Double Income No Kids (but expect kids in future) - How much home can we afford?

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browncp88
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Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by browncp88 » Mon Aug 15, 2016 10:13 am

My wife and I are software developers, and are planning to purchase a house. Have seen rules of thumb for how much we can afford - e.g., 2.5 times your income, or monthly payments ~ 0.36 of your monthly income. We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative, but combining our income seems risky / unrealistic over the length of a 30 year mortgage. I understand a fixed mortgage gets easier to pay over time, and I imagine the truth is somewhere between, but where?

Any resources you can recommend would be greatly appreciated!

//
Craig

wilked
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by wilked » Mon Aug 15, 2016 3:07 pm

browncp88 wrote:We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative
Doesn't sound overly conservative to me, sounds like exactly what you should do

mancich
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by mancich » Mon Aug 15, 2016 3:11 pm

IMO you are thinking about it correctly. You never know what is going to happen. Buying too much house is risky. If you can afford a home on one income, this frees up a lot of money from the 2nd income earner for saving, long-term investing, child-rearing, and general fun stuff in life. Stretching to buy too much house will leave you miserable and house-poor, not a pleasant combination. Even if you need two incomes because you are in a HCOL area, don't overdo it. Be smart and prudent and buy a quality home that doesn't need TOO much work, but not a huge McMansion that will suck you dry.

best of luck! :beer

jf89
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by jf89 » Mon Aug 15, 2016 3:32 pm

Take a look at what the two rules-of-thumb get you in your area. In our area we found that we didn't want a) that much house or b) that high a mortgage payment, regardless of what the rules-of-thumb said we COULD afford.
"Save as much as you can, diversify diversify diversify, and you can't go wrong with tech stocks" | -First investing advice I recall from my parents in the 90's (two outta three ain't bad)

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by sls239 » Mon Aug 15, 2016 3:47 pm

I'm curious as to why you are interested in buying when you are expecting major changes in other areas of your life.

Might it not be better to wait until you are dealing with reality rather than expectations?

Buying too soon or buying wrong can be just as expensive as buying too much house.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by Dottie57 » Mon Aug 15, 2016 4:00 pm

browncp88 wrote:My wife and I are software developers, and are planning to purchase a house. Have seen rules of thumb for how much we can afford - e.g., 2.5 times your income, or monthly payments ~ 0.36 of your monthly income. We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative, but combining our income seems risky / unrealistic over the length of a 30 year mortgage. I understand a fixed mortgage gets easier to pay over time, and I imagine the truth is somewhere between, but where?

Any resources you can recommend would be greatly appreciated!

//
Craig

I would buy a house where the monthly income from one person (lowest salary) can handle the mortgage payment.

cherijoh
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by cherijoh » Mon Aug 15, 2016 4:45 pm

browncp88 wrote:My wife and I are software developers, and are planning to purchase a house. Have seen rules of thumb for how much we can afford - e.g., 2.5 times your income, or monthly payments ~ 0.36 of your monthly income. We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative, but combining our income seems risky / unrealistic over the length of a 30 year mortgage. I understand a fixed mortgage gets easier to pay over time, and I imagine the truth is somewhere between, but where?

Any resources you can recommend would be greatly appreciated!

//
Craig
If you aren't sure how long your wife will continue to work, I would suggest committing to save her entire salary. She should max out her retirement plan contributions and then set aside the rest towards a house down payment. If you can't make this arrangement work, then you probably can't afford to buy a house unless you are in an area where it is cheaper to buy than rent.

I wouldn't necessarily worry about rules of thumb related to income, since housing costs vary so much depending on the area of the country. (A rule of thumb that is appropriate in the Midwest could be laughable on the coasts). But you do need to worry about cash flow to cover principal, interest, taxes, and insurance. Personally, I think 36% of income would be a stretch and I'd aim for no more than 30% of your salary alone , although you can adjust it for a lower marginal tax bracket (if that would indeed be the case if your wife quit her job).

