How much House should I Buy?

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Topic Author
Firefly80
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How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 11:02 am

I am currently in the market to buy a house and having a hard time coming up with how to budget.

I’ve tried all the online calculators but they are obviously based on set formulas and not your personal circumstances. I want to know how much House should I buy not how much can I afford.

Here’s my situation:
Family of three, single income, wife is a SAHM with toddler daughter.
Age: 40
Income: 140k (Cyclical Manufacturing Industry)

Current Assets:
401k: 455k
IRA’s: 35k
529: 20k
After Tax: 475k (This includes Emergency Fund, House Down Payment and a portion meant for After-Tax part of Portfolio). This is currently all in short term CD’s and Money Markets.

We are currently renting a small townhouse and looking to buy in the northeast suburbs, relatively HCOL.

Current Annual Expenses: ~45k (not including medical HSA expenses). I expect this would go up significantly with a house and we may not save as much.

Houses in the region can range from ~300k for townhouses w/HOA, ~400k most average single family homes to ~500k single family homes in a top notch school district.

My goal is retirement near 60 with a Paid off house and Paid off state college for my daughter before that it all goes well.

I am leaning toward houses between 300-400k but I feel like I may be really stretching near 400k house? Also I am not sure how much to put down? Thoughts?
Last edited by Firefly80 on Fri Apr 26, 2019 1:14 pm, edited 2 times in total.

CoastalWinds
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Re: How much House should I Buy?

Post by CoastalWinds » Thu Apr 25, 2019 11:09 am

Given the info you provided, 400K seems quite safe. I would put 20% down since you have healthy reserves. That will put some of that cash to better use and reduce your monthly payment so you can steer more to your 401k.

Btw, I don’t consider 300-400K for a house even “relatively HCOL”, at least not relative to out here on the west coast.

Minty
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Re: How much House should I Buy?

Post by Minty » Thu Apr 25, 2019 11:12 am

Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
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Thegame14
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Re: How much House should I Buy?

Post by Thegame14 » Thu Apr 25, 2019 11:30 am

Income of $140K you can afford a mortgage of 2.5-3X that, so around 350-$420K, you should always put down 20%, which you have in taxable, so I think $450- $550K house plus 20% down.

tampaite
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Re: How much House should I Buy?

Post by tampaite » Thu Apr 25, 2019 11:36 am

Deleting my messages on this forum
Last edited by tampaite on Mon Jun 03, 2019 7:36 am, edited 1 time in total.

mega317
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Re: How much House should I Buy?

Post by mega317 » Thu Apr 25, 2019 12:08 pm

May I ask where you are?
Thegame14 wrote:
Thu Apr 25, 2019 11:30 am
Income of $140K you can afford a mortgage of 2.5-3X that, so around 350-$420K, you should always put down 20%, which you have in taxable, so I think $450- $550K house plus 20% down.
This is of course oversimplified, but it's basically correct advice. 3x income might be laughable in Los Angeles or Duluth but it's a reasonable starting point as a frame of reference.

You have clearly demonstrated an ability to save and live within your means, you have a million dollars on 140k income at 40. I think you'll be fine even if you do stretch a little for a house. It should be pretty easy to project your new expenses and savings to see how close to your retirement goal you might come.

Topic Author
Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 12:59 pm

Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.

delamer
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Re: How much House should I Buy?

Post by delamer » Thu Apr 25, 2019 1:13 pm

knaevaen wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
Another important issue is whether your wife will be working in the near future, like when your toddler is in school. If that is the case, then you can stretch a bit more than if she is not planning on working.

Based on personal experience, generally houses in very good suburban school districts hold their value better than less highly ranked systems. Not go say that they can’t decline in value, but less so than those with more average schools.

Topic Author
Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 1:15 pm

mega317 wrote:
Thu Apr 25, 2019 12:08 pm
May I ask where you are?
Thegame14 wrote:
Thu Apr 25, 2019 11:30 am
Income of $140K you can afford a mortgage of 2.5-3X that, so around 350-$420K, you should always put down 20%, which you have in taxable, so I think $450- $550K house plus 20% down.
This is of course oversimplified, but it's basically correct advice. 3x income might be laughable in Los Angeles or Duluth but it's a reasonable starting point as a frame of reference.

You have clearly demonstrated an ability to save and live within your means, you have a million dollars on 140k income at 40. I think you'll be fine even if you do stretch a little for a house. It should be pretty easy to project your new expenses and savings to see how close to your retirement goal you might come.
We are located in Central MA.

The problem I have with any rules of thumb such as 2.5-3X income is that they don't consider age into factor. Later in your career you may have a higher income but also less time to save. So 3X your income may work at 30 but now at 40 I am kinda rethinking if that is the correct approach?

I have been going through some of the other similar housing threads and noticed that KlangFool repeatedly recommends paying yourself first and limit your house to a small portion of your NW and to prepare for job loss. That does concern me quite a bit, if things don't go as planned

mega317
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Re: How much House should I Buy?

Post by mega317 » Thu Apr 25, 2019 1:19 pm

knaevaen wrote:
Thu Apr 25, 2019 1:15 pm
The problem I have with any rules of thumb such as 2.5-3X income is that they don't consider age into factor. Later in your career you may have a higher income but also less time to save. So 3X your income may work at 30 but now at 40 I am kinda rethinking if that is the correct approach?
An excellent point. That's why you have to run your own numbers. What it's going to come down to is how much money will be the difference between PITI and maintenance for two different houses, and how many extra years of working is that going to require?

Klangfool is an excellent source of information, but tends to be more conservative than most with housing.

bloom2708
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Re: How much House should I Buy?

Post by bloom2708 » Thu Apr 25, 2019 1:20 pm

I would see what a $300k mortgage does to your budget and saving/retirement goals.

If $300k is "reasonable" in your budget (payment, insurance, property taxes, etc), then put $200k down + closing costs on a $500k house in a top notch school district.

If $300k makes you feel a bit uncomfortable, but $250k seems more doable, then put $50k more down or buy a $450k house. Repeat until you find a comfort zone for the mortgage and down payment. Get the balance invested in the market (outside of Emergency Fund).

