Our mortgage is the single biggest monthly expense we have at about $2700/mth (P&I and escrow). Dad and I were discussing some of our options for lowering our housing costs on the drive home from Grammy’s this weekend.

We both think our house is a bit big for us, but we almost love it, so we’re in no hurry to make changes. Our biggest complaint is that we would like a larger kitchen, but smaller “rest of the house”. We bought the house planning on having two kids, but that’s not going to happen, so we have 2 virtually unused rooms in the house: the guest room and the basement. The layout is nice, but when we were looking, we hadn’t been successful in finding a smaller house with all of the key features we wanted: single-family, 2-car garage, largish kitchen, and more than spitting distance to our neighbors.

The two options that really came to mind were buying land and custom building and buying a smaller house that needs some remodeling to meet our needs. We discussed a few others, but none we thought would be feasible given the location we want to remain in (for now) and what we really want out of a house. They’re not completely off the table, but not something we’re going to spend much time on investigating.

We’ve looked at buying land in our area, and it’s pretty pricy unless we move a bit further out. I need to do some more research on the costs of building our own house to see if that’s possible. We’d have to work with a custom builder, which may increase the price significantly. We do *not* want to end up in a “planned” community, which around here means high HOA fees and extremely restrictive rules. Most of the local land and homebuilders fall into this category. I’ve looked at a few of the house plans offered nearby, and none of them would fit our needs either – we’d truly need a custom house. Most of them are bigger than our current house and we’d just be moving further out and not getting what we really want. Kitchens don’t seem to be that popular around here… We also want to make sure that the house doesn’t “feel” small, which requires a slightly different architecture than is common around here.

We also considered buying an older house (maybe a foreclosure) in an established neighborhood, and remodeling it. For example, adding space for a larger kitchen to a much smaller home. Or adding a garage. We’d be able to buy a much smaller house and use the savings to remodel to what we actually want. We’d have to be diligent in looking for homes that *could* be remodeled – as in getting permits and dealing with any HOA approvals. I know people who have done it locally, so I can pick their brains on what we need to be asking and looking for.

We’re looking for something that could save us ~$1000/mth on our mortgage payments. Anything less isn’t worth the mental and physical hassle for us really. I ran some numbers, and based on a 4.5% interest rate for 30 years, we could borrow close to $300k. We have $150k equity in our current house, giving us a little more than $400k to play with after sales costs. We could do a significant amount of remodeling on a $250-300k house with that.

As I said before, we almost love our house, and we *really* like it’s location (which in real estate is almost everything). While we’d love a smaller house with a bigger kitchen, we’re willing to sit tight until we find the “perfect” opportunity. Until then, we’ll work on purging our stuff and cleaning up the house so we’d be able to put it on the market quickly when the time comes.