$1 million house--- sanity check

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DS1986
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$1 million house--- sanity check

Post by DS1986 » Tue Jun 26, 2018 11:45 am

Well actually, a $950,000 house. I had no plans of moving until this incredible deal popped up in our neighborhood where we want to stay living forever. We live in an increasingly HCOL area in NorCal. Some quick details on our situation.

-My wife (29 years old) and I (31 years old) have no kids, but planning on them very soon.
-Household Income: 430K (Spouse and I are both dentists, stable income, likely mild increases every year)
-Retirement: 320K
-Cash: 30K in bank account and online MM
-Mortgage: 450K (400K at 3.75%, 50K at prime). 100K equity, Zillow estimate is $675K
-Student Loans: 85K at 3.125%, have been paying this down super aggressively
-No other debt.
-Monthly expenses including mortgage: 9K (we're young with no kids, most of our big expenses go toward traveling around the world while we can! So this number can easily go down)
-Monthly take home is around 21K after maxing 401Ks. All left over $ goes toward student loans and Index funds.

Even at low estimates for the sale of our house, we should have enough to cover the down payment without dipping into any other accounts. The only increase will be the mortgage. Rough estimates are around 5K a month. I currently pay $3500 a month as I'm paying extra toward the second mortgage (I did a piggyback loan, with the second interest-only mortgage at the prime interest rate). My wife and I both max out 401K and backdoor Roths, and I still save a good amount each month. We essentially live on one income as I cover all expenses while my wife puts her entire paycheck towards the student loans. I feel like the increase in monthly mortgage is very doable, especially once my wife is done paying $10K a month toward her loans. I understand house maintenance costs go up as well.

The reason I'm even considering this is that the prices are going out of control in our neighborhood, and we currently live in a 1500 sq ft house. This new house is 3000 sq ft and the lot is twice the size as well. We would never have to move again. If we wait until we have a few kids, this house will be $1.5 million. The price per sq ft on this house is $150 less than all other houses. I'm not sure we could afford to live in this size house ever again unless we act now. Basically, with the sale of our current house, the only change would be paying an extra $1500 a month toward the mortgage.

Is this crazy? What am I not considering? Any other numbers that I haven't listed that I should be putting here? Thank you for any advice and help!

Miguelito
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Re: $1 million house--- sanity check

Post by Miguelito » Tue Jun 26, 2018 12:30 pm

Your situation reminds me a bit of ours a year ago. We were young and starting out in good careers but didn't have a lot of (any) wealth yet. We didn't make what you make, but knew our income would go up by a good amount over the years. Your income is already very high.

Most people here would be right to tell you you should wait and use your very high income to quickly amass a healthy down payment. You would be quite leveraged on that new house.

That said, your income certainly supports the mortgage. It's a matter of risk, job stability, etc.

The big risk here is children. If your wife decides to or is "forced to" stay at home (medical reasons due to her or the babie(s)), can you swing that budget alone?

3000ft is not that big a house, but still, watch for taxes, maintenance, utilites, etc. Also, realize that with your income, you may not be that patient to suitably furnish your house. And that can be big dollars, if you go premium.
Same goes for child care on multiple children in a HCOLA. Take some Tums before you look up that cost.

You guys are young and make a lot of money, and in not may years, provided you continue to make close to what you make now, you are likely to afford and have all of the above. But if you rush it, you could expose yourself to a lot of risk.

FlyAF
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Re: $1 million house--- sanity check

Post by FlyAF » Tue Jun 26, 2018 12:39 pm

My biggest concern would be why the house is priced so far below market. That's not normal.

wilked
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Re: $1 million house--- sanity check

Post by wilked » Tue Jun 26, 2018 12:41 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
The reason I'm even considering this is that the prices are going out of control in our neighborhood, and we currently live in a 1500 sq ft house. This new house is 3000 sq ft and the lot is twice the size as well. We would never have to move again. If we wait until we have a few kids, this house will be $1.5 million. The price per sq ft on this house is $150 less than all other houses. I'm not sure we could afford to live in this size house ever again unless we act now. Basically, with the sale of our current house, the only change would be paying an extra $1500 a month toward the mortgage.

Is this crazy? What am I not considering? Any other numbers that I haven't listed that I should be putting here? Thank you for any advice and help!
Usually, if it looks too good to be true...it is

I think housing is a pretty efficient market. There are no real deals out there these days. If you are seeing a place that appears to be underpriced by 30% than I feel confident that there is a big reason, or that when offers are received the price will jump quickly to market-range

bloom2708
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Re: $1 million house--- sanity check

Post by bloom2708 » Tue Jun 26, 2018 12:47 pm

Borrowing another $500k is never a "deal".

