Home buy - Now or later (Big salary increase)

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dreamjob9
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Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sun Nov 10, 2013 10:29 am

My wife and I just found out that we will be staying in the city we live in for the forseeable future. I have signed a contract and my salary will dramatically increase. My question is should we buy a house now (June) or wait for a few years? Ultimately, the dream home we would like will cost apprx 600-700k. Should we buy a house that cost 300k now and live in for 5 years then buy our dream house (600-700k) or should we rent for 2-3 years (2.5k a month) save and buy the dream home. I'm 32, wife is 30.

Stats:
Current dual salary- 220k year
New dual salary- 600k a year
Only debt (student loan) - 185k @ 3.5% fixed

6 month expenses - Check
Retirement combined - 120k
Last edited by dreamjob9 on Sun Nov 10, 2013 10:56 am, edited 1 time in total.

letsgobobby
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Re: Home buy - Now or later (Big salary increase)

Post by letsgobobby » Sun Nov 10, 2013 10:37 am

How old are you, and how stable is the work?

stan1
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Re: Home buy - Now or later (Big salary increase)

Post by stan1 » Sun Nov 10, 2013 10:41 am

I don't think there's any reason to buy a short term home under the circumstances you describe. Rent a house until you are sure you like the new job (at least a year). Things don't always turn out the way they seem. I'm assuming you are a physician? (Edit: Just saw in another post that you are a radiologist)

Buying a $600-700K house on a $600K annual salary is easy math so congratulations on your success (and choice to stay in a relatively low cost area). For now I'd keep living as if you still made $220K/year (saving the rest), start looking at the neighborhoods you want to live in, and wait for a house to come on the market that you can live in for another 30 years (until kids are out of college). Take your time and find a house with a great location.
Last edited by stan1 on Sun Nov 10, 2013 10:42 am, edited 1 time in total.

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sun Nov 10, 2013 10:42 am

letsgobobby wrote:How old are you, and how stable is the work?
I'm 32 - Wife is 30. Both jobs are pretty darn stable.
Last edited by dreamjob9 on Sun Nov 10, 2013 10:45 am, edited 1 time in total.

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sun Nov 10, 2013 10:44 am

stan1 wrote:I don't think there's any reason to buy a short term home under the circumstances you describe. Rent a house until you are sure you like the new job (at least a year). Things don't always turn out the way they seem. I'm assuming you are a physician? (Edit: Just saw in another post that you are a radiologist)

Buying a $600-700K house on a $600K annual salary is easy math so congratulations on your success (and choice to stay in a relatively low cost area). For now I'd keep living as if you still made $220K/year (saving the rest), start looking at the neighborhoods you want to live in, and wait for a house to come on the market that you can live in for another 30 years (until kids are out of college). Take your time and find a house with a great location.
Thank you for the advice. I completely agree with you that things don't always turn out the way they seem. With that being said, I have been working at the same place I will stay at. I am confident that I will be happy here.

stan1
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Re: Home buy - Now or later (Big salary increase)

Post by stan1 » Sun Nov 10, 2013 10:51 am

dreamjob9 wrote:
Thank you for the advice. I completely agree with you that things don't always turn out the way they seem. With that being said, I have been working at the same place I will stay at. I am confident that I will be happy here.
I have several radiologist friends. Their "things don't always turn out the way they seem" moment came when discussions began about buying into imaging centers owned by the radiologists who also owned the medical group. If you find yourself in that situation hire an independent accountant to do due diligence. In my friends case this report revealed the founding partners stayed on the payroll while they did little work (along with their ex-wives and children).

