Can we afford a house of 600-700k?

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Glockenspiel
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Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 9:28 am

Wife and I are both 33 years old. One kid (2) with another on the way in June.

Salaries and Assets: Household income: $186k (H: 82k W: 104k)

Savings: 42k.

Retirement Savings: 355k (currently contributing $46k per year to all accounts)

Equity in current home: ~$215k (not including future realtor’s fees)

Both of our jobs are in high demand (engineer and nurse practitioner)

Debts:

Current mortgage: 2.5% 15-year fixed rate with $175k remaining. Current monthly payment of $2,185/month PITI. We have about 9 years until this would be paid off.

Auto Loan: $6k remaining (payment of $416/month) at 1.9% interest

Pros of current home: neighborhood has lots of young families and we like our neighbors

Cons of current home: busier street than we’d like, smaller yard than we’d like, mediocre schools compared to adjacent school districts on the other side of the river, commute is a major river crossing that really bottlenecks up, we would like it if the rooms in our home were larger and if we had more storage space.

Background: We’d like to move to a house in a better school district in a better location for commuting. This would be our forever home until retirement. We aren’t big spenders. Our childcare costs are only about $850/month currently, but will double with the new baby. We currently save a lot of money and our current house payment is more than comfortable for us.

Questions:

1. With a $200k down payment, would you be comfortable with a new 30-year fixed rate loan on a home with a purchase price of $600-$700k? This would be a $400-$500k mortgage balance with a possible total PITI payment of $2,700 - $3,300 per month.

2. We could possibly wait ~2 years to buy but would prefer to be in the new school district before our oldest goes to Kindergarten in 2.5 years. Look to buy now or wait 2 years?

bloom2708
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Re: Can we afford a house of 600-700k?

Post by bloom2708 » Tue Apr 03, 2018 9:34 am

With $200k down, $600k seems very doable. Pros seem worth it. Commute and schools are important.

Just be prepared to save less. Sometimes that is easier said than done if you are used to saving a high percentage.

Approved.
"We are not here to please, but to provoke thoughtfulness." --Unknown Boglehead

rayson
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Re: Can we afford a house of 600-700k?

Post by rayson » Tue Apr 03, 2018 9:39 am

You can definitely afford it. Just make sure you budget in for increase in utilities, taxes, home improvement expenses, etc. Good luck!

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 9:43 am

It's just very scary because I grew up in a rural town where the homes were mostly less than $100-150k, so $600-$700k seems insane to me.

soccerrules
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Re: Can we afford a house of 600-700k?

Post by soccerrules » Tue Apr 03, 2018 9:44 am

a few thoughts.
Your EF seems a little low for your situation and even more so when 2nd child comes and if you upgrade your house. I think you need more liquidity ($42K is not enough)

Your monthly expenses increase between $1300 - $1900/mo
$850 for Day care
$450-1050 new mortgage PITI

If there is not an additional $1300 in your budget NOW , then you might need to re-access your plans/budget or both. I would not support cutting back on your retirement contributions to increase your lifestyle. What are the chances of your income increasing over the next 2-4 years ?

It does look like you will pick up the $416/mo from car payment in 16-17 months - what about replacement cars In the future ?
Don't let your outflow exceed your income or your upkeep will be your downfall.

chevca
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Re: Can we afford a house of 600-700k?

Post by chevca » Tue Apr 03, 2018 9:47 am

Yes, you can afford that.

DW and I moved last year to upgrade and get away from a busy road and tiny yard. I totally understand those parts. Many like or handle those things fine. We couldn't stand it.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 9:53 am

soccerrules wrote:
Tue Apr 03, 2018 9:44 am
a few thoughts.
Your EF seems a little low for your situation and even more so when 2nd child comes and if you upgrade your house. I think you need more liquidity ($42K is not enough)
We also have $26k in a taxable investment account (that I included in the retirement savings number) that we could access if needed.
soccerrules wrote:
Tue Apr 03, 2018 9:44 am
If there is not an additional $1300 in your budget NOW , then you might need to re-access your plans/budget or both. I would not support cutting back on your retirement contributions to increase your lifestyle. What are the chances of your income increasing over the next 2-4 years ?
We could cut some from our budget, as we have had a little lifestyle creep and haven't been budgeting as closely as we used to. I expect our household income to basically increase about 2-5% per year, unless my wife becomes an owner in a practice or something like that.
soccerrules wrote:
Tue Apr 03, 2018 9:44 am
It does look like you will pick up the $416/mo from car payment in 16-17 months - what about replacement cars In the future ?
We will probably be looking to replace my 9-year old car around the time our other car payment goes away. It's got 97k miles on it. We could keep it longer if we had to. It hasn't needed any major repairs yet.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 9:54 am

chevca wrote:
Tue Apr 03, 2018 9:47 am
Yes, you can afford that.

DW and I moved last year to upgrade and get away from a busy road and tiny yard. I totally understand those parts. Many like or handle those things fine. We couldn't stand it.
Our road isn't like super busy, just busier than what I'd feel comfortable with, letting my kids play in the front yard by themselves in the future. People drive way faster than they should and aren't paying attention to kids.