If you find that you couldn't make the prospective house payment on your salary alone, then continue to build up the down payment fund so that you can take out a smaller mortgage. Too many people stretch to afford their "dream house" and totally neglect the opportunity costs - such as making it impossible for one parent to stay at home with the kids once you have them or even be able to comfortably afford a second child. Another frequently overlooked opportunity cost is failing to save adequately for retirement. You really want to avoid being "house poor" at all costs - or else your dream house could turn into something of a nightmare.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by livesoft » Mon Aug 15, 2016 4:55 pm

I think there are different rules-of-thumb for different areas of the USA. What would work in Houston probably would not work on Long Island nor San Diego nor San Francisco nor Boston, but it might work in St Louis or Charlotte.
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by hand » Mon Aug 15, 2016 9:21 pm

Put off buying as long as possible until you actually need a house / neighbourhood / schools for your kid.
Use the second income to save a large downpayment, but only buy a house requiring a mortgage that a single income can cover.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by randomguy » Mon Aug 15, 2016 9:50 pm

There are 2 limits
a) what the banks will give you
b) what you want to spend

The rules based on income are flawed in that they don't factor in interest rates. For a 1k/month payment, at 10% you can get a 115k house. At 4%, you can get a 210k house. The affordability to you doesn't change (hand waving about insurance and real estate taxes). Saying spending 1/3 of your income on housing is better but that still ignores things like you like taking 6k/year trips and spend 1k/month on cars while another family spends 1k on trips and 500/month on cars. You need to figure out what type of house spending would make you uncomfortable. Your current rent (with tax adjustments) is a good starting spot and then you think about where more money would come from.

In some areas people realize they need to change their lifestyle (i.e. the 600k house isn't worth it, they need the 800 so they cut expenses to make the numbers work). Other people live in areas where housing give them the option between say the 200k versus 400k house depending on what they value.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by EnjoyIt » Mon Aug 15, 2016 10:14 pm

Tooooooo soon to buy a house.

Once you get your first kid then start looking. Until then you are just wasting your time and your money.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by finite_difference » Mon Aug 15, 2016 10:20 pm

EnjoyIt wrote:Tooooooo soon to buy a house.

Once you get your first kid then start looking. Until then you are just wasting your time and your money.
Personally I think it's nice to be settled in before having kids. For example, finding the house when pregnant. Trying to find a house with an infant is not easy -- your free time will be very constrained at that point, unless you don't mind waiting for 4+ months. And then moving all the baby stuff, etc. It's doable but I just don't get the advice above.
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by finite_difference » Mon Aug 15, 2016 10:23 pm

randomguy wrote:There are 2 limits
a) what the banks will give you
b) what you want to spend

The rules based on income are flawed in that they don't factor in interest rates. For a 1k/month payment, at 10% you can get a 115k house. At 4%, you can get a 210k house. The affordability to you doesn't change (hand waving about insurance and real estate taxes). Saying spending 1/3 of your income on housing is better but that still ignores things like you like taking 6k/year trips and spend 1k/month on cars while another family spends 1k on trips and 500/month on cars. You need to figure out what type of house spending would make you uncomfortable. Your current rent (with tax adjustments) is a good starting spot and then you think about where more money would come from.

In some areas people realize they need to change their lifestyle (i.e. the 600k house isn't worth it, they need the 800 so they cut expenses to make the numbers work). Other people live in areas where housing give them the option between say the 200k versus 400k house depending on what they value.
I think having the house mortgage PITI less than 1/3 of net income is the best rule of thumb I have heard. You may be able to get away with more if you are thrifty, and if you like to spend then you'd want less. So it is not exact but as far as rules of thumbs go I think that's the best. And it takes into account the issue with varying interest and property tax rates.
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by EnjoyIt » Mon Aug 15, 2016 10:56 pm

finite_difference wrote:
EnjoyIt wrote:Tooooooo soon to buy a house.