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sun Nov 10, 2013 10:54 am

stan1 wrote:
dreamjob9 wrote:
Thank you for the advice. I completely agree with you that things don't always turn out the way they seem. With that being said, I have been working at the same place I will stay at. I am confident that I will be happy here.
I have several radiologist friends. Their "things don't always turn out the way they seem" moment came when discussions began about buying into imaging centers owned by the radiologists who also owned the medical group. If you find yourself in that situation hire an independent accountant to do due diligence. In my friends case this report revealed the founding partners stayed on the payroll while they did little work (along with their ex-wives and children).
Great point. I don't want to stray off track of my original question, but I am going into academics. No dealing with partnership issues - thankfully. Come to work and do my job and go home.

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Toons
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Re: Home buy - Now or later (Big salary increase)

Post by Toons » Sun Nov 10, 2013 10:58 am

Pay off the student loan sooner than later :happy
Buy a house now and if the dream home still appeals 5 years from now,then consider a purchase :happy
Last edited by Toons on Sun Nov 10, 2013 11:02 am, edited 1 time in total.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

stan1
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Re: Home buy - Now or later (Big salary increase)

Post by stan1 » Sun Nov 10, 2013 11:02 am

dreamjob9 wrote:
stan1 wrote:
dreamjob9 wrote:
Thank you for the advice. I completely agree with you that things don't always turn out the way they seem. With that being said, I have been working at the same place I will stay at. I am confident that I will be happy here.
I have several radiologist friends. Their "things don't always turn out the way they seem" moment came when discussions began about buying into imaging centers owned by the radiologists who also owned the medical group. If you find yourself in that situation hire an independent accountant to do due diligence. In my friends case this report revealed the founding partners stayed on the payroll while they did little work (along with their ex-wives and children).
Great point. I don't want to stray off track of my original question, but I am going into academics. No dealing with partnership issues - thankfully. Come to work and do my job and go home.
I think that is a wise choice, congrats on what sounds like a great job.

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greg24
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Re: Home buy - Now or later (Big salary increase)

Post by greg24 » Sun Nov 10, 2013 11:07 am

If you have 380k of new income, I don't see why you can't buy your dream home in about a year. Rent and save save save.

sscritic
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Re: Home buy - Now or later (Big salary increase)

Post by sscritic » Sun Nov 10, 2013 11:07 am

I think the usual math is that it takes 7 years of ownership to make owning better than renting, but with your income, why do you care? Is $2500 the rent on your current place or the rent on your "dream" apartment? If the starter home is much nicer than what you would get renting, then buy the starter home and enjoy.

Or do what greg24 suggests. Why do you think it will take you 3 years to save 20% down on a $600k house? Let's see, that looks like $120k; yup, less than a year, just like greg24 said.

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macchiato
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Re: Home buy - Now or later (Big salary increase)

Post by macchiato » Sun Nov 10, 2013 11:20 am

Not totally bogleheadish but--I think you should take some time and research the $600-700K neighborhood you want (unless you've already done so) and be super picky. I'd go ahead and move into that neighborhood that matches your disposition and make friends with the neighbors. I was in a similar position, was ahead for my age, stretched into a more expensive neighborhood and never regretted it. Your income is not a limiting factor.

All the other caveats apply--pay down that loan, fund as much as possible (including after-tax roth to the max) and find other ways to be conservative with spending.

You're in academics and not in private practice, so those "buy a BMW now" pressures are off in favor of "buy a Volvo." :) And you're here reading these posts. I think you're well ahead of the game.

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DiscoBunny1979
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Re: Home buy - Now or later (Big salary increase)

Post by DiscoBunny1979 » Sun Nov 10, 2013 11:37 am

In my opinion, the most secure plan is to buy a house that's affordable on only one spouse's income - the lowest of the two, and that it's based on payments (principal, taxes, insurance) for a 15 year fixed mortgage. That's to make sure that if one person dies or if one person goes on some type of disability that eventually denies a claim, the lifestyle of home choice is still manageable for either spouse. So, what needs to be known is what is the current salary of each spouse and what will the salary of each spouse become? Of course this suggestion doesn't take into consideration possible life insurance options - but some folks might feel that life insurance is either unaffordable (individual plans, not covered under employer), unobtainable due to health concerns, or unnecessary due to being 'young'. . . .which you may have covered with your employer. But with your high income, the possibility of paying for cash does cross my mind. . .loan or cash?

