Can we afford a $650k house?

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davos8923
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Can we afford a $650k house?

Post by davos8923 »

I (husband, age 36) am sole earner (wife doesn't work), making ~$550,000 a year. Income can be volatile as I'm an entrepreneur. Wife and two young children. Looking at homes around $650,000. We'd do a 20% down payment and so the PITI would be ~$3,400/mo.

We have zero debt, and our net worth is $700,000 ($450K of which is liquid). Saving $30,000 a month right now. If you're wondering why our net worth isn't higher given our income level being what it is, it's because the business has grown very rapidly in recent years.

Thoughts?
qwertyjazz
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Re: Can we afford a $650k house?

Post by qwertyjazz »

Volatile income means either more or less different months. You are saving very well right now. If you can continue this rate, you can afford a lot more soon. If you on the other hand go back to what you were doing a couple of years ago, you cannot afford that house. Given the volatility, the last thing you want us fixed costs. Would not buy until you could afford to pay cash and still have a significant nest egg if business crashes.
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TRC
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Re: Can we afford a $650k house?

Post by TRC »

You're saving $30K a month and you're wondering if you can afford a $650K house?

Is this a trick question?
Topic Author
davos8923
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Re: Can we afford a $650k house?

Post by davos8923 »

qwertyjazz wrote: Thu Jun 17, 2021 10:58 pm Volatile income means either more or less different months. You are saving very well right now. If you can continue this rate, you can afford a lot more soon. If you on the other hand go back to what you were doing a couple of years ago, you cannot afford that house. Given the volatility, the last thing you want us fixed costs. Would not buy until you could afford to pay cash and still have a significant nest egg if business crashes.
Thanks. One thought I had if everything crashed suddenly is that given my current liquid assets, could essentially pay $350K of the house off if I wanted to and still have a $100K emergency fund left behind it, leaving me with only a $300K mortgage (although taxes would still be high).
Topic Author
davos8923
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Re: Can we afford a $650k house?

Post by davos8923 »

TRC wrote: Thu Jun 17, 2021 11:01 pm You're saving $30K a month and you're wondering if you can afford a $650K house?

Is this a trick question?
No, not a trick, given income (and thus future savings) could be volatile. Although I guess this is true for anyone.
qwertyjazz
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Re: Can we afford a $650k house?

Post by qwertyjazz »

davos8923 wrote: Thu Jun 17, 2021 11:01 pm
qwertyjazz wrote: Thu Jun 17, 2021 10:58 pm Volatile income means either more or less different months. You are saving very well right now. If you can continue this rate, you can afford a lot more soon. If you on the other hand go back to what you were doing a couple of years ago, you cannot afford that house. Given the volatility, the last thing you want us fixed costs. Would not buy until you could afford to pay cash and still have a significant nest egg if business crashes.
Thanks. One thought I had if everything crashed suddenly is that given my current liquid assets, could essentially pay $350K of the house off if I wanted to and still have a $100K emergency fund left behind it, leaving me with only a $300K mortgage (although taxes would still be high).
If you can continue to make money like you are and save like you are for 1-2 years, then your numbers get a lot better. Even with your income plummeting then, you would be good. How much did you make in your worst year in the past 10? With your current savings, would you feel comfortable buying that house? If not, then rent until you feel differently.
You could make it work if your income crashed possibly. But it would be tighter versus having a large saving to decide what to do next.
G.E. Box "All models are wrong, but some are useful."
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Watty
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Re: Can we afford a $650k house?

Post by Watty »

davos8923 wrote: Thu Jun 17, 2021 10:53 pm making ~$550,000 a year.
....
We'd do a 20% down payment and so the PITI would be ~$3,400/mo.
.....
Income can be volatile as I'm an entrepreneur.
The real question is if you can afford a half a million dollar mortgage.

With volatile income I would not want a large mortgage like that unless I had a huge emergency fund too. You did not say how much of that $450K was in your emergency fund but if you buy the house then you might want to designate two years expenses, including the mortgage, as an emergency fund and invest it conservatively.

One big concern is that since your business just took off you have not been through a recession yet.
davos8923 wrote: Thu Jun 17, 2021 10:53 pm Saving $30,000 a month right now.
If you wait six months or a year and your business does well and then you will have enough that you can buy a house with a small mortgage and still have a lot of liquid cash.

If you can wait a bit longer the housing market may not as crazy too.
davos8923 wrote: Thu Jun 17, 2021 10:53 pm If you're wondering why our net worth isn't higher given our income level being what it is, it's because the business has grown very rapidly in recent years.
One thing to look into is if you will actually be able to qualify for a large mortgage if your income is volatile and only recently increased.
Modelslashactor
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Re: Can we afford a $650k house?