With 1 income I would be conservative. Clearly delineate Emergency Fund, House Down Payment and Taxable Investments for retirement. I would put down most of what you designate as "House Down Payment" fund and/or use for the closing costs.

Buy just enough house to meet your needs. No more. Play to pay it off by 55. Then you have good options.

Good luck!
Last edited by bloom2708 on Thu Apr 25, 2019 3:26 pm, edited 1 time in total.
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SuperSaver1975
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Re: How much House should I Buy?

Post by SuperSaver1975 » Thu Apr 25, 2019 3:18 pm

When my wife and I bought a house in 2002, we wanted to buy the biggest house we could afford. It was after she got her first good job offer after graduate school. Due to details I won't bore you with, we had a specific & limited window of time to buy a house (her new company gave her very good relocation benefits that we had to use it or lose it), and I was still completing my masters degree and had only a stipend as income. But for the purposes of buying a house, the lenders would not even consider my stipend or potential salary.

Long story short, we were approved for the loan with only my wife's income. Later, once I got a job, my income has been about 2/3 of her income. But buying the house with less than our full income was one of the best things that ever happened to us. We just paid the house off last week. Along the way, we've done a lot of expensive house upgrades, gone on nice vacations, put a metric buttload into the kid's 529 plans, maxed out our 401K's year after year, private music lessons for the kids, splurge on hobbies, and have no worries at all about money. Even when I was laid off for 9 months during the great recession, right after my daughter was born, I didn't sweat it at all.

Topic Author
Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 3:23 pm

delamer wrote:
Thu Apr 25, 2019 1:13 pm
knaevaen wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
Another important issue is whether your wife will be working in the near future, like when your toddler is in school. If that is the case, then you can stretch a bit more than if she is not planning on working.

Based on personal experience, generally houses in very good suburban school districts hold their value better than less highly ranked systems. Not go say that they can’t decline in value, but less so than those with more average schools.
That's a good point. Houses in top school districts may be better to maintain their property value but around here they also come with higher property taxes maybe 30-40% more than towns with average or above average school districts. Of course the higher prices as well.

I am not sure if that's a trade-off I should make. I hate the follow the Joneses mentality and buy too much house with higher taxes in a "better" school district. Better in my opinion is really subjective, those schools have higher budgets for sure but I am not convinced if the education is better.

delamer
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Re: How much House should I Buy?

Post by delamer » Thu Apr 25, 2019 3:50 pm

knaevaen wrote:
Thu Apr 25, 2019 3:23 pm
delamer wrote:
Thu Apr 25, 2019 1:13 pm
knaevaen wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
Another important issue is whether your wife will be working in the near future, like when your toddler is in school. If that is the case, then you can stretch a bit more than if she is not planning on working.

Based on personal experience, generally houses in very good suburban school districts hold their value better than less highly ranked systems. Not go say that they can’t decline in value, but less so than those with more average schools.
That's a good point. Houses in top school districts may be better to maintain their property value but around here they also come with higher property taxes maybe 30-40% more than towns with average or above average school districts. Of course the higher prices as well.

I am not sure if that's a trade-off I should make. I hate the follow the Joneses mentality and buy too much house with higher taxes in a "better" school district. Better in my opinion is really subjective, those schools have higher budgets for sure but I am not convinced if the education is better.
It is somewhat subjective, especially when you are talking about above average versus outstanding. Outstanding usually equates to high pressure, which is not the best atmosphere for a lot of students.

What about your wife’s future employment (or not)?

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willthrill81
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Re: How much House should I Buy?

Post by willthrill81 » Thu Apr 25, 2019 4:05 pm

I've personally been attracted to the metric used by Thomas Stanley, author of The Millionaire Next Door: if you could not pay for your home (e.g. mortgage, taxes, insurance, maintenance, utilities, etc.) if your income were cut in half, then you cannot easily afford your home.

Granted, those living in VHCOL areas may not be able to adhere to this standard, but in most other cases, I believe that it's a rule-of-thumb that will benefit those who can abide by it.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

yeledbed
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Re: How much House should I Buy?

Post by yeledbed » Thu Apr 25, 2019 4:10 pm

If $300k is "reasonable" in your budget (payment, insurance, property taxes, etc), then put $200k down + closing costs on a $500k house in a top notch school district.

If $300k makes you feel a bit uncomfortable, but $250k seems more doable, then put $50k more down or buy a $450k house. Repeat until you find a comfort zone for the mortgage and down payment. Get the balance invested in the market (outside of Emergency Fund).
I agree with this advice. For a reference point, my husband and I bought a $480k house with 20% down in 2014 on similar income to you (also single income). It never felt like a stretch, and I was able to continue saving (maxed 401k, two IRAs, additional taxable). My income went up a couple years ago, so I refinanced to a 15-year mortgage. The $3000 monthly PITI remains very manageable for me.

Ybsybs
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Re: How much House should I Buy?

Post by Ybsybs » Thu Apr 25, 2019 4:12 pm

I'm making a similar choice and look forward to seeing what other posters have to say on the subject.

OP - Is private school a consideration? You mention a difference in school district quality, so are you looking at less good district + private school tuition vs good district + $0 public school tuition in your housing optimization? Or would you send the toddler to the local public school no matter where you bought the house?

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Wiggums
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Re: How much House should I Buy?

Post by Wiggums » Thu Apr 25, 2019 4:24 pm

I purchased less of a house than I could afford and it worked out well for us in many ways. Less house meant more savings into retirement, we could absorb the daycare cost which was expensive, we paid off the house early. So when the market tanked, we didn’t care because we were not house poor. When the company we worked was acquired, we did not worry much because we had a nice emergency fund.

Remember that you can borrow for college but you can’t borrow money for your retirement.

Good luck to you.

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willthrill81
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Re: How much House should I Buy?

Post by willthrill81 » Thu Apr 25, 2019 4:29 pm

Wiggums wrote:
Thu Apr 25, 2019 4:24 pm
I purchased less of a house than I could afford and it worked out well for us in many ways. Less house meant more savings into retirement, we could absorb the daycare cost which was expensive, we paid off the house early. So when the market tanked, we didn’t care because we were not house poor. When the company we worked was acquired, we did not worry much because we had a nice emergency fund.

Remember that you can borrow for college but you can’t borrow money for your retirement.