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lthenderson
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Re: Can we afford a house of 600-700k?

Post by lthenderson » Tue Apr 03, 2018 9:55 am

Just estimating numbers, it definitely seems like retirement savings are going to have to go down significantly to afford the new house. With the proposed new mortgage payment, doubling your childcare bill, car payment and current retirement savings comes out to $111,000 per year. That leaves only $75k to pay your taxes and all your other expenses for the year. In a town where houses are selling for $600 to $700k is this doable?

chevca
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Re: Can we afford a house of 600-700k?

Post by chevca » Tue Apr 03, 2018 9:56 am

I'd pay off the car today. How much can you be earning on the savings to keep a $6k car loan around? Free up that monthly cash flow. Keep the old car longer.

GuyFromGeorgia
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Re: Can we afford a house of 600-700k?

Post by GuyFromGeorgia » Tue Apr 03, 2018 9:56 am

I was very much leaning no until I saw your current equity. financing 400-500k is just fine.

Beehave
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Re: Can we afford a house of 600-700k?

Post by Beehave » Tue Apr 03, 2018 10:39 am

bloom2708 wrote:
Tue Apr 03, 2018 9:34 am
With $200k down, $600k seems very doable. Pros seem worth it. Commute and schools are important.

Just be prepared to save less. Sometimes that is easier said than done if you are used to saving a high percentage.

Approved.
+1
A home in a solid neighborhood with good schools is a good investment -- one you can cash in at retirement with expected gains over time, or stay if you want. So you are not stopping saving for retirement if you re-direct some of your money away from 401k and into this home.

The two critical issues at your age are your children and your careers. If this home will statistically improve the chances of your children growing up happy and purposeful (because of the schools and the interests of their then-teenaged friends there), and if the home's location is quieter and closer to work so that you can more easily care for your childrens' needs and spend less time in traffic, it sounds like a plus all-around.

As for affordability, the old rule of thumb was to spend no more than 28% of income on housing. It looks to me as if you would be very safely under that. If that's right, this isn't even really a stretch and if the new home is in good condition with good neighbors and schools on a quiet street and if property taxes are not going up 20% per year (or whatever) and if the middle school and high school are also high quality - - - then I'd say go for it!

soccerrules
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Re: Can we afford a house of 600-700k?

Post by soccerrules » Tue Apr 03, 2018 10:50 am

Glockenspiel wrote:
Tue Apr 03, 2018 9:53 am
soccerrules wrote:
Tue Apr 03, 2018 9:44 am
a few thoughts.
Your EF seems a little low for your situation and even more so when 2nd child comes and if you upgrade your house. I think you need more liquidity ($42K is not enough)
We also have $26k in a taxable investment account (that I included in the retirement savings number) that we could access if needed.
soccerrules wrote:
Tue Apr 03, 2018 9:44 am
If there is not an additional $1300 in your budget NOW , then you might need to re-access your plans/budget or both. I would not support cutting back on your retirement contributions to increase your lifestyle. What are the chances of your income increasing over the next 2-4 years ?
We could cut some from our budget, as we have had a little lifestyle creep and haven't been budgeting as closely as we used to. I expect our household income to basically increase about 2-5% per year, unless my wife becomes an owner in a practice or something like that.
soccerrules wrote:
Tue Apr 03, 2018 9:44 am
It does look like you will pick up the $416/mo from car payment in 16-17 months - what about replacement cars In the future ?
We will probably be looking to replace my 9-year old car around the time our other car payment goes away. It's got 97k miles on it. We could keep it longer if we had to. It hasn't needed any major repairs yet.
Glock-
things to consider and think about for sure. I would say with a young active family and a full budget a little more liquidity might be valuable in case of a job loss/change.
I would focus on tightening the budget if you decide to move forward. I would keep the 9 year old car and then determine if you have additional budget to start savings for a replacement. Kids also become more expensive as they start doing kid activities. One benefit might be the $1700/mo in daycare reduced when they go off to school unless you are thinking private school is in the plans.
Best of luck to you and your family, it's a great time in life.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Watty
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Re: Can we afford a house of 600-700k?

Post by Watty » Tue Apr 03, 2018 11:11 am

Glockenspiel wrote:
Tue Apr 03, 2018 9:28 am
One kid (2) with another on the way in June.
The numbers look workable but I would wait until after the next baby is born and things settle down before even thinking of moving. In addition to the stress of moving it would be good to make sure that there are not any complications with the birth.

In your long term plans you need to also get out of the car loan habit and eventually get to the point where you are paying cash for your cars. Once you get a paid off car you can then save your "car payment" each month to be able to pay cash for your next car. In addition to saving some interest I find that I tend to buy less expensive cars when I pay cash and I tend to keep the prior car a bit longer so overall paying cash for cars saves me a lot more money.

If you can pay two thirds of a million dollars for a house you should be able to figure out a way to pay cash for your cars.

delamer
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Re: Can we afford a house of 600-700k?