Great incomes. Pay off your student loans. Save up for the next house so you have 20%+ down.

Many paths ahead, no need to jump to a near million dollar home on a whim. Just my 2 cents.

When in doubt refer to the quote: Don't just do something. Stand there. :wink:
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

FlyAF
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Re: $1 million house--- sanity check

Post by FlyAF » Tue Jun 26, 2018 1:07 pm

When people talk about lifestyle creep, this is a great example. Making near a half million a year, but still have almost 100k in student loans and itching to buy a million dollar home. Sure, you "can" afford it, but you shouldn't.

Texanbybirth
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Re: $1 million house--- sanity check

Post by Texanbybirth » Tue Jun 26, 2018 1:09 pm

No way. From a purely financial standpoint, you might be able to afford it, but you'll find yourselves cutting back on something before you know it. The house will come with all the extras: maintenance (who even knows why it's priced so far below the other houses on a per sq ft basis??), taxes, cleaning, utilities. You have pretty good numbers with two incomes, but that size mortgage (2x annual pay) would make me squeamish with plans for children on the horizon.

What if 5 years from now y'all have no kids (they're not guaranteed just because you "plan" for them), and you could have been saving/investing all this extra mortgage/stuff? 1500 sq ft is plenty for two (even three) people, so i'd revisit this plan when you've got one child and second one on the way. :beer

Glockenspiel
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Re: $1 million house--- sanity check

Post by Glockenspiel » Tue Jun 26, 2018 1:26 pm

From a financial standpoint, I think you can afford the mortgage. I don't live in NorCal, but it sounds like you've thought through most of the risks. It just depends if you want to. Bigger homes also have bigger maintenance/service costs. Also concerned about why it would be such a good deal? Is it like adjacent to a highway or something? Foundation problems? School district or crime problems? Was it fire-damaged? Idk. Agree with another's sentiment that housing is a pretty efficient market, and it's hard to find a house that is truly underpriced by 30%.

Do you want to live there forever? Would you ever consider moving to a lower COL? Where is your family located? Once you have kids, what if one of them ends up having special needs, and your wife is feeling pulled to stay at home? Will you still be able to afford it? Do you plan on having the kids attend private school?

seity
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Re: $1 million house--- sanity check

Post by seity » Tue Jun 26, 2018 1:37 pm

If you are only talking 1-2 kids, 1500 sq ft house is more than enough space. I'd be happy for a house that big for our family of 4. I think a 3000 sq ft house is obnoxiously big.

mega317
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Re: $1 million house--- sanity check

Post by mega317 » Tue Jun 26, 2018 1:48 pm

Texanbybirth wrote:
Tue Jun 26, 2018 1:09 pm
but that size mortgage (2x annual pay) would make me squeamish with plans for children on the horizon.
Talking strictly numbers, this is a very conservative view, especially in HCOL.

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Sandtrap
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Re: $1 million house--- sanity check

Post by Sandtrap » Tue Jun 26, 2018 1:51 pm

By the numbers?
Wait.
All other reasons?
Get it. (as long as you are prudent, it will work out in the long run anyway).
If it makes you and DW happy and brings quality of life and ambition to strive. Great.
j :D

DS1986
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Re: $1 million house--- sanity check

Post by DS1986 » Tue Jun 26, 2018 2:28 pm

Thanks for all the responses. Again, we definitely do not need this house now, we are just forward thinking and are afraid of not being able to afford it when we need it later on.

To answer some questions, I think the house is underpriced as it's not on one of the "nice streets" (meaning mostly >$1 mil homes) in the neighborhood and it's one of the first of the older homes on the street to be renovated and added on to. We don't care though because it's 1 story and unassuming from the front, you can hardly tell how far back it extends from the street. We currently don't live on one of the "nice streets" and are fine with it. The bigger size leading to increased furnishing and maintenance costs scare me a bit.

Yes kids aren't guaranteed, which is scary. As is some unforeseen medical issue causing one of us to not be able to work; luckily we both spend a ton on great disability plans.

We would live here forever with firmly established jobs and families in area, it's a very convenient location. Public school all the way for future kids.