Good luck to you.
Precisely. When your home is paid off, you get the value of imputed rent regardless of what the FMV of your property is. In many areas, that imputed rent remained stable; it even increased in at least some places (i.e. rents went up). Plus, a paid off home can significantly reduce your need for liquidity.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

WBfan
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Re: How much House should I Buy?

Post by WBfan » Thu Apr 25, 2019 4:39 pm

First of all VERY impressed with your ability to save and invest as much as you have at your age and your income level!

Apply the same level of prudence to your housing choice while also allowing for good family choices: neighborhoods (who will your children grow up with, make friends with, spend time with, go to school with?). Who do you want your neighbors to be?
A modest house in a good neighborhood with good schools would be the best choice for most families with young children.

What is the housing market like where you live? Is it stable, on a gradual incline over the last few decades? If so it probably doesn't matter if you stretch a little on cost. But you wouldn't want to stretch and then get caught in an upside down housing market if the economy tanks again.
Where I live (a University town) the housing costs are high but have not really wobbled much, mostly marched upward over the last 20 years. A neighboring town 10 miles to the North of us is cheaper to buy but the housing prices have fluctuated greatly and many people were caught upside down in the economic downturn 11 years ago.

How stable is your job? Are you in a volatile job market? How likely is it you could be temporarily unemployed and what would you do to meet your mortgage in this circumstance?

I would do what is recommended below and do the math. Rent vs Own (and what owning would look like at different housing cost levels): Up front cost of buying, taxes (with new tax laws...), cost of home maintenance, resale possibilities and career worse case scenarios. Then you and your wife talk about what you want and what kind of emotional burden would be brought on if employment or economic downturn hits.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 4:58 pm

delamer wrote:
Thu Apr 25, 2019 3:50 pm

It is somewhat subjective, especially when you are talking about above average versus outstanding. Outstanding usually equates to high pressure, which is not the best atmosphere for a lot of students.

What about your wife’s future employment (or not)?
My wife may work part time when our daughter is in school and maybe switch to full time at some point. But I think earning potential in her field is less relative to my field so I think it's best to leave it out of the equation for now.
She made the decision to be a SAHM since it didn't make financial sense to do full-time daycare and her work, we probably would have broke even financially given the high day care costs. Not to mention the time away from daughter.

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Watty
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Re: How much House should I Buy?

Post by Watty » Thu Apr 25, 2019 5:07 pm

The big question is "How are the schools in the $400K area?"

School quality is really hard to measure and many of the rankings where they give a 1 to 10 score say a lot more about the student demographics than the quality of the school program so you need to be careful about that.

One time I was doing a corporate relocation to a city I did not know and had to quickly buy a house. My kid was in middle school so getting a house with a good high school was a big priority. I was mainly looking in one huge school district that has around 15 very large high schools that were ranked from 10 down to below 5 on the school ranking scales. The area the school district covered included some very affluent areas all the way down to some lower middle class areas, but no really bad areas. The school ranking pretty much followed how affluent the area was that high school served. While visiting schools I was talking to a school counselor about this and it turned out that all of the high schools in the school district had pretty much the same curriculum and resources and the under-performing schools actually got some additional resources. The different is the school rankings was pretty clearly just because of the student demographics.

It gets very complex but apparently one of the better predictors of a students performance is the education level of their parent. In the more affluent areas more of the parents had better educations which helped overall performance of the high schools. There are other factors too like drug use being more common in the lower income areas. Better teachers may also tend to go to the more affluent schools so they have to deal with fewer problem kids.

The more affluent schools can have their own set of problems too. When we were visiting a high school in the more affluent area we drove though the student parking lot and there were a number of Mercedes and BMWs and even one late model Corvette. Even if you can afford it who in their right mind would give a 17 year old a Corvette? We ended up buying in a less affluent area that still had a very good high school. Since then we have heard some stories about some of the problems with cliques of "rich kids" at the more affluent high school so I am glad that my son did not have to deal with that as much.

One other problem is that by the time your toddler get into middle or high schools the schools can change a lot so it is hard to pick school that will be good in ten+ years.
knaevaen wrote:
Thu Apr 25, 2019 11:02 am
I am leaning toward houses between 300-400k but I feel like I may be really stretching near 400k house? Also I am not sure how much to put down? Thoughts?
I am usually on the cheapskate side of things but I think the schools are critical and homes in a good school district usually hold their value better.

I have known people that have had to move or send their kids to private school when they were unhappy with their public schools. Either of those is really expensive.

There are a lot of unknowns in posts as far as how the various options relate as far as;
1) Commute
2) The quality of the schools in the less expensive options
3) Property taxes
4) What you are paying for rent now.

Unless the less expensive area has really good schools my gut feel is that you are trying to go too cheap by going with the townhouse or less expensive house unless things like these unknowns are a big factor.

I would take a hard look at;

1) Putting $375K down, that would leave you with a $100K emergency fund.
2) Buying the $500K home with top schools.
3) Getting a $125K 15 year mortgage. A seven or ten year ARM would also be an option to look at if you can get a lower interest rate.
(A 30 year mortgage would not be paid off until you are 70)

4) That would be paid off by the time your kid starts collage and you could use the freed up cash flow for some of the college costs.

Your monthly mortgage payment and home owning expenses could be less than you are paying to rent the townhouse now which would allow you to save a lot.

There is a wiki on investing vs paying down debt which might be helpful in deciding how large a down payment to make.

https://www.bogleheads.org/wiki/Paying_ ... _investing

I have never done it but I have seen people post about being able to buy a home with a large cash down payment and a small home-equity loan on the new house to cover the rest. If you decide to go with the $400K home then you could still put $375K down and have a $25K home equity loan that you could quickly pay off. A big advantage of the home equity loan can be that the loan origination costs can be a lot less.

BogleMelon
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Re: How much House should I Buy?

Post by BogleMelon » Thu Apr 25, 2019 5:11 pm

This post will be Klangfooled in 5,4,3....