Post by Modelslashactor »

Your net worth is greater than the price of the house and liquid net worth about 2/3rds of it. I’m at a loss as to why you don’t think you could afford this. If you could better quantify the volatility that would be helpful - what is the minimum income you could see?
PowderDay9
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Re: Can we afford a $650k house?

Post by PowderDay9 »

If your income was more stable this would be an obvious yes you can afford it. Given that your business just took off, why not wait a year for buying the house?
JustGotScammed
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Re: Can we afford a $650k house?

Post by JustGotScammed »

davos8923 wrote: Thu Jun 17, 2021 10:53 pm I (husband, age 36) am sole earner (wife doesn't work), making ~$550,000 a year. Income can be volatile as I'm an entrepreneur. Wife and two young children. Looking at homes around $650,000. We'd do a 20% down payment and so the PITI would be ~$3,400/mo.

We have zero debt, and our net worth is $700,000 ($450K of which is liquid). Saving $30,000 a month right now. If you're wondering why our net worth isn't higher given our income level being what it is, it's because the business has grown very rapidly in recent years.

Thoughts?
Not only can you afford it, it would be downright cheap for you. You'd cover your payments as well as anyone in the country with a mortgage. Go for it, man.
EnjoyIt
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Re: Can we afford a $650k house?

Post by EnjoyIt »

davos8923 wrote: Thu Jun 17, 2021 10:53 pm I (husband, age 36) am sole earner (wife doesn't work), making ~$550,000 a year. Income can be volatile as I'm an entrepreneur. Wife and two young children. Looking at homes around $650,000. We'd do a 20% down payment and so the PITI would be ~$3,400/mo.

We have zero debt, and our net worth is $700,000 ($450K of which is liquid). Saving $30,000 a month right now. If you're wondering why our net worth isn't higher given our income level being what it is, it's because the business has grown very rapidly in recent years.

Thoughts?
Yes, I think you can comfortably afford it. Even if your income got cut in half, you would still be able to afford the mortgage and save reasonably well for retirement. Having a mortgage that is less than 2x income is a good strategy for building wealth.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
JediMisty
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Re: Can we afford a $650k house?

Post by JediMisty »

Yes. And please buy mine. My first offer was 620k. Waiting for better offers. :sharebeer
Topic Author
davos8923
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Re: Can we afford a $650k house?

Post by davos8923 »

PowderDay9 wrote: Fri Jun 18, 2021 1:26 am If your income was more stable this would be an obvious yes you can afford it. Given that your business just took off, why not wait a year for buying the house?
True, just a situation where we could really use a larger space sooner than later.
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wander
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Re: Can we afford a $650k house?

Post by wander »

Op, yes, you can afford it. We make less than you and can afford a $700k house.
Topic Author
davos8923
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Re: Can we afford a $650k house?

Post by davos8923 »

wander wrote: Fri Jun 18, 2021 7:22 am Op, yes, you can afford it. We make less than you and can afford a $700k house.
Thanks. Do you have more assets/higher NW (cushion) than me though?
deltaneutral83
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Re: Can we afford a $650k house?

Post by deltaneutral83 »

davos8923 wrote: Thu Jun 17, 2021 11:01 pm
Thanks. One thought I had if everything crashed suddenly is that given my current liquid assets, could essentially pay $350K of the house off if I wanted to and still have a $100K emergency fund left behind it, leaving me with only a $300K mortgage (although taxes would still be high).
OP, I think you may be a candidate to save up for a year and pay with cash or get mortgage and pay down as quickly as possible and get it off your plate with your risk profile (although you are an entrepreneur?). Getting a home that's conservatively less than 2x income (and more like 1.3x) eliminates a large hurdle that many get tripped up by on the path to wealth. For many it's a pipe dream to be below 2.5x and most are in the 3x-4x.

I suspect in 5 years this home will be worth x and your investable assets will be worth 5x-8x so it won't be a larger portion of your NW and you will still be young. In essence get the home and and it likely doesn't matter how you pay for it.
stlrick
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Re: Can we afford a $650k house?

Post by stlrick »

How volatile? If it ranges from 350,000 - 750,000, you are fine. If it ranges from 150,000 - 950,000, you will be in trouble at the low figure. As the sole provider, do you have good disability and life insurance?
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hand
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Re: Can we afford a $650k house?

Post by hand »

If your gut is telling you that you may not be able to comfortably afford, you should look into that feeling - perhaps there's something material that you've failed to include in your post?

Does your business have large working capital requirements that you fund?
Expansion or other investment opportunities in the business that you would have to forgo to buy the house now?
Growing accounts receivable that have some risk of going bad?
Real risk of collapse of the business?
Opportunity to take the business national or international in a way that would make you want to move?
Don't want to lock into a $650k house now when a $1M house might be the right fit a year from now?

If you're saving $30k/ month, every month you wait materially reduces the mortgage - and your risk. If you're uncomfortable buying now, book some vacation time over the summer to alleviate whatever pressing space issues you have, and revisit later in the year.
Cartographer
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Re: Can we afford a $650k house?