Post by delamer » Tue Apr 03, 2018 11:11 am

You have a temporary situation of significant costs for child care. Not that your child care cost will disappear when your kids are school age, but they will certainly decline significantly.

So I’d look at your budget numbers with decreased child care costs, but with an addition for any saving you plan on doing for college.

If the numbers look comfortable to you in that case, then go for it. (I suspect they will.)

A shorter commute and better schools are worth a temporary cash squeeze. There was a point when our kids were young when both my spouse and I both were 1 hour away from them when we were at work. I took a lateral transfer to get about 25 minutes away; turned out to be a great decision.

juliewongferra
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Re: Can we afford a house of 600-700k?

Post by juliewongferra » Tue Apr 03, 2018 11:18 am

Glockenspiel wrote:
Tue Apr 03, 2018 9:28 am
Wife and I are both 33 years old. One kid (2) with another on the way in June.

Salaries and Assets: Household income: $186k (H: 82k W: 104k)

Savings: 42k.

Retirement Savings: 355k (currently contributing $46k per year to all accounts)

Equity in current home: ~$215k (not including future realtor’s fees)

Both of our jobs are in high demand (engineer and nurse practitioner)

Debts:

Current mortgage: 2.5% 15-year fixed rate with $175k remaining. Current monthly payment of $2,185/month PITI. We have about 9 years until this would be paid off.

Auto Loan: $6k remaining (payment of $416/month) at 1.9% interest

Pros of current home: neighborhood has lots of young families and we like our neighbors

Cons of current home: busier street than we’d like, smaller yard than we’d like, mediocre schools compared to adjacent school districts on the other side of the river, commute is a major river crossing that really bottlenecks up, we would like it if the rooms in our home were larger and if we had more storage space.

Background: We’d like to move to a house in a better school district in a better location for commuting. This would be our forever home until retirement. We aren’t big spenders. Our childcare costs are only about $850/month currently, but will double with the new baby. We currently save a lot of money and our current house payment is more than comfortable for us.

Questions:

1. With a $200k down payment, would you be comfortable with a new 30-year fixed rate loan on a home with a purchase price of $600-$700k? This would be a $400-$500k mortgage balance with a possible total PITI payment of $2,700 - $3,300 per month.

2. We could possibly wait ~2 years to buy but would prefer to be in the new school district before our oldest goes to Kindergarten in 2.5 years. Look to buy now or wait 2 years?
Hello!

Sure, maybe you can afford such a house, but do you need or want such as house? I see you have pros and cons of your current house, but think about the pros and cons of this 600-700k house. That should provide a clearer answer of whether you should go forward with the purchase.

cheers,
jwf

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 11:21 am

Watty wrote:
Tue Apr 03, 2018 11:11 am

If you can pay two thirds of a million dollars for a house you should be able to figure out a way to pay cash for your cars.
I totally understand. When we bought our last car, we would have had enough cash to pay for it, but in my head, a 1.9% loan was better because I could invest the cash and make more.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 11:24 am

delamer wrote:
Tue Apr 03, 2018 11:11 am

So I’d look at your budget numbers with decreased child care costs, but with an addition for any saving you plan on doing for college.
We currently don't plan to save anything for college ourselves, as my in-laws have been incredibly fortunate and have set up a $250k trust for the benefit of our kids' educations.

delamer
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Re: Can we afford a house of 600-700k?

Post by delamer » Tue Apr 03, 2018 11:32 am

Glockenspiel wrote:
Tue Apr 03, 2018 11:24 am
delamer wrote:
Tue Apr 03, 2018 11:11 am

So I’d look at your budget numbers with decreased child care costs, but with an addition for any saving you plan on doing for college.
We currently don't plan to save anything for college ourselves, as my in-laws have been incredibly fortunate and have set up a $250k trust for the benefit of our kids' educations.
Some families that I knew basically just flipped a switch so that any reduced day care costs got redirected into college savings. The money was baked into their budget, so they never missed it.

If you can redirect some of the day care costs to something else (like making up for temporarily reduced savings), then all the better.

My main point is that I wouldn’t make long-term decisions (buying a new home) based on a temporary financial situation (high cay care costs).

chevca
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Re: Can we afford a house of 600-700k?

Post by chevca » Tue Apr 03, 2018 11:40 am

Glockenspiel wrote:
Tue Apr 03, 2018 11:21 am
Watty wrote:
Tue Apr 03, 2018 11:11 am

If you can pay two thirds of a million dollars for a house you should be able to figure out a way to pay cash for your cars.
I totally understand. When we bought our last car, we would have had enough cash to pay for it, but in my head, a 1.9% loan was better because I could invest the cash and make more.
The $42k in cash savings isn't invested, right? Not a crushing decision, but it has likely been a little worse to keep all that cash on hand and a monthly car payment around. Savings accounts pay little to nothing and you pay tax on the little money you do make there.... Pay that off and be done with it, IMO.

gotester2000
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Re: Can we afford a house of 600-700k?

Post by gotester2000 » Tue Apr 03, 2018 12:51 pm

juliewongferra wrote:
Tue Apr 03, 2018 11:18 am
Glockenspiel wrote:
Tue Apr 03, 2018 9:28 am
Wife and I are both 33 years old. One kid (2) with another on the way in June.