No disrespect here, I actually enjoy and have much respect to Klangfool responses.. Waiting for him to chime in..
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

Topic Author
Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 5:11 pm

willthrill81 wrote:
Thu Apr 25, 2019 4:05 pm
I've personally been attracted to the metric used by Thomas Stanley, author of The Millionaire Next Door: if you could not pay for your home (e.g. mortgage, taxes, insurance, maintenance, utilities, etc.) if your income were cut in half, then you cannot easily afford your home.

Granted, those living in VHCOL areas may not be able to adhere to this standard, but in most other cases, I believe that it's a rule-of-thumb that will benefit those who can abide by it.
That's a interesting rule of thumb. So basically if your income were cut in half you should be able to meet your mortgage plus essential expenses but maybe not save anything?

I was also thinking along the lines of pay yourself first concept. So your gross income - max 401k cont - max ira cont - max hsa cont = your "real" income. Then decide a housing budget based on that.

delamer
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Re: How much House should I Buy?

Post by delamer » Thu Apr 25, 2019 6:26 pm

Firefly80 wrote:
Thu Apr 25, 2019 4:58 pm
delamer wrote:
Thu Apr 25, 2019 3:50 pm

It is somewhat subjective, especially when you are talking about above average versus outstanding. Outstanding usually equates to high pressure, which is not the best atmosphere for a lot of students.

What about your wife’s future employment (or not)?
My wife may work part time when our daughter is in school and maybe switch to full time at some point. But I think earning potential in her field is less relative to my field so I think it's best to leave it out of the equation for now.
She made the decision to be a SAHM since it didn't make financial sense to do full-time daycare and her work, we probably would have broke even financially given the high day care costs. Not to mention the time away from daughter.
Even if her earning power is just $30,000/year, that’s a cushion that could be available to you.

So if work is in her future, then you have a more room to go to the higher end of what you can afford now. If not, then be more conservative.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 6:45 pm

Watty wrote:
Thu Apr 25, 2019 5:07 pm
The big question is "How are the schools in the $400K area?"

School quality is really hard to measure and many of the rankings where they give a 1 to 10 score say a lot more about the student demographics than the quality of the school program so you need to be careful about that.
knaevaen wrote:
Thu Apr 25, 2019 11:02 am
I am leaning toward houses between 300-400k but I feel like I may be really stretching near 400k house? Also I am not sure how much to put down? Thoughts?
I am usually on the cheapskate side of things but I think the schools are critical and homes in a good school district usually hold their value better.

I have known people that have had to move or send their kids to private school when they were unhappy with their public schools. Either of those is really expensive.

There are a lot of unknowns in posts as far as how the various options relate as far as;
1) Commute
2) The quality of the schools in the less expensive options
3) Property taxes
4) What you are paying for rent now.

Unless the less expensive area has really good schools my gut feel is that you are trying to go too cheap by going with the townhouse or less expensive house unless things like these unknowns are a big factor.

I would take a hard look at;

1) Putting $375K down, that would leave you with a $100K emergency fund.
2) Buying the $500K home with top schools.
3) Getting a $125K 15 year mortgage. A seven or ten year ARM would also be an option to look at if you can get a lower interest rate.
(A 30 year mortgage would not be paid off until you are 70)

4) That would be paid off by the time your kid starts collage and you could use the freed up cash flow for some of the college costs.

Your monthly mortgage payment and home owning expenses could be less than you are paying to rent the townhouse now which would allow you to save a lot.

There is a wiki on investing vs paying down debt which might be helpful in deciding how large a down payment to make.

https://www.bogleheads.org/wiki/Paying_ ... _investing

I have never done it but I have seen people post about being able to buy a home with a large cash down payment and a small home-equity loan on the new house to cover the rest. If you decide to go with the $400K home then you could still put $375K down and have a $25K home equity loan that you could quickly pay off. A big advantage of the home equity loan can be that the loan origination costs can be a lot less.
I agree it's difficult to compare schools as there are so many sources. I was using niche.com and haven't really looked into the criteria they use to calculate their ratings.

Commute is not a factor, I have narrowed down all the towns we are seeing to within half hour commute which seems reasonable. The school ratings we are talking about is the difference between "A" in top district to a "B" in average district on niche.com. Property taxes are 30-40% higher in the better school district. Our current rent is about 1600 so our mortgage will most likely be higher.

How much of a difference is there in the loan origination costs between a mortgage and home equity loan? Is that a big part of the closing costs?

I am leaning towards a 15 year mortgage partly as a hedge against rising rates. If rates rise, I can continue paying monthly but if they fall then I can speed up my payments or refinance. I will have to do a 15 vs 30 year comparison to see what makes more sense.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 6:50 pm

Ybsybs wrote:
Thu Apr 25, 2019 4:12 pm
I'm making a similar choice and look forward to seeing what other posters have to say on the subject.

OP - Is private school a consideration? You mention a difference in school district quality, so are you looking at less good district + private school tuition vs good district + $0 public school tuition in your housing optimization? Or would you send the toddler to the local public school no matter where you bought the house?
Private school is not a consideration. I think the decision is between an average school district vs a better one and not a bad school district vs a good one if that makes any sense.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu Apr 25, 2019 6:58 pm

WBfan wrote:
Thu Apr 25, 2019 4:39 pm
First of all VERY impressed with your ability to save and invest as much as you have at your age and your income level!

Apply the same level of prudence to your housing choice while also allowing for good family choices: neighborhoods (who will your children grow up with, make friends with, spend time with, go to school with?). Who do you want your neighbors to be?
A modest house in a good neighborhood with good schools would be the best choice for most families with young children.

What is the housing market like where you live? Is it stable, on a gradual incline over the last few decades? If so it probably doesn't matter if you stretch a little on cost. But you wouldn't want to stretch and then get caught in an upside down housing market if the economy tanks again.
Where I live (a University town) the housing costs are high but have not really wobbled much, mostly marched upward over the last 20 years. A neighboring town 10 miles to the North of us is cheaper to buy but the housing prices have fluctuated greatly and many people were caught upside down in the economic downturn 11 years ago.

How stable is your job? Are you in a volatile job market? How likely is it you could be temporarily unemployed and what would you do to meet your mortgage in this circumstance?