If we waited 5 or more years, saved up, then purchased a similar home for 1.3 million (or any higher price), our mortgage payments would be higher. We could lock in the lower monthly payment now. This is assuming our home sale would cover the down payment in either scenario. Is there something wrong with this way of thinking? I appreciate all the advice/criticism.

lws
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Re: $1 million house--- sanity check

Post by lws » Tue Jun 26, 2018 2:54 pm

From experience, 3000 sq ft is too big for four.

ne2ca28
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Re: $1 million house--- sanity check

Post by ne2ca28 » Tue Jun 26, 2018 2:59 pm

DS1986 wrote:
Tue Jun 26, 2018 2:28 pm
If we waited 5 or more years, saved up, then purchased a similar home for 1.3 million (or any higher price), our mortgage payments would be higher. We could lock in the lower monthly payment now. This is assuming our home sale would cover the down payment in either scenario. Is there something wrong with this way of thinking? I appreciate all the advice/criticism.
With this way of thinking, you could assume any investment you make with the same amount of money could increase 20% and then you would be in just as fine a place to buy the house at 1.3M. I'm not saying you shouldn't consider the house, though. :D

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Pajamas
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Re: $1 million house--- sanity check

Post by Pajamas » Tue Jun 26, 2018 3:05 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
The reason I'm even considering this is that the prices are going out of control in our neighborhood. . . If we wait until we have a few kids, this house will be $1.5 million. . . . I'm not sure we could afford to live in this size house ever again unless we act now.
Classic bubble talk complete with the sense of urgency. BUY NOW BECAUSE PRICES CAN ONLY GO HIGHER!!!!

It's rarely if ever true. You had no plans of moving until you saw this house for sale cheap. That's what's known as an impulse buy.

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gunn_show
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Re: $1 million house--- sanity check

Post by gunn_show » Tue Jun 26, 2018 3:20 pm

The crux is somewhere between this answer
Sandtrap wrote:
Tue Jun 26, 2018 1:51 pm
Get it. (as long as you are prudent, it will work out in the long run anyway).
If it makes you and DW happy and brings quality of life and ambition to strive. Great.
j :D
and this answer
Texanbybirth wrote:
Tue Jun 26, 2018 1:09 pm
What if 5 years from now y'all have no kids (they're not guaranteed just because you "plan" for them), and you could have been saving/investing all this extra mortgage/stuff? 1500 sq ft is plenty for two (even three) people, so i'd revisit this plan when you've got one child and second one on the way. :beer
You cannot afford it on paper, because of the debt and low liquid savings. Can you afford it based on cash flow ($400k / yr !!!) and future earnings and savings? Absolutely, in fact if you couldn't, then most of us in CA would be renting. I make less than your combined income and am in contract on a house for more than this home you are discussing (I still make great income, and rolling substantial equity). That's the nature of CA RE right now, these responses still going by decades old 2x income are nuts. CA doesn't work that way. The math pencils out differently here, and yours is not bad. It's mostly about personal decisions than math, IMO.

And the Facebook era shines light on all the baby photos and newborns, but doesn't show those struggling to get pregnant, the IVF treatments, the folks that try and try and try and can never get there. I know a half dozen couples that would give a left arm to have a baby. It's terrible. We went through 2 MC's before having our baby girl last year. It is something you never hear or pay attention to, until you are in the game. So buying a house prematurely on "having kids and needing space" is certainly a huge gamble. Odds are it will pay off, and certainly you can afford to take almost any gamble you want within reason with your incomes and cost of living. Worst case you are DINKS living in a dope pad in a nice neighborhood. There are worse things for sure.
DS1986 wrote:
Tue Jun 26, 2018 2:28 pm
Thanks for all the responses. Again, we definitely do not need this house now, we are just forward thinking and are afraid of not being able to afford it when we need it later on.

We would live here forever with firmly established jobs and families in area, it's a very convenient location. Public school all the way for future kids.