ks289
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Re: Home buy - Now or later (Big salary increase)

Post by ks289 » Sun Nov 10, 2013 12:34 pm

Buying dream home now is reasonable, but may result in more risk (smaller down payment-higher rate jumbo loan +/- PMI, larger ancillary expenses -maintenance, furnishings, etc) with overall modest cost savings (avoid additional moving costs, immediately begin paying mortgage/building small amount of equity instead of paying rent in interim period).
Because you will likely do ok in any of those pathways, I would begin looking at a wide range of homes for purchase and allow the specific available choices assist you in making the final decision.
Good luck.

sscritic
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Re: Home buy - Now or later (Big salary increase)

Post by sscritic » Sun Nov 10, 2013 12:50 pm

Recently, due to tighter lending standards, jumbo loans often have lower rates than conventional loans. Someone buying a $1,000,000 house is usually a better credit risk (income, etc.) than someone buying a $100,000 house. Also, 80% of $700,000 is $560,000. That's not jumbo in many parts of the country, although the jumbo definition may change for 2014.
Limits for government-backed mortgages were raised from $417,000 to as high as $729,750 for high cost areas in 2008. That was when private capital vanished from the market, and the government, in the form of Fannie, Freddie and the FHA, were left to fund the market. Limits were reduced to $625,500 for high-cost areas in 2011.

The FHA's limits are still at $729,750 but are scheduled to fall at the end of this year, further reducing its market share, which has dropped in the past year already due to higher insurance premiums and fees.
...
The FHFA considers loan limits every November, and DeMarco said that will continue, but he will give at least a six-month warning of changes. He did not rule out a drop in limits later in 2014 as part of a strategy to shrink Fannie and Freddie's market share further.

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sun Nov 10, 2013 2:27 pm

ks289 wrote:Buying dream home now is reasonable, but may result in more risk (smaller down payment-higher rate jumbo loan +/- PMI, larger ancillary expenses -maintenance, furnishings, etc) with overall modest cost savings (avoid additional moving costs, immediately begin paying mortgage/building small amount of equity instead of paying rent in interim period).
Because you will likely do ok in any of those pathways, I would begin looking at a wide range of homes for purchase and allow the specific available choices assist you in making the final decision.
Good luck.
So save for 1 year and obtain down payment then buy dream home? Pay off student loan 2nd year out?

sscritic
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Re: Home buy - Now or later (Big salary increase)

Post by sscritic » Sun Nov 10, 2013 2:44 pm

Guessing future mortgage rates: 4.5%
Actual student loan rate: 3.5%

Which is cheaper, looking ahead one year?

1) pay down $100k on the student loan - owe $85k at 3.5%; borrow $500k at 4.5%; total debt $585k.
2) owe $185k at 3.5%; save $100k for larger down payment and borrow $400k at 4.5%; total debt $585k.

If you think you will be able to get a mortgage at 2.0%, pay down the student loan.

Then again, using 4.5%, we are only talking a difference of 1% on $100k or $1000. Big whoops.

You can always split the difference; no one said you have to do one or the other.

Spirit Rider
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Re: Home buy - Now or later (Big salary increase)

Post by Spirit Rider » Sun Nov 10, 2013 3:12 pm

dreamjob9 wrote:So save for 1 year and obtain down payment then buy dream home? Pay off student loan 2nd year out?
Or, roughly keep your same lifestyle and buy your dream house in 1 1/2 years with no student loans. You will receive about net $20K/month more with the higher salary (less state income tax). Take 9-12 months to pay off the student loan and only an additional 6-8 months to save the down payment. Then you can buy the dream house free and clear of the student loans.

stan1
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Re: Home buy - Now or later (Big salary increase)

Post by stan1 » Sun Nov 10, 2013 3:15 pm

You have the cash flow (assuming you keep same lifesytle as before) to do whatever you want and be debt free (no mortgage or student loans) within five years if you choose. Nice position to be in. It doesn't matter whether you pay off the student loans in 2014 or 2016.