I would do what is recommended below and do the math. Rent vs Own (and what owning would look like at different housing cost levels): Up front cost of buying, taxes (with new tax laws...), cost of home maintenance, resale possibilities and career worse case scenarios. Then you and your wife talk about what you want and what kind of emotional burden would be brought on if employment or economic downturn hits.
The housing market in the area has risen gradually but very large homes in high property tax towns have suffered a little bit maybe due to the SALT limit. Job has the potential to be unstable if the economy sinks, no way to tell which sectors of the economy will be hit hardest in a recession. It changes every time. I would need a backup plan if that happens but it will most likely involve relocation since I am in a narrow field.

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Watty
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Re: How much House should I Buy?

Post by Watty » Thu Apr 25, 2019 8:13 pm

Firefly80 wrote:
Thu Apr 25, 2019 6:45 pm
How much of a difference is there in the loan origination costs between a mortgage and home equity loan? Is that a big part of the closing costs?
It varies and a lender may change the closing costs in exchange for a higher interest rate.

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Re: How much House should I Buy?

Post by willthrill81 » Thu Apr 25, 2019 8:18 pm

Firefly80 wrote:
Thu Apr 25, 2019 5:11 pm
willthrill81 wrote:
Thu Apr 25, 2019 4:05 pm
I've personally been attracted to the metric used by Thomas Stanley, author of The Millionaire Next Door: if you could not pay for your home (e.g. mortgage, taxes, insurance, maintenance, utilities, etc.) if your income were cut in half, then you cannot easily afford your home.

Granted, those living in VHCOL areas may not be able to adhere to this standard, but in most other cases, I believe that it's a rule-of-thumb that will benefit those who can abide by it.
That's a interesting rule of thumb. So basically if your income were cut in half you should be able to meet your mortgage plus essential expenses but maybe not save anything?
Correct.
Firefly80 wrote:
Thu Apr 25, 2019 5:11 pm
I was also thinking along the lines of pay yourself first concept. So your gross income - max 401k cont - max ira cont - max hsa cont = your "real" income. Then decide a housing budget based on that.
That's a good strategy to take. We've determined that we want to save enough (50% of gross) so that we should be financially independent by the time I'm age 55; this cascades into spending what we're able to, including housing.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: How much House should I Buy?

Post by Grt2bOutdoors » Thu Apr 25, 2019 8:24 pm

Firefly80 wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
What are the annual taxes? What is cost of insurance? The taxes though in a HCOL area will be a primary factor in determining whether a 15 year or 30 year mortgage should be considered. You have great flexibility because you have a substantial after-tax account, however you also work in a cyclical manufacturing industry (classic boom/bust scenario possibly?) so you should leave a healthy amount in that fund. If it were me, I'd consider tapping $200K from that after-tax account to be used as a downpayment. A 200K mortgage for 30 years at 4% might cost you roughly $1,000 per month in P&I, then figure a monthly amount for taxes and home insurance of say $125 a month. The remaining fund of $275K minus up to $25K for closing costs, window treatments, maybe a snowblower for winter and some paint, is your e-fund/future taxable retirement fund.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: How much House should I Buy?

Post by Lafder » Thu Apr 25, 2019 9:41 pm

Ok, so you can afford a 400k house, how are the houses in the different price ranges?

Instead of the most expensive home you can afford, find the least expensive home you can be happy with!

You may fall in love with a lesser priced home or a more expensive home. Seeing homes in the entire price range will help you see there are homes in both price ranges that can be an upgrade vs what you are in now that you can be happy in.

Size is one thing, finishes and location are others. You can change finishes, but you can not change location :) A lower priced home in the right location gives you upgrade options. Finding a finished home that needs no work in any price range may be worth a higher purchase price.

Good luck in your search!

lafder

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Re: How much House should I Buy?

Post by student » Thu Apr 25, 2019 10:14 pm

SuperSaver1975 wrote:
Thu Apr 25, 2019 3:18 pm
When my wife and I bought a house in 2002, we wanted to buy the biggest house we could afford. It was after she got her first good job offer after graduate school. Due to details I won't bore you with, we had a specific & limited window of time to buy a house (her new company gave her very good relocation benefits that we had to use it or lose it), and I was still completing my masters degree and had only a stipend as income. But for the purposes of buying a house, the lenders would not even consider my stipend or potential salary.

Long story short, we were approved for the loan with only my wife's income. Later, once I got a job, my income has been about 2/3 of her income. But buying the house with less than our full income was one of the best things that ever happened to us. We just paid the house off last week. Along the way, we've done a lot of expensive house upgrades, gone on nice vacations, put a metric buttload into the kid's 529 plans, maxed out our 401K's year after year, private music lessons for the kids, splurge on hobbies, and have no worries at all about money. Even when I was laid off for 9 months during the great recession, right after my daughter was born, I didn't sweat it at all.
This is great.

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Harry Livermore
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Re: How much House should I Buy?

Post by Harry Livermore » Fri Apr 26, 2019 7:56 am

Lots of great advice here on the forum as usual. I (like willthrill81) am a fan of the Millionaire Next Door metric. It's a great artificial cap on lifestyle creep. When we bought our most recent house, the mortgage broker (the proverbial fox guarding the henhouse) assured us that we were going to miss out on future real estate gains by not leveraging more and getting a more expensive house. We kept our own counsel on that and bought a bit less in the same excellent school district where we were already living.
I have been having a bit of a tough period with my (self employed) business as of late, and cashflow is down quite a bit. Maybe not half of my peak, but down to a point where it hurts. Yet, we should be fine because we've always lived a bit below our means (we are certainly not the all-time champs of frugality and I very much admire those who are) but we are certainly in a better place for having ignored the mortgage broker's "advice".
OP, I assume you are talking a 15-year mortgage? Forgive me if I missed that.
Cheers