Once you get your first kid then start looking. Until then you are just wasting your time and your money.
Personally I think it's nice to be settled in before having kids. For example, finding the house when pregnant. Trying to find a house with an infant is not easy -- your free time will be very constrained at that point, unless you don't mind waiting for 4+ months. And then moving all the baby stuff, etc. It's doable but I just don't get the advice above.
Ahh, but who knows what will happen. Just because you want kids doesn't always mean they will be there. I have two colleagues who don't have kids due to unfortunate circumstances. Why have a 3-4 bedroom house if the only one unitizing those rooms is the family cat? I can agree pregnant and looking for a house is a pretty good position. But until then most people are better off not upgrading their lifestyle until they actually need to.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by spammagnet » Mon Aug 15, 2016 11:17 pm

browncp88 wrote:Assuming a single income to determine how large a mortgage we can afford would seem overly conservative...
I disagree, if you are contemplating your wife not working. And, her reason for not working is so you can have kids. Kids are expensive.

Don't commit to more house than you can afford on your (possibly) single income. Also, don't look at this as how much you can afford. Rather, how much do you need? I don't mean a shack in a crappy school district, but is something smaller than the maximum you can afford, adequate?

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by gwrvmd » Mon Aug 15, 2016 11:56 pm

Put 20% down. The mortgage should not be more than 2x your annual salary. Your monthly mortgage payment, including real estate tax, should not be more than 25% of your monthly after tax income.
If you are going to have kids don't include your wife's salary in those calculations or you won't own the house, the house will own you.....Gordon
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by Tal- » Tue Aug 16, 2016 12:13 am

Like others, I would suggest waiting to buy for another few years. It sounds like you're at the point in your life, where you have your whole life ahead of you. Buying a house now will strain your finances and tie you down - both things will be better once you get the whole kids thing figured out. But, I may be wrong about this...

If you do want to buy, you should be able to put 20% down, plus moving/closing costs, and still have your emergency fund set up. Monthly payments should be 25% of your (one person, not two) net income, after maxing your 401k. You should be pretty sure that you will stay in the house for 10 years.

Happy hunting.
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by feh » Tue Aug 16, 2016 12:51 pm

wilked wrote:
browncp88 wrote:We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative
Doesn't sound overly conservative to me, sounds like exactly what you should do
+1

Buy the house you need, not what you can afford.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by sls239 » Wed Aug 17, 2016 5:03 pm

finite_difference wrote:
EnjoyIt wrote:Tooooooo soon to buy a house.

Once you get your first kid then start looking. Until then you are just wasting your time and your money.
Personally I think it's nice to be settled in before having kids. For example, finding the house when pregnant. Trying to find a house with an infant is not easy -- your free time will be very constrained at that point, unless you don't mind waiting for 4+ months. And then moving all the baby stuff, etc. It's doable but I just don't get the advice above.
I'll be more clear. What happens if you buy a two story house and your child has a medical issue that prevents them from being able to go up the stairs independently?

Yeah.

Sure, it is nice to be settled before the kids come, but what you think you will need and what you actually end up needing might be two very different things. Even with school districts, I know so many parents that are in a good district, but not necessarily one that is really good for their child, for various reasons.

Having that down-payment money available but not already tied up can also come in handy.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by Watty » Wed Aug 17, 2016 11:42 pm

Hi Craig,

Welcome to the board. I see that you are a new poster here. For background there are often posts here from young computer people in the Bay Area wondering if they should buy a million dollar 900 square foot bungalow. Some of the posts may have assumed that was the type of situation you are considering so people may have thought that you were trying to rationalize buying in a likely housing bubble.