Look for the right house (location, neighbors, "good bones") and don't settle for something less than ideal that you can't change. If that house comes on the market in 6 months buy it, or it may come on the market in 2 years.

travellight
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Re: Home buy - Now or later (Big salary increase)

Post by travellight » Sun Nov 10, 2013 3:55 pm

You can afford your 700k house on even just one salary of 300k with a 15 year loan at a theoretical 4% rate. Just save up 140k so you won't have PMI.

ks289
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Re: Home buy - Now or later (Big salary increase)

Post by ks289 » Mon Nov 11, 2013 7:54 am

dreamjob9 wrote:
ks289 wrote:Buying dream home now is reasonable, but may result in more risk (smaller down payment-higher rate jumbo loan +/- PMI, larger ancillary expenses -maintenance, furnishings, etc) with overall modest cost savings (avoid additional moving costs, immediately begin paying mortgage/building small amount of equity instead of paying rent in interim period).
Because you will likely do ok in any of those pathways, I would begin looking at a wide range of homes for purchase and allow the specific available choices assist you in making the final decision.
Good luck.
So save for 1 year and obtain down payment then buy dream home? Pay off student loan 2nd year out?
Buying immediately is reasonable, but waiting to have a more positive net worth and accumulate more of a "cushion" of cash is also reasonable.

The "risk" I refer to is certainly very manageable with a high salary with a stable job, adequate emergency cash, and the assumption that one would have sufficient disability insurance, life insurance, etc. Starting off with a lower net worth and smaller amount of home equity leaves one more vulnerable to a drop in home value, which if forced to sell (and pay realtor fees/transaction costs) can result in a substantial cash outlay- unlikely but not unheard of scenario.

mike_slc
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Re: Home buy - Now or later (Big salary increase)

Post by mike_slc » Mon Nov 11, 2013 7:59 am

I really had no idea you could make so much money in academics. Congrats!

an_asker
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Re: Home buy - Now or later (Big salary increase)

Post by an_asker » Mon Nov 11, 2013 9:00 am

sscritic wrote:Guessing future mortgage rates: 4.5%
Actual student loan rate: 3.5%

Which is cheaper, looking ahead one year?

1) pay down $100k on the student loan - owe $85k at 3.5%; borrow $500k at 4.5%; total debt $585k.
2) owe $185k at 3.5%; save $100k for larger down payment and borrow $400k at 4.5%; total debt $585k.

If you think you will be able to get a mortgage at 2.0%, pay down the student loan.

Then again, using 4.5%, we are only talking a difference of 1% on $100k or $1000. Big whoops.

You can always split the difference; no one said you have to do one or the other.
With that income and the house price, I would suggest a PenFed HEL (though I don't know if the loan exceeds the limits - we never had that problem, fortunately or not!).

OP - that sounds like a great job - congratulations!

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hand
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Re: Home buy - Now or later (Big salary increase)

Post by hand » Mon Nov 11, 2013 10:55 am

Transaction costs of buying / selling a home are really high.
Moving is a pain in the neck and furnishing a home is expensive.

If it were me, I would stay in a rental, learn the housing market, and wait until I could afford a long term house rather than buying a temporary house.

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Watty
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Re: Home buy - Now or later (Big salary increase)

Post by Watty » Mon Nov 11, 2013 12:06 pm

dreamjob9 wrote: Stats:
Current dual salary- 220k year
New dual salary- 600k a year
Only debt (student loan) - 185k @ 3.5% fixed

6 month expenses - Check
Retirement combined - 120k
From what you have said your net worth is somewhere in the ballpark of being zero.