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Fri Apr 26, 2019 8:30 am

Harry Livermore wrote:
Fri Apr 26, 2019 7:56 am
Lots of great advice here on the forum as usual. I (like willthrill81) am a fan of the Millionaire Next Door metric. It's a great artificial cap on lifestyle creep. When we bought our most recent house, the mortgage broker (the proverbial fox guarding the henhouse) assured us that we were going to miss out on future real estate gains by not leveraging more and getting a more expensive house. We kept our own counsel on that and bought a bit less in the same excellent school district where we were already living.
I have been having a bit of a tough period with my (self employed) business as of late, and cashflow is down quite a bit. Maybe not half of my peak, but down to a point where it hurts. Yet, we should be fine because we've always lived a bit below our means (we are certainly not the all-time champs of frugality and I very much admire those who are) but we are certainly in a better place for having ignored the mortgage broker's "advice".
OP, I assume you are talking a 15-year mortgage? Forgive me if I missed that.
Cheers
I am debating between a 15 year vs 30 year mortgage. I have to run the numbers and see what makes more sense. Given the flat yield curve, if the spread is low enough a 30 year might make more sense for greater flexibility. Also depends on which way the interest rates go, they have stabilized a little since december.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Fri Apr 26, 2019 10:56 am

Grt2bOutdoors wrote:
Thu Apr 25, 2019 8:24 pm
Firefly80 wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
What are the annual taxes? What is cost of insurance? The taxes though in a HCOL area will be a primary factor in determining whether a 15 year or 30 year mortgage should be considered. You have great flexibility because you have a substantial after-tax account, however you also work in a cyclical manufacturing industry (classic boom/bust scenario possibly?) so you should leave a healthy amount in that fund. If it were me, I'd consider tapping $200K from that after-tax account to be used as a downpayment. A 200K mortgage for 30 years at 4% might cost you roughly $1,000 per month in P&I, then figure a monthly amount for taxes and home insurance of say $125 a month. The remaining fund of $275K minus up to $25K for closing costs, window treatments, maybe a snowblower for winter and some paint, is your e-fund/future taxable retirement fund.
The annual taxes will range from 6k-7k in the average school districts versus 9k-11k in a better school district for a typical house. All that will be most likely be after-tax money due to the SALT 10k limit. I haven't looked into insurance costs but online calculators calculate it as $100-200 month.

Yes the higher down payment may make sense to reduce monthly payments at cost of liquidity.
Another consideration was to put the minimum down, 20% even though monthly payments might be higher depending on where the interest rates go. If the interest rates go higher it may not make sense paying it off early or putting more down.

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Re: How much House should I Buy?

Post by willthrill81 » Fri Apr 26, 2019 11:00 am

Firefly80 wrote:
Fri Apr 26, 2019 8:30 am
Harry Livermore wrote:
Fri Apr 26, 2019 7:56 am
Lots of great advice here on the forum as usual. I (like willthrill81) am a fan of the Millionaire Next Door metric. It's a great artificial cap on lifestyle creep. When we bought our most recent house, the mortgage broker (the proverbial fox guarding the henhouse) assured us that we were going to miss out on future real estate gains by not leveraging more and getting a more expensive house. We kept our own counsel on that and bought a bit less in the same excellent school district where we were already living.
I have been having a bit of a tough period with my (self employed) business as of late, and cashflow is down quite a bit. Maybe not half of my peak, but down to a point where it hurts. Yet, we should be fine because we've always lived a bit below our means (we are certainly not the all-time champs of frugality and I very much admire those who are) but we are certainly in a better place for having ignored the mortgage broker's "advice".
OP, I assume you are talking a 15-year mortgage? Forgive me if I missed that.
Cheers
I am debating between a 15 year vs 30 year mortgage. I have to run the numbers and see what makes more sense. Given the flat yield curve, if the spread is low enough a 30 year might make more sense for greater flexibility. Also depends on which way the interest rates go, they have stabilized a little since december.
I started a thread a few months ago that addressed the cost of taking out a 30 year mortgage that you plan to repay in 15 years vs. taking out a 15 year mortgage. You might find it interesting.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Wiggums
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Re: How much House should I Buy?

Post by Wiggums » Fri Apr 26, 2019 11:04 am

Very good read on that thread. Thanks for the link.

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Re: How much House should I Buy?

Post by Cycle » Fri Apr 26, 2019 11:28 am

I'd get a nice house or townhouse, but as inexpensive as possible. If the schools are bad, some areas have open enrollment. We do here in Minneapolis.

My wife baby and I live well below our means and paid $95k for our 2br/1ba 1050sqft duplex unit. I have no want of more space, since we aren't hoarders. My building has 42 windows, so it feels much bigger and open than it is. Most of DW and my coworkers live in $500k+ houses.

When we have lots of family coming over we rent an Airbnb a few blocks away, otherwise it's a blow-up mattress in the living room
Never look back unless you are planning to go that way

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Re: How much House should I Buy?

Post by Grt2bOutdoors » Fri Apr 26, 2019 12:21 pm

Firefly80 wrote:
Fri Apr 26, 2019 10:56 am
Grt2bOutdoors wrote:
Thu Apr 25, 2019 8:24 pm
Firefly80 wrote:
Thu Apr 25, 2019 12:59 pm
Minty wrote:
Thu Apr 25, 2019 11:12 am
Are you planning on having more kids? What does the rent v. buy calculation suggest? In any event, if it were me, I'd buy a townhouse in a great school district, at least if no more kids were on the horizon, to keep up a solid savings rate.
No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
What are the annual taxes? What is cost of insurance? The taxes though in a HCOL area will be a primary factor in determining whether a 15 year or 30 year mortgage should be considered. You have great flexibility because you have a substantial after-tax account, however you also work in a cyclical manufacturing industry (classic boom/bust scenario possibly?) so you should leave a healthy amount in that fund. If it were me, I'd consider tapping $200K from that after-tax account to be used as a downpayment. A 200K mortgage for 30 years at 4% might cost you roughly $1,000 per month in P&I, then figure a monthly amount for taxes and home insurance of say $125 a month. The remaining fund of $275K minus up to $25K for closing costs, window treatments, maybe a snowblower for winter and some paint, is your e-fund/future taxable retirement fund.
The annual taxes will range from 6k-7k in the average school districts versus 9k-11k in a better school district for a typical house. All that will be most likely be after-tax money due to the SALT 10k limit. I haven't looked into insurance costs but online calculators calculate it as $100-200 month.