Anyway, a few comments;

wilked wrote:
browncp88 wrote:We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative
Doesn't sound overly conservative to me, sounds like exactly what you should do
+1

Even if you both plan on working after you have a baby good daycare for an infant can be hard to find and you may change your mind.
browncp88 wrote:Any resources you can recommend would be greatly appreciated!
Here is the Mortgage Professors page on that but it might not cover your situation.

http://www.mtgprofessor.com/A%20-%20Pur ... afford.htm

browncp88 wrote:I understand a fixed mortgage gets easier to pay over time
I would not count on that to always be true.

That likely assumes there will be inflation and large salary increases. Deflation or very low inflation is a possibility and some software developers income will spike and level out relatively young. By the time you are middle age it can be a rough career field for older workers. (I'm a retired computer programmer.) Some would argue that tech is in a bit of a bubble too and salaries could be under pressure if the bubble ends.

In addition as a house ages more maintenance will be required so even if your mortgage does become more manageable your other expenses may go up.
Last edited by Watty on Thu Aug 18, 2016 12:11 am, edited 1 time in total.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by rgs92 » Thu Aug 18, 2016 12:06 am

I recommend that software people in non-gov't jobs always just rent. The profession is like being a gypsy, meaning you need to pick up and move when you need to find a new job, and that could mean anywhere in the country. Also, it's hard to deal with a mortgage through long periods of unemployment. And, as noted, these problems get magnified a lot when you get past 40. It's a very insecure profession. I used to be a successful software person, along with my wife, and it went south.
That's what the imported software people do. They often crowd many people into an apartment, and when the gig they are working on ends with short notice, they just move on to anywhere on a moment's notice. It's becoming the norm for the industry.
I would definitely try (since you are youngish) to get a gov't job anywhere in the country (around the DC area is good) which will make your career and life peachy and secure, even if you have to take a major pay cut. That should be your main goal to prevent heartache down the line.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by furikake » Thu Aug 18, 2016 1:32 am

I think it's okay to buy a house but use only one income to qualify for mortgage, and only if you can put down 20%-25% on down payment, and make sure you're not straining yourselves on the monthly mortgage payment. 0.36 of your one income or combined income for monthly mortgage payment is way too high in my opinion. If it was me, I wouldn't buy it right now because the fortune teller side of me says that the market will go down in the next few years. :mrgreen:

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by jharkin » Thu Aug 18, 2016 6:25 am

browncp88 wrote: Assuming a single income to determine how large a mortgage we can afford would seem overly conservative, but combining our income seems risky / unrealistic over the length of a 30 year mortgage. I understand a fixed mortgage gets easier to pay over time, and I imagine the truth is somewhere between, but where?

Its not overly conservative at all. Always good to plan for less income in case of an unexpected job loss or other emergency. And trust me, when you own a house, expensive emergencies come up faaaar too often.

More specifically - Are you sure that one of you may not end up staying home with the child for a few years? Even if you are determined to go back to work quickly you may change your mind in the future. Or something unexpected might happen like twins/triples which forces the decision.

Before we had kids we had this idea that I would work from home a couple days a week so my wife would keep working part time. Then we had twins (double the expenses) and realized that there is absolutely ZERO chance to actually get any work done if one is "working from home" with a baby. In the end my wife stayed home and is only now just thinking about going back part time as they enter kindergaten. With school schedules and kids activities I expect we wont be back to two full time incomes until they are in High School.

And however expensive you think raising a kid will be.... it will be faaaar more expensive in reality.


Ask around other people you know with kids but I expect you will find two camps:
- Families in a similar situation as me.
- Families who pay the equivalent of a second salary in day care costs, etc

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by GordonG » Thu Aug 18, 2016 9:08 am

When you guys are saying 36% of income or 25% or whatever the rule-of-thumb is, are you talking net income? I've been house hunting for many years now, but haven't found "the one" yet. My current rent is about 12.3% of my net monthly income, which is very comfortable. I agree that 36% sounds like way too much, but I see the home prices in the bigger cities are ludicrous. I can't imagine people sticking to this rule unless they're all millionaires. I see some of these shows on TV where couples with average-paying jobs are paying $600K for a 1ooo sq ft house, and I'm just like WTF?

