to your expenses, maybe taking on $2,500 extra for the bathroom is no big deal. One other thing I would consider though is that opening a ton of CC's and running up big balances is going to ding your credit score a bit. Now, if this is your forever home and you don't anticipate car loans either maybe that doesn't matter that much to you, but I thought I'd bring it up. I imagine it could come into play for refinancing.

I think many of us are not fans of 0% CC's because it is SO easy to get charged back interest if you do one little thing wrong. Heck, a poster not long ago got pummeled with late fees somehow for paying off a card EARLY to a sketchy lender-I forget who it was, but it was a sobering cautionary tale. It does sound like you've got a solid system to pay them off early, though.

It sounds to me like you're uncomfortable taking on more debt, so for that reason I would wait. Alternately, start making "payments" to yourself and pay cash once you hit $2,500. Your house doesn't need to be perfect right away to still be a wonderful home. Peace of mind is worth so much more!

hoffse · October 2014

Xstatic3333 said:

That's great that you have an e-fund already! Your OP gave me the impression that you didn't yet, my apologies.

How much debt is too much debt is definitely a comfort thing around here. I think the "official" recommended max debt-to-income ratio is 36% of gross pay, but most of us around here shoot for far less than that. If you guys have secure and high incomes relative to your expenses, maybe taking on $2,500 extra for the bathroom is no big deal. One other thing I would consider though is that opening a ton of CC's and running up big balances is going to ding your credit score a bit. Now, if this is your forever home and you don't anticipate car loans either maybe that doesn't matter that much to you, but I thought I'd bring it up. I imagine it could come into play for refinancing.

I think many of us are not fans of 0% CC's because it is SO easy to get charged back interest if you do one little thing wrong. Heck, a poster not long ago got pummeled with late fees somehow for paying off a card EARLY to a sketchy lender-I forget who it was, but it was a sobering cautionary tale. It does sound like you've got a solid system to pay them off early, though.

It sounds to me like you're uncomfortable taking on more debt, so for that reason I would wait. Alternately, start making "payments" to yourself and pay cash once you hit $2,500. Your house doesn't need to be perfect right away to still be a wonderful home. Peace of mind is worth so much more!

Yep, this.

I'm not as anti-debt as most people on this board. But I have never ever used a 0% credit card. I've looked at them many times, but I've never actually done it. If you actually read the T&Cs of them, chances are they will make you nervous too.

On the whole, a low-interest, fixed payment is a much more secure way of financing things in life (cars, houses, etc.) than 0% credit cards. My car loan is fixed at 0.99%. That's a better deal from a security standpoint than a 0% rate that balloons to 25% if I'm a day late on my final payment. I've never been late on any payment ever, but sh*t happens. You can't predict the future, you can only make choices that minimize your chances of getting nailed with a big fee when sh*t goes down.

Finally, I get what you are saying about getting stuff done before a kid comes. I really do. We are prioritizing housework and vacations now for the same reason. But honestly? Life moves on and kids really shouldn't bring it to a screeching halt. If you can't handle a remodel with an infant, then wait until the kid is 2 or 3. If you can't handle it with a toddler, then wait until they are a bit older. Or just don't do it. The updates you are making now will be dated by the time you sell the house anyway and somebody else will be buying your house with plans to rip out your work.

formerlyGDaisy09 · October 2014

hoffse said:

Xstatic3333 said:

That's great that you have an e-fund already! Your OP gave me the impression that you didn't yet, my apologies.

How much debt is too much debt is definitely a comfort thing around here. I think the "official" recommended max debt-to-income ratio is 36% of gross pay, but most of us around here shoot for far less than that. If you guys have secure and high incomes relative to your expenses, maybe taking on $2,500 extra for the bathroom is no big deal. One other thing I would consider though is that opening a ton of CC's and running up big balances is going to ding your credit score a bit. Now, if this is your forever home and you don't anticipate car loans either maybe that doesn't matter that much to you, but I thought I'd bring it up. I imagine it could come into play for refinancing.

I think many of us are not fans of 0% CC's because it is SO easy to get charged back interest if you do one little thing wrong. Heck, a poster not long ago got pummeled with late fees somehow for paying off a card EARLY to a sketchy lender-I forget who it was, but it was a sobering cautionary tale. It does sound like you've got a solid system to pay them off early, though.

It sounds to me like you're uncomfortable taking on more debt, so for that reason I would wait. Alternately, start making "payments" to yourself and pay cash once you hit $2,500. Your house doesn't need to be perfect right away to still be a wonderful home. Peace of mind is worth so much more!

Yep, this.

I'm not as anti-debt as most people on this board. But I have never ever used a 0% credit card. I've looked at them many times, but I've never actually done it. If you actually read the T&Cs of them, chances are they will make you nervous too.

On the whole, a low-interest, fixed payment is a much more secure way of financing things in life (cars, houses, etc.) than 0% credit cards. My car loan is fixed at 0.99%. That's a better deal from a security standpoint than a 0% rate that balloons to 25% if I'm a day late on my final payment. I've never been late on any payment ever, but sh*t happens. You can't predict the future, you can only make choices that minimize your chances of getting nailed with a big fee when sh*t goes down.

Finally, I get what you are saying about getting stuff done before a kid comes. I really do. We are prioritizing housework and vacations now for the same reason. But honestly? Life moves on and kids really shouldn't bring it to a screeching halt. If you can't handle a remodel with an infant, then wait until the kid is 2 or 3. If you can't handle it with a toddler, then wait until they are a bit older. Or just don't do it. The updates you are making now will be dated by the time you sell the house anyway and somebody else will be buying your house with plans to rip out your work.

I fall in a similar camp as hoffse when it comes to debt, I'm not debt averse. My H and I have actually taken advantage of 0% interest cards to get a handle on our debt, however that was with the guidance of our financial advidor and once we transfered the huge balance my H had on high interest cards we didn't use those lines of credit for anything else.

I have a good friend that did a lot of work on her house using home depot's 0% interest card, they were off 1 month in paying off the card before the promotional period expired and all of a sudden they had ton more money they owed in back interest, they ended-up paying way more than they anticipated.

I don't think H and I would ever consider a 0% interest card to front the cost of making improvements on our house, it's just so easy for the costs to creep up and to have a project end-up costing more. I would budget the $2,500 that you think it's going to cost now, and entertain the idea of a 0% interest card for any costs that come-up beyond that if you can't cash-flow them into your budget.

we do have a credit card for health care expenses that has a 6 month 0% interest promotional period for every large purchase charged to it, but I consider that as just and extra buffer in the event of unforseen health expenses to give us a couple months to figure things out. we try not to use it for planned things.

We've also used 0% promotional offers for things like purchasing furniture, but in those situations we usually have most the cash on hand and just use their 12-18month offer to spread the cost over 3-4 months. I don't think I'd ever consider using the whole promotional period.

most of it comes down to what you're comfortable with and what your budget will allow for. read all the fine print and ask lots of questions before you open up a credit card account.

Yellow218 · October 2014

and that's when I am glad I'm from the UK- good old NHS. Yes my tax bill stings each month but at least I don't have to worry about funding healthcare.

Would you use credit to invest in home

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