Salaries and Assets: Household income: $186k (H: 82k W: 104k)

Savings: 42k.

Retirement Savings: 355k (currently contributing $46k per year to all accounts)

Equity in current home: ~$215k (not including future realtor’s fees)

Both of our jobs are in high demand (engineer and nurse practitioner)

Debts:

Current mortgage: 2.5% 15-year fixed rate with $175k remaining. Current monthly payment of $2,185/month PITI. We have about 9 years until this would be paid off.

Auto Loan: $6k remaining (payment of $416/month) at 1.9% interest

Pros of current home: neighborhood has lots of young families and we like our neighbors

Cons of current home: busier street than we’d like, smaller yard than we’d like, mediocre schools compared to adjacent school districts on the other side of the river, commute is a major river crossing that really bottlenecks up, we would like it if the rooms in our home were larger and if we had more storage space.

Background: We’d like to move to a house in a better school district in a better location for commuting. This would be our forever home until retirement. We aren’t big spenders. Our childcare costs are only about $850/month currently, but will double with the new baby. We currently save a lot of money and our current house payment is more than comfortable for us.

Questions:

1. With a $200k down payment, would you be comfortable with a new 30-year fixed rate loan on a home with a purchase price of $600-$700k? This would be a $400-$500k mortgage balance with a possible total PITI payment of $2,700 - $3,300 per month.

2. We could possibly wait ~2 years to buy but would prefer to be in the new school district before our oldest goes to Kindergarten in 2.5 years. Look to buy now or wait 2 years?
Hello!

Sure, maybe you can afford such a house, but do you need or want such as house? I see you have pros and cons of your current house, but think about the pros and cons of this 600-700k house. That should provide a clearer answer of whether you should go forward with the purchase.

cheers,
jwf
I agree. Financially I see no issue.

OP,

What was the thought behind buying the current house that changed in just 6 years?
Education and commute are worthwhile reasons to upgrade but are they that bad is the point to think upon?

I have tried to give the best to my kids but after some time I realized that what you think as a necessity - the kids dont care about it so much.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 1:11 pm

gotester2000 wrote:
Tue Apr 03, 2018 12:51 pm

I agree. Financially I see no issue.

OP,

What was the thought behind buying the current house that changed in just 6 years?
Education and commute are worthwhile reasons to upgrade but are they that bad is the point to think upon?

I have tried to give the best to my kids but after some time I realized that what you think as a necessity - the kids dont care about it so much.
We bought the house in 2010 to take advantage of the "first-time homebuyer's $8,000 tax credit". In 2012, we refinanced to a 2.5% 15-year fixed rate loan to reduce our interest rate by 2.00%. When we originally bought, we WERE looking in our desired area, but bought this house because we could get more for our money. The education and commute aren't THAT bad, no. My commute is currently only 20-30 minutes depending on traffic. The schools also aren't THAT bad and are probably better than what I grew up with. We would just like better schools to set our kids on the best path we can. We could possibly find a home for $500k and fix it up to our standards, and still get our ideal location/street/lot. A lot to think about.

Would it be better to definitely wait 2 years before deciding?

chevca
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Re: Can we afford a house of 600-700k?

Post by chevca » Tue Apr 03, 2018 1:16 pm

Tough to say if it would be better to definitely wait. The housing market could go up or down. Mortgage rates could keep going up, hold steady, or go back down. I tend to think, buy when you're ready.

I wouldn't drop to $500k and plan to fix up just to save some money. You likely wouldn't by the time the fixing up was over. Buy what you want, so you don't have projects and messes all the time with young kids around. If you're going to upgrade, do it right and get what you want, IMO.

Jags4186
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Re: Can we afford a house of 600-700k?

Post by Jags4186 » Tue Apr 03, 2018 1:33 pm

Are you okay with having $5000/mo of fixed expenses ($3300 mortgage + $1700 daycare)? That’s likely 50%+ of your takehome pay. Any chance your wife would want to stay home for a year when baby 2 comes along? You can’t afford the house on your salary alone. You’re committed to two incomes—and wife going back to work as soon as her 8/12 weeks materinity is up.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 1:38 pm

In 2 years, if the housing market stays the same (not increasing or decreasing), we'll have $250k in home equity instead of $215k, and we would be dropping the cost of one daycare payment as our son goes to kindergarten (though would likely have some aftercare or activity costs). Would that make the decision easier?

gotester2000
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Re: Can we afford a house of 600-700k?

Post by gotester2000 » Tue Apr 03, 2018 1:41 pm

Glockenspiel wrote:
Tue Apr 03, 2018 1:11 pm
gotester2000 wrote:
Tue Apr 03, 2018 12:51 pm

I agree. Financially I see no issue.

OP,

What was the thought behind buying the current house that changed in just 6 years?
Education and commute are worthwhile reasons to upgrade but are they that bad is the point to think upon?

