How much house can we afford (Madison WI area)?

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zhuzhugougou
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How much house can we afford (Madison WI area)?

Post by zhuzhugougou » Mon Jan 22, 2018 1:45 pm

Hi Bogleheads,

Long time lurker to the forum and certainly have learned a lot. Would really appreciate your thoughts/input regarding how much house we can afford.

We are planning to buy a house in the Madison/Middleton, WI area either this or next year, and can't decide how much we should spend. This will be our first house, and we'd like to have a 3br house/townhouse with ~2000 ft2 within a good school district. Both of our jobs are located in west Madison. Our research seems to indicate Middleton will be the best fit (but also most expensive) with good schools and short commute. We'd prefer a newer house (after 1980) since neither of us is good with doing repairs/maintenance. Because of that, we're ok with a townhouse/condo so we don't have do much maintenance. The houses we saw online seems to be in the ~450k-500k range, which is a lot higher than we planned/are comfortable with. We'd rather have something in the 350-400k range. So we'd like your input on whether we should stretch our budget to the ~450k range, or we should compromise for a older house/needs rennovation, or wait for a house in the ~350k range to show up, or look some other area.

Here are our financial situation:
Annual income: ~183k (103k for him, and 80k for her)
No kids yet, but plan to have one soon (don't plan to become single income)
Age: 34 for both of us
401k and tIRA: ~350k (contribute to max every year, 85/15 allocation)
Roth IRA: ~60k (contribute to max every year)
Taxable: ~130k (100k in cash and 30k in total stock fund)
Debt: plan to buy a new Forester in Feb (~$400 monthly payment)

Thank you for your input!

Lonestarz
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Re: How much house can we afford (Madison WI area)?

Post by Lonestarz » Mon Jan 22, 2018 2:05 pm

Keep in mind that more expensive areas have more expensive daycare as well. Your kid won’t go to school until age 5?

No rush to buy a house unless you want to but you have enough income (no idea on your expenses). Houses from the 80s will still need Work and new houses will need maintenance also.

What is the trend on house prices there? We’re due for a recession at some point and recent political events indicate (to me) increasing volitility.

Since this is well within the margin, I would just do a review of costs and if you find something you really like - go for it. But otherwise you have many years to figure it out.

ETadvisor
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Re: How much house can we afford (Madison WI area)?

Post by ETadvisor » Mon Jan 22, 2018 9:43 pm

My two cents for what is worth - I would lean toward single family home (SFH) rather than townhome if price is similar. A couple years ago we had a the choice of 2000 sq ft new construction townhome with all the bells and whistles for approx. the same price as 2000 sq ft SFH that was 15 years older. Both homes in same excellent school district. Also not very handy and we selected older SFH. Fast forward and the townhome lost value and is being converted to rentals by the owners and the SFH increased in value and we love our neighborhood. I also agree with another poster that house built in 80s can have major maintenance. With your savings and combined income, I do believe you can afford $450k - $500k (assuming you would put 100K down) but I would not pay that much for a townhome.

Rashen
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Re: How much house can we afford (Madison WI area)?

Post by Rashen » Mon Jan 22, 2018 10:00 pm

are you working for EPIC ? just curious

Leemiller
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Re: How much house can we afford (Madison WI area)?

Post by Leemiller » Mon Jan 22, 2018 10:00 pm

I would not buy a home to renovate if possible. It is expensive, time consuming, and stressful. Childcare costs can be a second mortgage, so perhaps wait another year and really save up. Alternatively rent for a little while after your child is born with the goal of purchasing a single family home.

delamer
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Re: How much house can we afford (Madison WI area)?

Post by delamer » Mon Jan 22, 2018 10:03 pm

A few things to consider:

Have you determined your actual PITI at various price points? There may be some level that you realize you are just uncomfortable with the payment. Or you may decide that $150 more a month is worth it for you for preferred home.

Have you been qualified by a mortgage company?