Yes the higher down payment may make sense to reduce monthly payments at cost of liquidity.
Another consideration was to put the minimum down, 20% even though monthly payments might be higher depending on where the interest rates go. If the interest rates go higher it may not make sense paying it off early or putting more down.
As a rule of thumb, whenever I calculate housing expense, I never account for tax deductions ~ as you and I've seen, tax laws can and do change. If you get the deduction and it provides a tangible benefit to you great, but don't count on it.
So, let's say your taxes are $1,000 per month, home insurance is another $125 a month, the $200K mortgage is $1,000 a month; all-in costs are $2,125 a month. How much is it to rent in the same HCOL better school district neighborhood? That is what I'd use as a beacon for buying vs. renting. Rents will go up, but so will property taxes, so call that a wash.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: How much House should I Buy?

Post by mega317 » Fri Apr 26, 2019 1:04 pm

Grt2bOutdoors wrote:
Fri Apr 26, 2019 12:21 pm
How much is it to rent in the same HCOL better school district neighborhood? That is what I'd use as a beacon for buying vs. renting.
I don't think renting is on the table. OP is trying to decide how much to buy, but is definitely buying.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Fri Apr 26, 2019 1:09 pm

willthrill81 wrote:
Fri Apr 26, 2019 11:00 am
Firefly80 wrote:
Fri Apr 26, 2019 8:30 am
Harry Livermore wrote:
Fri Apr 26, 2019 7:56 am
Lots of great advice here on the forum as usual. I (like willthrill81) am a fan of the Millionaire Next Door metric. It's a great artificial cap on lifestyle creep. When we bought our most recent house, the mortgage broker (the proverbial fox guarding the henhouse) assured us that we were going to miss out on future real estate gains by not leveraging more and getting a more expensive house. We kept our own counsel on that and bought a bit less in the same excellent school district where we were already living.
I have been having a bit of a tough period with my (self employed) business as of late, and cashflow is down quite a bit. Maybe not half of my peak, but down to a point where it hurts. Yet, we should be fine because we've always lived a bit below our means (we are certainly not the all-time champs of frugality and I very much admire those who are) but we are certainly in a better place for having ignored the mortgage broker's "advice".
OP, I assume you are talking a 15-year mortgage? Forgive me if I missed that.
Cheers
I am debating between a 15 year vs 30 year mortgage. I have to run the numbers and see what makes more sense. Given the flat yield curve, if the spread is low enough a 30 year might make more sense for greater flexibility. Also depends on which way the interest rates go, they have stabilized a little since december.
I started a thread a few months ago that addressed the cost of taking out a 30 year mortgage that you plan to repay in 15 years vs. taking out a 15 year mortgage. You might find it interesting.
Thanks for the link. Interesting thread and sort of confirms what I was thinking. You used a 1% spread in your example between the 15 year and 30 year mortgage, it that case I would tend to agree with your conclusion. It gets more nuanced at lower spreads.

In the end it does all come down to Investing vs Paying off a loan argument. You don't want to leverage a loan into higher risk investments but if something low risk beats the loan rate after taxes then some leverage is okay.

At some point in becomes futile, if you could you can essentially do a 30-year interest only mortgage and never pay principal since the stock market will surely provide a greater real return in theory.

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Re: How much House should I Buy?

Post by DesertDiva » Fri Apr 26, 2019 1:28 pm

willthrill81 wrote:
Thu Apr 25, 2019 4:05 pm
I've personally been attracted to the metric used by Thomas Stanley, author of The Millionaire Next Door: if you could not pay for your home (e.g. mortgage, taxes, insurance, maintenance, utilities, etc.) if your income were cut in half, then you cannot easily afford your home.

Granted, those living in VHCOL areas may not be able to adhere to this standard, but in most other cases, I believe that it's a rule-of-thumb that will benefit those who can abide by it.
+1 Stanley also wrote: "If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's annual realized income". Yes, that can be a challenge in some parts of the country. I would also look at the possibility of a 15-year mortgage if that works in the household budget.

Another related topic (pardon me if someone already mentioned it): term life insurance during the course of the mortgage.

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Firefly80
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Re: How much House should I Buy?

Post by Firefly80 » Thu May 02, 2019 1:20 pm

Grt2bOutdoors wrote:
Fri Apr 26, 2019 12:21 pm
Firefly80 wrote:
Fri Apr 26, 2019 10:56 am
Grt2bOutdoors wrote:
Thu Apr 25, 2019 8:24 pm
Firefly80 wrote:
Thu Apr 25, 2019 12:59 pm


No plans as of yet for more kids. I actually haven't tried any rent vs buy calculators because we have already made up our mind that buying is the way to go for long term and we are tired of renting and need more space with the kid.
What are the annual taxes? What is cost of insurance? The taxes though in a HCOL area will be a primary factor in determining whether a 15 year or 30 year mortgage should be considered. You have great flexibility because you have a substantial after-tax account, however you also work in a cyclical manufacturing industry (classic boom/bust scenario possibly?) so you should leave a healthy amount in that fund. If it were me, I'd consider tapping $200K from that after-tax account to be used as a downpayment. A 200K mortgage for 30 years at 4% might cost you roughly $1,000 per month in P&I, then figure a monthly amount for taxes and home insurance of say $125 a month. The remaining fund of $275K minus up to $25K for closing costs, window treatments, maybe a snowblower for winter and some paint, is your e-fund/future taxable retirement fund.
The annual taxes will range from 6k-7k in the average school districts versus 9k-11k in a better school district for a typical house. All that will be most likely be after-tax money due to the SALT 10k limit. I haven't looked into insurance costs but online calculators calculate it as $100-200 month.

Yes the higher down payment may make sense to reduce monthly payments at cost of liquidity.
Another consideration was to put the minimum down, 20% even though monthly payments might be higher depending on where the interest rates go. If the interest rates go higher it may not make sense paying it off early or putting more down.
As a rule of thumb, whenever I calculate housing expense, I never account for tax deductions ~ as you and I've seen, tax laws can and do change. If you get the deduction and it provides a tangible benefit to you great, but don't count on it.
So, let's say your taxes are $1,000 per month, home insurance is another $125 a month, the $200K mortgage is $1,000 a month; all-in costs are $2,125 a month. How much is it to rent in the same HCOL better school district neighborhood? That is what I'd use as a beacon for buying vs. renting. Rents will go up, but so will property taxes, so call that a wash.
mega317 wrote:
Fri Apr 26, 2019 1:04 pm
Grt2bOutdoors wrote:
Fri Apr 26, 2019 12:21 pm
How much is it to rent in the same HCOL better school district neighborhood? That is what I'd use as a beacon for buying vs. renting.
I don't think renting is on the table. OP is trying to decide how much to buy, but is definitely buying.
I have definitely decided on buying I think over renting at this point regardless of what Rent vs Buy calculators might say.