I have tried to give the best to my kids but after some time I realized that what you think as a necessity - the kids dont care about it so much.
We bought the house in 2010 to take advantage of the "first-time homebuyer's $8,000 tax credit". In 2012, we refinanced to a 2.5% 15-year fixed rate loan to reduce our interest rate by 2.00%. When we originally bought, we WERE looking in our desired area, but bought this house because we could get more for our money. The education and commute aren't THAT bad, no. My commute is currently only 20-30 minutes depending on traffic. The schools also aren't THAT bad and are probably better than what I grew up with. We would just like better schools to set our kids on the best path we can. We could possibly find a home for $500k and fix it up to our standards, and still get our ideal location/street/lot. A lot to think about.

Would it be better to definitely wait 2 years before deciding?
I would definitely wait for 2 years as I do not see the need to atleast immediately upgrade. Coupled with that is that you are expecting your second child - not sure how much time your wife is going to take off and the financial impact of it.
You can save more and think about it in 2 years.

Jags4186
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Re: Can we afford a house of 600-700k?

Post by Jags4186 » Tue Apr 03, 2018 1:43 pm

Glockenspiel wrote:
Tue Apr 03, 2018 1:38 pm
In 2 years, if the housing market stays the same (not increasing or decreasing), we'll have $250k in home equity instead of $215k. Would that make the decision easier?
You need to take a look at 1 years spending—do you keep track in Quicken or Mint? See what you truly have spent over the course of year, accounting for irregular expenses such as: birthday/christmas gifts, car repairs, maintenance, registration, irregular shopping, all annual/semi annual insurance premiums, vacations, etc. etc. Once you have that number, then you can subtract it from your total income, and it will give you what your average monthly surplus is. Then you can budget for your new mortgage/increased childcare off of that.

To give you an example, our fixed monthly reoccuring expenses (including things like gas, groceries, eating out, etc.) was only 65% of our annual expenses. I think most people vastly underestimate the cost of non reoccuring monthly expenses.

Texanbybirth
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Re: Can we afford a house of 600-700k?

Post by Texanbybirth » Tue Apr 03, 2018 1:52 pm

I'm leaning heavily toward no you can't afford the house. Without knowing more about your spending, I'd hate to see your awesome retirement savings rate decline, which it certainly would have to. I sympathize with your "cons" of your current house, but how long have y'all been looking for a new home? You're 9 years away from a paid-for house and it sounds like y'all are doing really well financially. I would also say that $600k - $700k is a wide range at your income. You could make your current situation work on one income, say for whatever reason, but not this proposed situation. Are you able to save and accumulate a larger down payment? Are there houses in the $500k price range? That's the upper-end of price range I'd consider safe for your current situation.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 1:59 pm

Texanbybirth wrote:
Tue Apr 03, 2018 1:52 pm
I'm leaning heavily toward no you can't afford the house. Without knowing more about your spending, I'd hate to see your awesome retirement savings rate decline, which it certainly would have to. I sympathize with your "cons" of your current house, but how long have y'all been looking for a new home? You're 9 years away from a paid-for house and it sounds like y'all are doing really well financially. I would also say that $600k - $700k is a wide range at your income. You could make your current situation work on one income, say for whatever reason, but not this proposed situation. Are you able to save and accumulate a larger down payment? Are there houses in the $500k price range? That's the upper-end of price range I'd consider safe for your current situation.
We've just casually been looking online without a realtor. We're leaning towards waiting 2 years and then re-analyzing the situation. Yes, we would be able to save and accumulate a larger down payment. Yes, there ARE other houses in the $400-500k range, but that would be a house that is "worse" than ours, just a better location/schools.

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 2:06 pm

Jags4186 wrote:
Tue Apr 03, 2018 1:43 pm

You need to take a look at 1 years spending—do you keep track in Quicken or Mint?
I used to. Then Quicken decided to suck and I didn't want to keep paying for it. And once we had our son, it became less of a priority for me.

Texanbybirth
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Re: Can we afford a house of 600-700k?

Post by Texanbybirth » Tue Apr 03, 2018 2:26 pm

You also admitted to lifestyle creep. It's easy in your situation, and not necessarily a bad thing with your financials. However, you would need to seriously tighten your collective belts if you did move forward with a mortgage of that size. It might mean a candid family conversation about current and future expectations.

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Re: Can we afford a house of 600-700k?

Post by Meg77 » Tue Apr 03, 2018 2:39 pm

You can afford it, but I'd stay put for another year or two until your oldest is ACTUALLY ready to start school. The only kicker might be if your commute would go from horrible to reasonably with a move. But so many people upgrade homes years before they "need" to and spend those years paying the increased property taxes, mortgage interest, utility bills, etc. well before they actually "need" the extra space or school districts. You have a crazy cheap mortgage and besides, you like your neighbors. Enjoy that while you can; you never know what kind of neighbors you will end up with even if you move to a nicer house/neighborhood.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: Can we afford a house of 600-700k?