Assuming the modifications are cosmetic rather than structural, you can develop your own time frame for making changes.

How secure are your jobs?

How expensive will childcare be?

Is that your “forever” house? It might make sense to stretch a bit in that case, but probably not if you know that you want to trade up to a bigger house in 10 years anyway.

Good luck.

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ram
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Re: How much house can we afford (Madison WI area)?

Post by ram » Mon Jan 22, 2018 10:26 pm

I live in northern Wisconsin and know the areas you are talking about very well. Middleton is a nice area and in my opinion deserves the higher price. The likelihood of finding a newer house is higher in Middleton than in Madison. Avoiding a very old house if you are not handy is sensible. I like to buy a house less than 3x combined annual income and by that metric you can afford a 500K house. Your budget is large enough that I think you should avoid a townhouse and buy a real house.

There is really no great hurry for you to buy. I would rather wait a year or two and buy the bigger better house even if it is slightly more that what you would ideally like to pay. Considering your current income and assuming reasonable increase in the next few years you will want a independent house even if you buy a townhouse now. I prefer to avoid the transaction costs of frequent turnover. If you are not comfortable buying a 450K house now you can possibly rent a townhose now and buy a house in the next few years. You will have saved more and with luck your combined income would be higher.
Ram

Bacchus01
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Re: How much house can we afford (Madison WI area)?

Post by Bacchus01 » Mon Jan 22, 2018 10:31 pm

Great area. I don’t have much to add other than I’ve looked in the area and I’d think that price range still has a lot of options even in Middleton.

But don’t overlook Verona to the south and Waunakee to the north. Might be a little cheaper, but also have great schools should you decide on kids eventually.

zhuzhugougou
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Re: How much house can we afford (Madison WI area)?

Post by zhuzhugougou » Mon Jan 22, 2018 10:57 pm

OP here, thanks everyone for your suggestions, they are very helpful. The consensus seem to be single family House is a better investment than townhouse.

We are certainly not in a rush to buy, but when you look at listings every day, it’s very tempting to discuss a lot and stress over it. I almost want to find one soon so we can get over it, which is certainly not healthy. Also, we are worried that the interest rate will be going up soon. However, there is also the concern that the next big downturn is coming, which could affect our jobs and/or the housing market. I guess we shouldn’t time the market, as long as we do need to buy a house and can afford it, then we should buy it.

ThreeBears
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Re: How much house can we afford (Madison WI area)?

Post by ThreeBears » Mon Jan 22, 2018 11:06 pm

Please head the daycare warning. Daycare can easily cost $1,400 for an infant (and I've seen up to $1,900 around my area).

With two kids in daycare, even after one is a toddler, it's not hard to spend $30,000 in a year on daycare expenses.

If you don't think i'm serious, please ask around. This cash drain can greatly impact your cash flow for a mortgage.

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Watty
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Re: How much house can we afford (Madison WI area)?

Post by Watty » Mon Jan 22, 2018 11:13 pm

zhuzhugougou wrote:
Mon Jan 22, 2018 1:45 pm
The houses we saw online seems to be in the ~450k-500k range, which is a lot higher than we planned/are comfortable with. We'd rather have something in the 350-400k range. So we'd like your input on whether we should stretch our budget to the ~450k range, or we should compromise for a older house/needs rennovation, or wait for a house in the ~350k range to show up, or look some other area.

.......
Annual income: ~183k (103k for him, and 80k for her)
Stretching and spending an extra $100K would increase your mortgage payment by about $500 a month or $6,000 a year. You should be able to work that into your budget without having to compromise very much.

A $350K mortgage would have a payment of around $1,700 a month or about $20,000 a year which is a small percentage of your income. How much to spend seems to be a priority choice than a financial limitation.
zhuzhugougou wrote:
Mon Jan 22, 2018 1:45 pm
Debt: plan to buy a new Forester in Feb (~$400 monthly payment)
Huh?