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by Texanbybirth » Thu Aug 18, 2016 10:51 am

wilked wrote:
browncp88 wrote:We eventually plan on having kids (no clue how many) and we are uncertain how long my wife will continue to work full-time / if she will continue part-time some day.

Assuming a single income to determine how large a mortgage we can afford would seem overly conservative
Doesn't sound overly conservative to me, sounds like exactly what you should do
+1

My wife is a homemaker. If we had budgeted for a home with anything other than just my income, then we'd be really hurting right now. Save one person's income and start living on only one income, too. If your wife keeps working with babies, then you'll (a) have lots of extra money saved up and (b) already be used to a more frugal lifestyle. (The only way I can see you affording more house than the rule of thumb you gave above is if you save a massive down payment that keeps your monthly payments low.)

And don't buy a house until you've got your first kid. You have no clue what your journey will be like having kids. Also, we house-hunted for six months with a newborn. It was a little inconvenient sometimes, but overall our realtor was excellent about getting us into showings when it worked for us. Moving with a 6-month old was easy; that's why you hire someone!
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by hcj » Thu Aug 18, 2016 12:28 pm

I am in a HCOL area so my approach would be, see some houses in different areas and see what is the cheapest condo / house / neighborhood you can stand to live in. Consider the commute because when you have kids it's really hard to spend 1.5-2 hours driving EACH way.

Then figure out if you can afford that payment on one salary. If you can't, you gotta go further out until you find something you can afford AND can stand to live in.

At some point you might decide to keep renting and get the heck out as soon as you advance far enough in career / save enough money.

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by hcj » Thu Aug 18, 2016 12:34 pm

GordonG wrote:When you guys are saying 36% of income or 25% or whatever the rule-of-thumb is, are you talking net income? I've been house hunting for many years now, but haven't found "the one" yet. My current rent is about 12.3% of my net monthly income, which is very comfortable. I agree that 36% sounds like way too much, but I see the home prices in the bigger cities are ludicrous. I can't imagine people sticking to this rule unless they're all millionaires. I see some of these shows on TV where couples with average-paying jobs are paying $600K for a 1ooo sq ft house, and I'm just like WTF?
In my opinion the % lenders are willing to lend is a little meaningless. Look at the actual payment and cost of ownership (tax, insurance, add budget for maintenance) and what that does to your budget. Would you still be saving what you want to save and have enough money to do what you want to do?

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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by itstoomuch » Thu Aug 18, 2016 1:17 pm

OP:
I advised DS (then 28, single and still is at 31) to buy something in his city (Seattle) to keep his buying power for the next home if he should want to purchase somewhere else or upgrade to something bigger or to satisfy future spouse.

So now 2 years in his townhouse (Aug 2014 purchase), has Zillow appreciated by 30% but most likely by 20-25%. He Airbnb's his extra bedroom or entire house when he's out hiking. His Airbnb pays for his EC activities and some of his parents' (us) ECs.

We also bought a rental Seattle condo in 2015 from an inheritance. We could easily sell for 20% more than our purchase. Income from this condo has allowed us to delay taking IRA or turning on the deferred annuities.

If USA has just one more good economic year, we and son will be pretty much immune to a housing correction.

IMO, get minimally 1 bedroom. Preferrably a 2+2.
YMMV
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Re: Double Income No Kids (but expect kids in future) - How much home can we afford?

Post by itstoomuch » Thu Aug 18, 2016 1:25 pm

DS's townhouse was purchased on a 7/1 variable, 3.1% apr. He has been approached for a refinance on a 30-15 year mortgage at lower interest rates ~@2.81 apr.

A PITI plus maintenance a payment of 33% is reasonable max for DINK. Maybe 25% for a single income.
YMMV
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