If you save like crazy you could have a 20% down payment in less than six months. That would not only help you avoid PMI but also help get out of the higher interest rate Jumbo loan depending on what the limits are in your area.

I would wait until you have the 20% downpayment.

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Tue Jan 14, 2014 4:42 am

Does the fact that we have qualified for a 0% down no PMI loan at 3.5 % 5/1 ARM or 4.25% 30 year fix change things? My wife really wants to buy the dream home now (600-700k). I'm a little nervous.

Bacchus01
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Re: Home buy - Now or later (Big salary increase)

Post by Bacchus01 » Tue Jan 14, 2014 10:46 am

Location, location, location.

Spend more time determining the right location. I've lived in beautiful houses in that price range, in crappy neighborhoods and hated it. I've lived in lower priced houses in great neighborhoods and would take that any day. I can't wait to get out of my current house, and it has nothing to do with the house and everything to do with the neighborhood.

Like others have said, moving is very expensive and stressful.

ks289
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Re: Home buy - Now or later (Big salary increase)

Post by ks289 » Tue Jan 14, 2014 10:57 am

dreamjob9 wrote:Does the fact that we have qualified for a 0% down no PMI loan at 3.5 % 5/1 ARM or 4.25% 30 year fix change things? My wife really wants to buy the dream home now (600-700k). I'm a little nervous.
You should be a little nervous about a big purchase like this (that's a normal/helpful feeling to have)- but I would go ahead and buy now. Make sure you work hard and save as much as you can.

EnjoyIt
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Re: Home buy - Now or later (Big salary increase)

Post by EnjoyIt » Tue Jan 14, 2014 8:13 pm

Don't buy the house until you had a year to work at your new job. Most docs leave their first job within a year or 2.

This will allow you to save some cash and get yourself accustomed to your income. Most recommend to live no different than you did in residency for 1 year, then increase your living expenses by a certain amount every year thereafter.

Trust me.

Atilla
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Re: Home buy - Now or later (Big salary increase)

Post by Atilla » Tue Jan 14, 2014 8:51 pm

We had a similar situation in 2007. Huge salary increase...steady work...started looking at big expensive houses.

Hoo boy am I glad we didn't pull the trigger. It would have been a disaster.
The Village Idiot - here for your entertainment.

goodyear35
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Re: Home buy - Now or later (Big salary increase)

Post by goodyear35 » Thu Jan 16, 2014 4:32 pm

Let me save you A LOT of headaches, time, etc.

Rent a house exactly like your dream home for at least 1 year, and THEN determine if its your dream home.

I bought a home about 2 years ago for $1.1M. I THOUGHT it was my dream home. Turns out, there are many things I overlooked as being important. Storage, entertainment space vs bedrooms, etc. In a couple years I will now be building a custom home or some variation of a custom home.

I highly recommend you live it before you buy it. Then you can make the necessary tweaks for your "dream" home.

hq38sq43
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Re: Home buy - Now or later (Big salary increase)

Post by hq38sq43 » Thu Jan 16, 2014 7:54 pm

Sounds like you are well positioned to pay off the student loan; so, despite the currently low interest rate, I recommend you pay it off asap. I have encountered many people with a student loan mill stone dragging them down, and the sight ain't pretty. If your currently rosy future pans out, you will have many attractive options once the loan is paid. Soft pedaling until that happy day is likely to serve you well.

As the saying goes, make hay while the sun shines and harvest when the hay ripens.

Best regards,
Harry at Bradenton

dreamjob9
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Re: Home buy - Now or later (Big salary increase)

Post by dreamjob9 » Sat Jan 18, 2014 10:37 pm

Thanks everyone for the advice. We bought a house. Not quite 600k more like 500k. I feel good about it, although having 680k in debt is kinda scary. But, the wife is happy and her unhappy is MORE scary (j/k!).

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