If we waited 5 or more years, saved up, then purchased a similar home for 1.3 million (or any higher price), our mortgage payments would be higher. We could lock in the lower monthly payment now. This is assuming our home sale would cover the down payment in either scenario. Is there something wrong with this way of thinking? I appreciate all the advice/criticism.
Ultimately I think you are sold on it, and I would go for it if the math pencils out for you. I too am forward thinking, and in contract on a house larger than "we need" because we want another kid and a pool (and many other smaller less sexy reasons, mostly issues with current home). I think we too are getting a "good deal" on a house, in our desired "forever home neighborhood" and will grow into it. Our last move barring disaster. So for that, I say go for it if you love it and the math works for you. Ultimately, these threads are always extremely personal decisions in the end, and only you and your spouse can decide and have to live with the consequences.
"The best life hack of all is to just put the work in and never give up." Bas Rutten

FlyAF
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Re: $1 million house--- sanity check

Post by FlyAF » Tue Jun 26, 2018 3:32 pm

Seems like you've already made up your mind. You can afford it for now, but by doing so now, you expose yourself and all you have. 1 mildly serious health scare or job hiccup is all it might take to topple the house of cards and you lose it all. Wait a few years, build up your NW, pay down your student loans, then buy (even at a higher price) and those same issues become nothing more than annoying bump in the road.

I was in a similar situation and made the leap. It all worked out just like I drew it up in my head. It's only in hindsight that I realize how lucky and foolish I was.

JoeRetire
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Re: $1 million house--- sanity check

Post by JoeRetire » Tue Jun 26, 2018 3:37 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
Is this crazy?
Buying twice as much house when you don't yet need it isn't something I'd do.

Things change quickly. Where you are now may not be where you want to be when you eventually want more space down the road. Neighborhoods change, jobs change, likes change, families change, housing markets change.

In my experience, there's no such thing as a once-in-a-lifetime deal. When you really need one, you'll find another.

That said, it looks like you have already made up your mind. So good luck!
Last edited by JoeRetire on Tue Jun 26, 2018 3:45 pm, edited 4 times in total.

financeguy88
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Re: $1 million house--- sanity check

Post by financeguy88 » Tue Jun 26, 2018 3:37 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
Well actually, a $950,000 house. I had no plans of moving until this incredible deal popped up in our neighborhood where we want to stay living forever. We live in an increasingly HCOL area in NorCal. Some quick details on our situation.

-My wife (29 years old) and I (31 years old) have no kids, but planning on them very soon.
-Household Income: 430K (Spouse and I are both dentists, stable income, likely mild increases every year)
-Retirement: 320K
-Cash: 30K in bank account and online MM
-Mortgage: 450K (400K at 3.75%, 50K at prime). 100K equity, Zillow estimate is $675K
-Student Loans: 85K at 3.125%, have been paying this down super aggressively
-No other debt.
-Monthly expenses including mortgage: 9K (we're young with no kids, most of our big expenses go toward traveling around the world while we can! So this number can easily go down)
-Monthly take home is around 21K after maxing 401Ks. All left over $ goes toward student loans and Index funds.

Even at low estimates for the sale of our house, we should have enough to cover the down payment without dipping into any other accounts. The only increase will be the mortgage. Rough estimates are around 5K a month. I currently pay $3500 a month as I'm paying extra toward the second mortgage (I did a piggyback loan, with the second interest-only mortgage at the prime interest rate). My wife and I both max out 401K and backdoor Roths, and I still save a good amount each month. We essentially live on one income as I cover all expenses while my wife puts her entire paycheck towards the student loans. I feel like the increase in monthly mortgage is very doable, especially once my wife is done paying $10K a month toward her loans. I understand house maintenance costs go up as well.

The reason I'm even considering this is that the prices are going out of control in our neighborhood, and we currently live in a 1500 sq ft house. This new house is 3000 sq ft and the lot is twice the size as well. We would never have to move again. If we wait until we have a few kids, this house will be $1.5 million. The price per sq ft on this house is $150 less than all other houses. I'm not sure we could afford to live in this size house ever again unless we act now. Basically, with the sale of our current house, the only change would be paying an extra $1500 a month toward the mortgage.

Is this crazy? What am I not considering? Any other numbers that I haven't listed that I should be putting here? Thank you for any advice and help!
I wouldn’t do it personally but then again I’m more risk averse than most. Even with your stable income, which is a huge advantage that I agree you should leverage, I’d want to see you have more assets and at least a couple years of expenses saved up before making a purchase like that. If something happens to one of you where you can’t work you’ll be struggling to pay. If this happens in a down economy you may lose the house. I wouldn’t be so certain that the prices is going to be 50% higher when you have kids. California goes through steeper cycles than most places and it’s dangerous to assume it will only go up.

02nz
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Re: $1 million house--- sanity check

Post by 02nz » Tue Jun 26, 2018 3:59 pm

Buy it if you want, but you should re-examine your assumption that this is your one and only opportunity to buy a house like this. Hard to believe as it may be in your locale, the housing market will not go up, up, up forever uninterrupted. Oh, and even with a couple of kids you can live just fine in less than 3,000 sq ft. 99.99% of the world does.