You make almost $200K a year, if there is any reason that you need a car loan you should really reconsider your spending, you should be able to pay cash and quickly replenish your house fund.

Not having a $400 a month car payment would also pretty much cover the extra $500 a month mortgage payment that I mentioned in the prior section.

Your expenses should be pretty low now you should be able to save a LOT each year.
zhuzhugougou wrote:
Mon Jan 22, 2018 1:45 pm
No kids yet, but plan to have one soon (don't plan to become single income)
You might want to buy wait to buy a house until you have at least once kid. You could have difficulty in having a kid and have expensive fertility treatments or an expensive adoption. If you buy a big family home or townhouse now and have difficulty in having kids then having an empty nursery and playroom could be depressing.

You might not plan on going down to one income but if you have a kid with even modest and temporary health problems then daycare may not be a real viable option and you may need to go down to one income.
Last edited by Watty on Mon Jan 22, 2018 11:37 pm, edited 2 times in total.

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whodidntante
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Re: How much house can we afford (Madison WI area)?

Post by whodidntante » Mon Jan 22, 2018 11:14 pm

I think your hunch was right. My personal rule of thumb is it's easy to afford a house of 2x income. Basically everyone else will encourage you to spend more, but I don't think that is good for wealth building and for keeping stress low. A modest home would also make it easier to ride through a loss of a single income, which is probably going to happen at some point.

Deltaflaze
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Re: How much house can we afford (Madison WI area)?

Post by Deltaflaze » Mon Jan 22, 2018 11:29 pm

I've lived in Middleton for the last 5 years. You are likely looking in the Frank Lloyd Wright area hearing those numbers. Look a bit West from there and you can easily find nice new homes in the 200-300's. It's built by Veridian (cookie cutter style).

Waunakee is where I grew up - also an extremely nice location (and school district) and short commute to west side of Madison. Same price ranges. The houses in the 300's are out there, they just go quick because the market around here is fast and has been for the last 5 years. I know because I've been in an apartment keeping an eye on the market for the last 5 years until I'm ready to buy a home.

BradJ
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Re: How much house can we afford (Madison WI area)?

Post by BradJ » Mon Jan 22, 2018 11:30 pm

I would advise to wait it out until you have children to decide what home to buy. We had kids with the dead set intention of us both working (both my wife and I come from double income homes), but we later decided that the best route would be for my wife to stay home with the kids. Kids can really change your perspective. You are high earners, if you both decide to keep working, go for convenience (not a fixer upper).

Dottie57
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Re: How much house can we afford (Madison WI area)?

Post by Dottie57 » Mon Jan 22, 2018 11:44 pm

"How much house can we afford?"

Is this really the question or should it be, "How much of my wealth do I want stored in an illiquid resource?"

For me it has turned out to be. 11%. To a large degree, I can retire at 61 with sufficiernt resources to have the same income or more than when I was working because I held the line on housing.

feh
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Re: How much house can we afford (Madison WI area)?

Post by feh » Tue Jan 23, 2018 1:16 pm

zhuzhugougou wrote:
Mon Jan 22, 2018 1:45 pm
Hi Bogleheads,

Long time lurker to the forum and certainly have learned a lot. Would really appreciate your thoughts/input regarding how much house we can afford.

We are planning to buy a house in the Madison/Middleton, WI area either this or next year, and can't decide how much we should spend. This will be our first house, and we'd like to have a 3br house/townhouse with ~2000 ft2 within a good school district. Both of our jobs are located in west Madison. Our research seems to indicate Middleton will be the best fit (but also most expensive) with good schools and short commute. We'd prefer a newer house (after 1980) since neither of us is good with doing repairs/maintenance. Because of that, we're ok with a townhouse/condo so we don't have do much maintenance. The houses we saw online seems to be in the ~450k-500k range, which is a lot higher than we planned/are comfortable with. We'd rather have something in the 350-400k range. So we'd like your input on whether we should stretch our budget to the ~450k range, or we should compromise for a older house/needs rennovation, or wait for a house in the ~350k range to show up, or look some other area.

