rgs92 wrote:I would say the deciding factor would be if the buyer's income was from a secure job, preferably a gov't job with a pension down the road.
If the income was secure without a possibility of a layoff, and you could take a good, honest look at your home budget and calculate that you could do it, I would say OK.
The difference between what the other posters here are saying would be a reasonable cost (for a, say, $435K house) and your projected cost is like $100 a month, most of which would be deductible as it's mainly extra interest for 10+ years, not principal, so it's like $80 a month more in net cost.
So I kind of see where your realtor is coming from with his advice.
So bottom line, this really comes down do your personal budget. If you can happily give up all vacations and drive basic cars and avoid eating out much and paying for kid-activities (just use the park and library), then I would say you will be fine.
[Just IMHO here, all of the above are things I personally wouldn't care about at all, but YMMV. I opinionate, you decide.]
Also, do you have a decent retirement fund for a real out-of-the-blue emergency so you wouldn't lose your house if something crazy bad happened?
If all these things are true:
1. secure job
2. honest budget
3. dire-emergency fund via retirement assets
I would vote yes, get the house.
A 530k house with 20% down would be a $424k loan. At 4% interest, the principle + interest would be $2024 per month.
A 430k house with 20% down would be a $344k loan. At 4% interest, the principle + interest would be $1642 per month.
That's a $382 difference per month. Yes, the interest may be tax deductible. And part of that additional payment is going to principle, but that's not helpful whatsoever from a cash flow perspective for someone whose cash flow is going to be VERY tight with this $530k house unless the remainder of their budget is incredibly frugal.
This also doesn't account for increased property taxes (relatively minimal in Tennessee, but would still be something on the additional $100k). Or the additional furnishing/upkeep/heating and cooling on the larger house. Or the fact that the less expensive house allows them to keep an additional $20k in their pocket after the 20% down payment. They've said this 530k house would wipe out their emergency fund, so this is huge.
I'm not saying a $430k house is what they should get. I'm saying that's the maximum they should even consider. $530k is out of the question.
Let's not fudge the numbers. "It's only an additional $100 per month" is what they're already having fed in their ear by their crook realtor. They don't need to hear it here too.
OP, a $1 million, 8000 sqft house would be better value per square foot than this house you're looking at. Would you consider it?