Post by soccerrules » Tue Apr 03, 2018 2:52 pm

Glockenspiel wrote:
Tue Apr 03, 2018 1:59 pm
Texanbybirth wrote:
Tue Apr 03, 2018 1:52 pm
I'm leaning heavily toward no you can't afford the house. Without knowing more about your spending, I'd hate to see your awesome retirement savings rate decline, which it certainly would have to. I sympathize with your "cons" of your current house, but how long have y'all been looking for a new home? You're 9 years away from a paid-for house and it sounds like y'all are doing really well financially. I would also say that $600k - $700k is a wide range at your income. You could make your current situation work on one income, say for whatever reason, but not this proposed situation. Are you able to save and accumulate a larger down payment? Are there houses in the $500k price range? That's the upper-end of price range I'd consider safe for your current situation.
We've just casually been looking online without a realtor. We're leaning towards waiting 2 years and then re-analyzing the situation. Yes, we would be able to save and accumulate a larger down payment. Yes, there ARE other houses in the $400-500k range, but that would be a house that is "worse" than ours, just a better location/schools.
I think this is a wise decision to wait at least 2 years. FYI although Kindergarten is a child's first real school experience, many are 2-3 day programs or 1/2 days. To be honest most public school K programs are structured play time.
Come back in 2 years and keep us posted.
Keep the retirement savings up, your 50 year old self will be very thankful.
Don't let your outflow exceed your income or your upkeep will be your downfall.

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Watty
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Re: Can we afford a house of 600-700k?

Post by Watty » Tue Apr 03, 2018 2:54 pm

Another factor in favor of waiting is that school boundaries often change and school may change for the better or worse.

You could end up buying only to have the school boundaries change and have your kid end up going to a different school than you expected.

If new subdivisions or apartment complexes are being built then that could also mean that the school would be more crowed than expected.

cherijoh
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Re: Can we afford a house of 600-700k?

Post by cherijoh » Tue Apr 03, 2018 4:14 pm

Glockenspiel wrote:
Tue Apr 03, 2018 9:28 am
Wife and I are both 33 years old. One kid (2) with another on the way in June.

Salaries and Assets: Household income: $186k (H: 82k W: 104k)

Savings: 42k.

Retirement Savings: 355k (currently contributing $46k per year to all accounts)

Equity in current home: ~$215k (not including future realtor’s fees)

Both of our jobs are in high demand (engineer and nurse practitioner)

Debts:

Current mortgage: 2.5% 15-year fixed rate with $175k remaining. Current monthly payment of $2,185/month PITI. We have about 9 years until this would be paid off.

Auto Loan: $6k remaining (payment of $416/month) at 1.9% interest

Pros of current home: neighborhood has lots of young families and we like our neighbors

Cons of current home: busier street than we’d like, smaller yard than we’d like, mediocre schools compared to adjacent school districts on the other side of the river, commute is a major river crossing that really bottlenecks up, we would like it if the rooms in our home were larger and if we had more storage space.

Background: We’d like to move to a house in a better school district in a better location for commuting. This would be our forever home until retirement. We aren’t big spenders. Our childcare costs are only about $850/month currently, but will double with the new baby. We currently save a lot of money and our current house payment is more than comfortable for us.

Questions:

1. With a $200k down payment, would you be comfortable with a new 30-year fixed rate loan on a home with a purchase price of $600-$700k? This would be a $400-$500k mortgage balance with a possible total PITI payment of $2,700 - $3,300 per month.

2. We could possibly wait ~2 years to buy but would prefer to be in the new school district before our oldest goes to Kindergarten in 2.5 years. Look to buy now or wait 2 years?
So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.

You can't access your entire home equity with a HELOC - probably only about $137K if house is worth $390K and current mortgage balance is $175K [0.8*390 - 175]. With only $42K in cash you are going to come up well short of $200k. Plus there is usually closing costs that must be paid at closing like funding your escrow account. That could easily cause a temporary cash flow issue if you cut it as tight as it looks like you would be doing.

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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 4:23 pm

cherijoh wrote:
Tue Apr 03, 2018 4:14 pm

So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.
Yes. I was planning on the majority of our $200k down payment to come from equity in our current house. Isn't that the way most people do it? I was thinking we could do something like sell our house and rent it back from someone or buy a house and rent it back while ours sells. I'm not well-versed in the tricks of the trade when buying and selling at the same time.

cherijoh
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Re: Can we afford a house of 600-700k?

Post by cherijoh » Tue Apr 03, 2018 4:51 pm

Glockenspiel wrote:
Tue Apr 03, 2018 4:23 pm
cherijoh wrote:
Tue Apr 03, 2018 4:14 pm

So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.
Yes. I was planning on the majority of our $200k down payment to come from equity in our current house. Isn't that the way most people do it? I was thinking we could do something like sell our house and rent it back from someone or buy a house and rent it back while ours sells. I'm not well-versed in the tricks of the trade when buying and selling at the same time.
I wouldn't want to count on the buyer being willing to rent the house back to you while you wait for the new house to become available. What is their incentive?

You just said you need the money from selling your house for the down payment, so buying a house before yours sells isn't going to work.

You might need to sell first, put your stuff in storage and go to an extended stay hotel or couch surf with friends. The latter is probably not a good option with a toddler. Another option is to sell now, go to an apartment while you look for a house. Or save up a lot more money so that you can cover the down payment on the new home with cash and HELOC on current house.