Post by Cartographer »

davos8923 wrote: Thu Jun 17, 2021 10:53 pm I (husband, age 36) am sole earner (wife doesn't work), making ~$550,000 a year. Income can be volatile as I'm an entrepreneur. Wife and two young children. Looking at homes around $650,000. We'd do a 20% down payment and so the PITI would be ~$3,400/mo.

We have zero debt, and our net worth is $700,000 ($450K of which is liquid). Saving $30,000 a month right now. If you're wondering why our net worth isn't higher given our income level being what it is, it's because the business has grown very rapidly in recent years.

Thoughts?
You can easily afford the house

I do have a small concern: based on my back-of-the-envelope calculation, your annual expenses right now are around $40k ($550k income - ~$150k taxes [assuming no state tax] - $360k savings). If this is right, you are currently living very frugally on a very large income. So I wonder if this house will be the first stage of some serious lifestyle creep. You can certainly afford such creep, but as your lifestyle changes you may ultimately decide this is not the house you want.
Golf maniac
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Re: Can we afford a $650k house?

Post by Golf maniac »

stlrick wrote: Fri Jun 18, 2021 9:06 am How volatile? If it ranges from 350,000 - 750,000, you are fine. If it ranges from 150,000 - 950,000, you will be in trouble at the low figure. As the sole provider, do you have good disability and life insurance?
+1. This is the key! Your current income means nothing. What range of income do you expect for the next 5 to 10 years. You must have some projections or estimates. Insurance coverage is key. The market is also important. Is $650k an average house or a McMansion in your market? This will help guide how easily you will be able to sell if business turns down and you can’t afford the home.
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JonnyDVM
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Re: Can we afford a $650k house?

Post by JonnyDVM »

You could buy it with cash. So yes. This is a strange post to be honest. Even with volatility in income you’re beyond OK. Your income could be cut in half and you would be fine.
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jay22
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Re: Can we afford a $650k house?

Post by jay22 »

OP, are you trolling here? :D
Topic Author
davos8923
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Re: Can we afford a $650k house?

Post by davos8923 »

JonnyDVM wrote: Fri Jun 18, 2021 2:43 pm You could buy it with cash. So yes. This is a strange post to be honest. Even with volatility in income you’re beyond OK. Your income could be cut in half and you would be fine.
I could not. Only $450K liquid. The remainder of $700K net worth is in retirement accounts.
mervinj7
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Re: Can we afford a $650k house?

Post by mervinj7 »

jay22 wrote: Fri Jun 18, 2021 2:59 pm OP, are you trolling here? :D
Haha, I was wondering that too. Mortgage will be <1X annual income. Mine is at roughly 2X income and I don't feel particularly stressed.
PITI will eat up roughly 11% of net monthly savings.
RXfiles
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Re: Can we afford a $650k house?

Post by RXfiles »

jay22 wrote: Fri Jun 18, 2021 2:59 pm OP, are you trolling here? :D
Gotta be. He could afford that house and another 650k vacation home. "I make over 40k a month. Can I afford to spend 3k a month?"
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ram
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Re: Can we afford a $650k house?

Post by ram »

Yes.
If you are still anxious buy with cash after 10 months.

350 K ( from liquid investment)
300 K ( from 10 months of saving.)
Ram
TropikThunder
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Re: Can we afford a $650k house?

Post by TropikThunder »

ram wrote: Fri Jun 18, 2021 7:15 pm Yes.
If you are still anxious buy with cash after 10 months.

350 K ( from liquid investment)
300 K ( from 10 months of saving.)
And that $650k house will now cost $800k. :P
TallBoy29er
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Re: Can we afford a $650k house?

Post by TallBoy29er »

You're banking $30k/month right now. Let's say $25k of that is in taxable (am I even close...was thinking max 401k at just shy of $60k/yr). In a year, all things being as they are now, you have another $300k, which would cover your house (assuming prices stay flat, but bear with me), and give you $100k emergency fund, if you include your existing $450k.

I may be overreacting to your comment on the volatile income due to entrepreneurship. But I'm wound conservative when it comes to this stuff, and for another 12 months of being slightly cramped, I'd pay that price for the psychological security.

Congrats on the business. Sounds like you are crushing it.
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ram
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Re: Can we afford a $650k house?

Post by ram »

TropikThunder wrote: Fri Jun 18, 2021 9:48 pm
ram wrote: Fri Jun 18, 2021 7:15 pm Yes.
If you are still anxious buy with cash after 10 months.

350 K ( from liquid investment)
300 K ( from 10 months of saving.)
And that $650k house will now cost $800k. :P
So what?
The stock market returns of the next 10 months are going to be the same as the last 10 months. :)
Ram
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