Here are our financial situation:
Annual income: ~183k (103k for him, and 80k for her)
No kids yet, but plan to have one soon (don't plan to become single income)
Age: 34 for both of us
401k and tIRA: ~350k (contribute to max every year, 85/15 allocation)
Roth IRA: ~60k (contribute to max every year)
Taxable: ~130k (100k in cash and 30k in total stock fund)
Debt: plan to buy a new Forester in Feb (~$400 monthly payment)

Thank you for your input!
Are you new to the area? I'm sitting in Middleton as I type this; I've lived in Dane County for >25 years.

You're housing dollar will go further if you look at other communities. Just about all the school districts in Dane County are very good; Middleton-Cross Plains is top notch, but so are Oregon and Waunakee. Unless you buy someplace on the east side of the county, your commute will be reasonable from wherever you buy.

If you have specific questions, PM me.

bloom2708
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Re: How much house can we afford (Madison WI area)?

Post by bloom2708 » Tue Jan 23, 2018 1:27 pm

I don't see any/much cash for the 20% down payment. What is your plan for that?

If a house is a goal, then buying a new car with a big payment is likely counter-productive to that goal.

Cars in WI get beat up pretty hard with winter/salt/ice/sand. A new car is new for 1 day. Then you drive it home in the slop.

Figure out what 20% looks like at various price points. Look at various commute times, property tax bills and daycare costs.

Make a very detailed budget. You have good incomes and a great start to retirement. Make a good plan and adjust over the next couple years.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

Atilla
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Re: How much house can we afford (Madison WI area)?

Post by Atilla » Tue Jan 23, 2018 1:52 pm

Real estate in Madison area can be outrageously priced. Old tear-down houses on tiny lots in my preferred neighborhood run close to $300,000. Location will have a huge influence on affordability.

Be very careful regarding public schools. ALL of our friends with school-age children fled the Madison district in the past 3 years. One couple left for Sun Prairie, 1 for Verona and another Oregon. Madison has some very poorly-performing schools.

There are a lot of good, affordable private school options. We found daycare to be affordable as well - in the $5,000 a year range 15 years ago for a large institutional-type place with tons of activities and a great meal program. I'm sure we could have found cheaper if we wanted.

Property taxes here are nuts - over 2% per year of assessed value. Buy a $400,000 house and do the math on the annual property tax burn. Tax increases are limited by law, so the only time you get dinged bad is when your neighbor sells for a higher price and your taxes go up several hundred dollars the next year under the new assessment.

Other than real estate, rental prices and property taxes, overall cost of living is not high. Rental prices very high around here too for something decent.
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Alexa9
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Re: How much house can we afford (Madison WI area)?

Post by Alexa9 » Tue Jan 23, 2018 2:08 pm

1. You don't want to move frequently so I would get as much house as you can afford that you could live in forever. I don't like the idea of a "starter" house but it's not a bad idea.
2. School district, commute distance, safe neighborhood is more important than a bigger house.
3. Factor the mortgage payment into your current budget and see how it looks. Will you have to cut in other areas? (Travel, dining out, vehicles, hobbies, etc.)
4. Use CreditKarma to make sure your credit score is 750+ for a good mortgage rate.
5. I believe a Roth can be used $10k for first home purchase from the earnings with no fees and as much from contributions as you want (although not necessarily recommended).
6. A mortage is pretty bad (you pay for your house nearly twice) and a home is not an investment but you need a place to live and it's better than renting. I would put as much as you can towards the house since we are at the (middle? peak?) of a huge bull run.
Last edited by Alexa9 on Tue Jan 23, 2018 2:12 pm, edited 1 time in total.

nimo956
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Re: How much house can we afford (Madison WI area)?