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celia
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Re: Can we afford a house of 600-700k?

Post by celia » Tue Apr 03, 2018 4:57 pm

Watty wrote:
Tue Apr 03, 2018 2:54 pm
Another factor in favor of waiting is that school boundaries often change and school may change for the better or worse.

You could end up buying only to have the school boundaries change and have your kid end up going to a different school than you expected.
Yes, but OP is thinking of moving across the river to a different SCHOOL DISTRICT. School District boundaries rarely change as it often takes a vote of the voters (ie, taxpayers) since their money would be going to a different district. The state would also have to approve it. This is not the same as an over-crowded school having their boundary moved within the same school district a few streets over. The district controls that according to the overall district needs.

My concern for the OP is if one of them should be injured and out of work for a year. Although some child care might disappear temporarily, would they be able to handle that financially? (A relative fell and broke her arm last year and couldn't drive or fix food or dress herself. As it was almost healed, she went for a walk but the cast made her weight be off-balance. She then fell due to the shift of weight and broke the other arm. (Disability claims and doctors were a mess since the first break was work related but the second one wasn't.)

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Re: Can we afford a house of 600-700k?

Post by Jags4186 » Tue Apr 03, 2018 4:59 pm

Glockenspiel wrote:
Tue Apr 03, 2018 4:23 pm
cherijoh wrote:
Tue Apr 03, 2018 4:14 pm

So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.
Yes. I was planning on the majority of our $200k down payment to come from equity in our current house. Isn't that the way most people do it? I was thinking we could do something like sell our house and rent it back from someone or buy a house and rent it back while ours sells. I'm not well-versed in the tricks of the trade when buying and selling at the same time.
I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.

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Re: Can we afford a house of 600-700k?

Post by KlangFool » Tue Apr 03, 2018 5:10 pm

Jags4186 wrote:
Tue Apr 03, 2018 4:59 pm
Glockenspiel wrote:
Tue Apr 03, 2018 4:23 pm
cherijoh wrote:
Tue Apr 03, 2018 4:14 pm

So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.
Yes. I was planning on the majority of our $200k down payment to come from equity in our current house. Isn't that the way most people do it? I was thinking we could do something like sell our house and rent it back from someone or buy a house and rent it back while ours sells. I'm not well-versed in the tricks of the trade when buying and selling at the same time.
I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.
Jags4186,

There is another 24K in the taxable account. So, the number is slightly better.

KlangFool

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celia
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Re: Can we afford a house of 600-700k?

Post by celia » Tue Apr 03, 2018 5:12 pm

Glockenspiel wrote:
Tue Apr 03, 2018 4:23 pm
cherijoh wrote:
Tue Apr 03, 2018 4:14 pm

So where is this $200K down payment going to come from? Trying to close on two houses simultaneously is a nightmare, but it looks like you definitely need the equity in current house for the down payment on the new house.
Yes. I was planning on the majority of our $200k down payment to come from equity in our current house. Isn't that the way most people do it? I was thinking we could do something like sell our house and rent it back from someone or buy a house and rent it back while ours sells. I'm not well-versed in the tricks of the trade when buying and selling at the same time.
I would guess that maybe half of the home sales have a contingency regarding the other house they are buying or selling. For example, we agree to buy your house as long as our old house, which is currently listed, buys or sells before or at the same time as yours. For the house you are selling, you can put a contingency in there that you may occupy the house for free up to a month or so after closing. Our neighbors just did this (and they weren't even buying another house). I also knew someone who was buying a house in which 8 houses were scheduled to close all on the same day. All 8 transactions were done by the same escrow office.
House 1 could only close after House 2 did (which was owned by the people buying House 1).
House 2 could only close after House 3 did (which was owned by the people buying House 2). etc

So House 8 which was being bought by someone who wasn't selling a house had to close first, then House 7, House 6, etc. Amazingly, all the properties closed on the same day a few minutes (an hour?) after each other. I think they sent a person to the recording office to call escrow as each house closed.

Jason622
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Re: Can we afford a house of 600-700k?

Post by Jason622 » Tue Apr 03, 2018 5:22 pm

I approve 500k house.

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Cycle
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Re: Can we afford a house of 600-700k?

Post by Cycle » Tue Apr 03, 2018 5:30 pm

You can afford it, well not really since you're having to borrow money for it and pay interest for the luxury of living in that which you can't afford, but yeah you can cover the payments and get by. Just be crystal clear with what you are exchanging for this house in terms of delayed financial Independence and what comes with FI.

How much per hour of time saved is the new house going to cost you? That's an eye opener sometimes, one way or the other.

Consider getting rid of stuff before looking for more space to store stuff. Having limited storage space will save u money, and open up options for cheaper houses in this more desirable neighborhood.

I'd wait until the last possible moment to move, but your reasons to move sound very logical so I hope you find something that still allows for prodigious accumulation of wealth.