There a couple of reasons for this. First I cannot predict or time the future, for the time being I know this is where I am going to live. That may change because of factors out of my control in the future such as job relocation or just maybe my desire to move elsewhere.

Also renting comes with it's own uneasiness and I think buying would give me a more peace of mind. With renting you're at the whim of a landlord in terms of rent increases, repairs, modifications also the place never feels like your own even though you might have lived there a long time.

Also with buying you definitely have more of a fixed cost since rent increases are more substantial than property tax increases which is just a fraction of the mortgage.

If it wasn't for the transaction costs, buying would always be a better option then renting. You're building equity rather than paying rent.

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Re: How much House should I Buy?

Post by doon » Thu May 02, 2019 1:47 pm

OP - My comment is based on my personal experience. We bought our home when kids were toddlers. If I had to do it all over again I would delay house purchase till I really need good school district. No matter what a house increases expenses and reduces savings rate.

So may be you can run rent vs buy calculator and see how that calculation works out. If it comes in favor of rent then see how much room you have to upgrade your rental if space is the reason why you are looking to buy.

You don't specify if there are any particular reasons of buy home now. Is it school district, space etc.? Purely economically you can delay house purchase till kids go to elementary school level.

Just my 2 cents :)
"Goal - Win the game before the need to retire"

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Re: How much House should I Buy?

Post by prudent » Sat May 04, 2019 6:16 pm

Topic moved to Personal Consumer Issues.

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Re: How much House should I Buy?

Post by bluebolt » Sat May 04, 2019 6:46 pm

As has been pointed out, rules of thumb are only that. They are a starting point and you need to see where you fall versus that rule.

You have a lot of savings for your age, salary & spending. Your savings allow you to be more comfortable buying even at the top end of your range. That, combined with the fact that your spending is relatively low, and you are on your way to a nest egg that will comfortably support that spending with a safe withdrawal rate.

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Re: How much House should I Buy?

Post by Firefly80 » Mon May 06, 2019 11:14 am

doon wrote:
Thu May 02, 2019 1:47 pm
OP - My comment is based on my personal experience. We bought our home when kids were toddlers. If I had to do it all over again I would delay house purchase till I really need good school district. No matter what a house increases expenses and reduces savings rate.

So may be you can run rent vs buy calculator and see how that calculation works out. If it comes in favor of rent then see how much room you have to upgrade your rental if space is the reason why you are looking to buy.

You don't specify if there are any particular reasons of buy home now. Is it school district, space etc.? Purely economically you can delay house purchase till kids go to elementary school level.

Just my 2 cents :)
At what age would a good school district matters? Our daughter is three and would start kindergarten next 2 years in a elementary school. Are good schools only necessary when kids are older say middle-high school? We would likely be in a similar school district as we are now.

Our main reasons to buy a home right now is definitely space/yard for our daughter to be able to play in as well as ourselves having extra rooms for office, garage, etc. We don't have all this in our current rented townhouse, we can always rent something bigger for more money but I don't think it makes sense.

Buying definitely gives a bigger peace of mind and you have a fixed cost for a long time if you don't move which usually tops renting in a financial sense. Also we would plan to pay off the mortgage relatively quickly to bring the costs down further.

stan1
Posts: 7715
Joined: Mon Oct 08, 2007 4:35 pm

Re: How much House should I Buy?

Post by stan1 » Mon May 06, 2019 11:24 am

Firefly80 wrote:
Thu Apr 25, 2019 11:02 am
I am currently in the market to buy a house and having a hard time coming up with how to budget.

I’ve tried all the online calculators but they are obviously based on set formulas and not your personal circumstances. I want to know how much House should I buy not how much can I afford.
I'd caution on looking at it just this way. If you need to pay $450K to get into public schools you'd be happy with you may decide that's what you need to do. You might prefer to pay $250K for a house in a good school district but that's probably a pink unicorn (they don't exist). I would not want to buy something for $350K only to find out in five years you have to incur the transaction costs of selling because that townhouse or "starter" house no longer meets your needs. Transaction costs aren't just commissions but they are also the costs of fixing up a house to sell and fixing up a house after you move in. Those costs add up and often market appreciation does not offset them (especially in a five year time frame).

delamer
Posts: 9319
Joined: Tue Feb 08, 2011 6:13 pm

Re: How much House should I Buy?

Post by delamer » Mon May 06, 2019 11:27 am

Firefly80 wrote:
Mon May 06, 2019 11:14 am
doon wrote:
Thu May 02, 2019 1:47 pm
OP - My comment is based on my personal experience. We bought our home when kids were toddlers. If I had to do it all over again I would delay house purchase till I really need good school district. No matter what a house increases expenses and reduces savings rate.

So may be you can run rent vs buy calculator and see how that calculation works out. If it comes in favor of rent then see how much room you have to upgrade your rental if space is the reason why you are looking to buy.

You don't specify if there are any particular reasons of buy home now. Is it school district, space etc.? Purely economically you can delay house purchase till kids go to elementary school level.

Just my 2 cents :)
At what age would a good school district matters? Our daughter is three and would start kindergarten next 2 years in a elementary school. Are good schools only necessary when kids are older say middle-high school? We would likely be in a similar school district as we are now.

Our main reasons to buy a home right now is definitely space/yard for our daughter to be able to play in as well as ourselves having extra rooms for office, garage, etc. We don't have all this in our current rented townhouse, we can always rent something bigger for more money but I don't think it makes sense.

Buying definitely gives a bigger peace of mind and you have a fixed cost for a long time if you don't move which usually tops renting in a financial sense. Also we would plan to pay off the mortgage relatively quickly to bring the costs down further.
Most elementary schools draw from a localized area; so the education will reflect the qualities of you and your neighbors.

It was when you get to the middle school and high school level that the schools are drawing from a much wider area, and the education may reflect more varied demographics.

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