Post by nimo956 » Tue Jan 23, 2018 2:11 pm

Rashen wrote:
Mon Jan 22, 2018 10:00 pm
are you working for EPIC ? just curious
I was wondering this as well. If you do work there, I might reconsider buying a home. I think the average tenure is under 5 years. Several of my friends moved on after 2-3 years and relocated across the country.
50% VTI / 50% VXUS

srt7
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Re: How much house can we afford (Madison WI area)?

Post by srt7 » Wed Jan 24, 2018 4:39 am

Lot of good advice to consider.

The only thing I can add is that a condo/TH maintenance is only for common areas and facilities. If something needs fixing to your specific unit, it comes out of your pocket. Just like a SFH with HOA.
I can't think of anything more luxurious than owning my time. - remomnyc

Maverick3320
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Re: How much house can we afford (Madison WI area)?

Post by Maverick3320 » Wed Jan 24, 2018 12:22 pm

I've seen a few responses along the lines of "avoid town homes". In general, I agree, but I just wanted to add one data point. I purchased a town home in Southwest Madison (basically where Verona, Madison, and Fitchburg all come together, in the Verona school district) for 153k in 2008. I have a larger "unit" in the complex, and a corner unit, and units around me have sold for 190k recently. 3 bed/3 bath places around here are 300k-ish as well. It's definitely a seller's market right now.

barreg
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Re: How much house can we afford (Madison WI area)?

Post by barreg » Wed Jan 24, 2018 10:11 pm

Think it was mentioned already, but if you want to stay in the Middleton school district, Cross Plains is considerably less expensive and the same district. Didn't realize how many Sconnie's were BHs

zhuzhugougou
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Re: How much house can we afford (Madison WI area)?

Post by zhuzhugougou » Thu Jan 25, 2018 7:27 pm

Thanks for the advice, everyone! They are greatly appreciated.

We decided to still look for something in the 350-400k range, and if it doesn't happen this year, so be it. We also would like to restrain ourselves from looking too excessively. We'll continue to rent in the 1br apt to save on the down payment, as one post pointed out that one end up paying almost double the amount borrowed. We certainly can save a lot at this point without kids.

Thanks for all the posts pointing out how expensive a child can be and a lot of uncertainty can come with pregnancy/get back to work, which are certainly our concerns as well. Because of that, we'd like to not get too much house in case something happens.

Btw, neither of us work at Epic.

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Peter Foley
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Re: How much house can we afford (Madison WI area)?

Post by Peter Foley » Thu Jan 25, 2018 9:05 pm

I would be tempted to look in Waunakee as well. The commute to West Madison/Middleton is not bad, the schools are okay, and there has been a lot of recent housing development in various price ranges. My daughter and her family live there and it is a very friendly, welcoming community.

Bacchus01
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Re: How much house can we afford (Madison WI area)?

Post by Bacchus01 » Thu Jan 25, 2018 9:37 pm

Atilla wrote:
Tue Jan 23, 2018 1:52 pm
Real estate in Madison area can be outrageously priced. Old tear-down houses on tiny lots in my preferred neighborhood run close to $300,000. Location will have a huge influence on affordability.

Be very careful regarding public schools. ALL of our friends with school-age children fled the Madison district in the past 3 years. One couple left for Sun Prairie, 1 for Verona and another Oregon. Madison has some very poorly-performing schools.

There are a lot of good, affordable private school options. We found daycare to be affordable as well - in the $5,000 a year range 15 years ago for a large institutional-type place with tons of activities and a great meal program. I'm sure we could have found cheaper if we wanted.

Property taxes here are nuts - over 2% per year of assessed value. Buy a $400,000 house and do the math on the annual property tax burn. Tax increases are limited by law, so the only time you get dinged bad is when your neighbor sells for a higher price and your taxes go up several hundred dollars the next year under the new assessment.

Other than real estate, rental prices and property taxes, overall cost of living is not high. Rental prices very high around here too for something decent.
OP said middleton, not Madison.

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