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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 5:34 pm

Jags4186 wrote:
Tue Apr 03, 2018 4:59 pm

I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.
This is not even close to accurate. We’ve lived in the house 8 years. In that time we’ve dramatically increased our retirement savings rate, and have been contributing to a taxable account in order to keep our amount in savings accounts lower.

portlandia1
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Re: Can we afford a house of 600-700k?

Post by portlandia1 » Tue Apr 03, 2018 5:53 pm

I was really expecting Klang Fool to say no, but he threw us a curveball. :wink:

I would not be comfortable with a mortgage requiring both incomes to make ends meet, but I'm obviously more conservative than most (though I thought less so than Klang Fool :? ) Even a temporary job loss or disability could become a major financial catastrophe with the larger fixed expenses.

If you do decide to buy, would recommend waiting at least 2 years, possibly more before purchasing.

Good luck!

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TxAg
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Re: Can we afford a house of 600-700k?

Post by TxAg » Tue Apr 03, 2018 6:25 pm

I'd stay put for 5 years or so. Ramp up the savings as much as possible in that time!! When your kids are small you don't need much room or much yard. And how much storage does a family really need?....it's fun to donate old stuff.

Regarding elementary school, I suspect your kiddo will do great if he/she has support at home. I'm sure someone will come along and argue with me, but there's no rush for a better school district.

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Re: Can we afford a house of 600-700k?

Post by KlangFool » Tue Apr 03, 2018 6:44 pm

Glockenspiel wrote:
Tue Apr 03, 2018 5:34 pm
Jags4186 wrote:
Tue Apr 03, 2018 4:59 pm

I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.
This is not even close to accurate. We’ve lived in the house 8 years. In that time we’ve dramatically increased our retirement savings rate, and have been contributing to a taxable account in order to keep our amount in savings accounts lower.
Glockenspiel,

1) So, what is your annual saving? Beyond the 46K, how much more do you save?

2) What is your current annual expense?

KlangFool

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Cycle
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Re: Can we afford a house of 600-700k?

Post by Cycle » Tue Apr 03, 2018 6:45 pm

Glockenspiel wrote:
Tue Apr 03, 2018 5:34 pm

This is not even close to accurate. We’ve lived in the house 8 years. In that time we’ve dramatically increased our retirement savings rate, and have been contributing to a taxable account in order to keep our amount in savings accounts lower.
If you like the way increasing your savings felt, consider paying off your car and house. Since we became debt free, our savings rate went through the stratosphere. Since our annual spending is low, we are technically FI with 3% SAWR at age 34/35, and so if both my wife and I were to get laid off, it would just be a nice sabbatical and not some stressful period of our lives.

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Re: Can we afford a house of 600-700k?

Post by Jags4186 » Tue Apr 03, 2018 6:55 pm

Glockenspiel wrote:
Tue Apr 03, 2018 5:34 pm
Jags4186 wrote:
Tue Apr 03, 2018 4:59 pm

I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.
This is not even close to accurate. We’ve lived in the house 8 years. In that time we’ve dramatically increased our retirement savings rate, and have been contributing to a taxable account in order to keep our amount in savings accounts lower.
You are correct I made a mistake.

You saved 42k cash plus $26k taxable in 8 years. Thats $708/mo. You can’t spend retirement savings to live now, so your monthly excess is $708/mo. Are you proposing cutting back your retirement savings? $46,000 is 25% of your annual income towards retirement. A healthy savings rate but do you really want to go below that? Does the $46k you save every year include employer match or exclude? If it includes it, how much are you putting towards it? If you excluded it how much do your employers contribute?

Glockenspiel
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Re: Can we afford a house of 600-700k?

Post by Glockenspiel » Tue Apr 03, 2018 7:06 pm

Jags4186 wrote:
Tue Apr 03, 2018 6:55 pm
Glockenspiel wrote:
Tue Apr 03, 2018 5:34 pm
Jags4186 wrote:
Tue Apr 03, 2018 4:59 pm

I guess the main issue is...you've lived in your current home for 6 years and as of today you have $42,000 in non retirement money. Assuming you started with $0 that means you only have $583/mo excess. How do you propose to increase your mortgage payment by roughly $1000/mo when you only have $583/mo extra? In fact, how do you propose to pay for daycare #2 since that will cost another $850/mo? You might need to refinance your current house to a 30 year in order to afford the 2nd child...never mind upgrading home.
This is not even close to accurate. We’ve lived in the house 8 years. In that time we’ve dramatically increased our retirement savings rate, and have been contributing to a taxable account in order to keep our amount in savings accounts lower.
You are correct I made a mistake.

You saved 42k cash plus $26k taxable in 8 years. Thats $708/mo. You can’t spend retirement savings to live now, so your monthly excess is $708/mo. Are you proposing cutting back your retirement savings? $46,000 is 25% of your annual income towards retirement. A healthy savings rate but do you really want to go below that? Does the $46k you save every year include employer match or exclude? If it includes it, how much are you putting towards it? If you excluded it how much do your employers contribute?
In that time we also cash-flowed my wife’s $40k grad school program to increase her pay by 45k per year, cash-flowed a $35k basement finish to increase our home equity, and increased our household income from $100k to $186k.

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