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Cycle
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Re: $1 million house--- sanity check

Post by Cycle » Tue Jun 26, 2018 4:20 pm

lws wrote:
Tue Jun 26, 2018 2:54 pm
From experience, 3000 sq ft is too big for four.
+1, our duplex can easily accommodate two families of four. It's 2x 1000 sqft units. You'll end up filling that space with unnecessary stuff, which will unnecessarily delay your FI date.

We don't have enough junk to fill 1500 sqft

ne2ca28
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Re: $1 million house--- sanity check

Post by ne2ca28 » Tue Jun 26, 2018 4:33 pm

ne2ca28 wrote:
Tue Jun 26, 2018 2:59 pm
DS1986 wrote:
Tue Jun 26, 2018 2:28 pm
If we waited 5 or more years, saved up, then purchased a similar home for 1.3 million (or any higher price), our mortgage payments would be higher. We could lock in the lower monthly payment now. This is assuming our home sale would cover the down payment in either scenario. Is there something wrong with this way of thinking? I appreciate all the advice/criticism.
With this way of thinking, you could assume any investment you make with the same amount of money could increase 20% and then you would be in just as fine a place to buy the house at 1.3M. I'm not saying you shouldn't consider the house, though. :D
I would like to add that if you waited and the next house you wanted to buy in 5 years was in fact 1.3M, I'm assuming that would mean your current house is also likely 900k+, thus still in a good position to buy at that point because of the equity in your current home.

Ron Ronnerson
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Re: $1 million house--- sanity check

Post by Ron Ronnerson » Tue Jun 26, 2018 4:43 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am

If we wait until we have a few kids, this house will be $1.5 million...I'm not sure we could afford to live in this size house ever again unless we act now.

Is this crazy? What am I not considering? Any other numbers that I haven't listed that I should be putting here? Thank you for any advice and help!
How do you know what will happen in the future? For years, home prices kept going up and up in the Bay Area. Then, about 10 years ago, they fell. In parts of the Bay Area, they fell a lot.

You could be totally underestimating how much prices will go up. A home similar to the one you’re considering could be way higher than $1.5M by the time you have kids. Of course, such a house might cost a lot less by then too. You’re making a statement about what WILL happen even though it’s just a wild guess.

In any case, you can afford this house. I’m not sure you should buy it just yet, though. You’re counting future kids and house price appreciation before it’s time. I’d get out of the guessing game and just make prudent decisions based on how things stand now. If you want this house at the price that it’s at currently regardless of children or what prices might do in the future, then buy it. If those factors not yet known could affect your decision, then just wait. That’s my recommendation.

DS1986
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Re: $1 million house--- sanity check

Post by DS1986 » Tue Jun 26, 2018 4:51 pm

Yes, this house wasn't on my radar until yesterday. We don't have much liquid savings because we haven't been planning on saving for anything. This was unexpected. I needed to sound board my situation with smart financial gurus as a start. It's ultimately a personal decision based on my own circumstances, and I certainly understand that this is not a "Boglehead" purchase by any means. I also have not made up my mind, and I'm leaning toward no.

Much appreciated all the sound and reasonable advice given so far!

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Sasquatch
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Re: $1 million house--- sanity check

Post by Sasquatch » Tue Jun 26, 2018 5:08 pm

It would be a bit of an exercise but have you considered “backing into the equation” what I mean is when you want to retire and how much of an asset base you want to retire on. Also include any major financial life goals as well. Work backwards to see what your savings rate needs to be to hit that number then see how the new payment would fit into the equation. Just a thought.

Leemiller
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Re: $1 million house--- sanity check

Post by Leemiller » Tue Jun 26, 2018 8:06 pm

The seller would take a contingent offer? Because you have almost no cash. Personally, I think you need to knock out the debt and save up some cash.

randomguy
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Re: $1 million house--- sanity check

Post by randomguy » Tue Jun 26, 2018 8:18 pm

FlyAF wrote:
Tue Jun 26, 2018 1:07 pm
When people talk about lifestyle creep, this is a great example. Making near a half million a year, but still have almost 100k in student loans and itching to buy a million dollar home. Sure, you "can" afford it, but you shouldn't.
You are likely looking at something like 6 years of work between the two of them and the average dental school debt is something like 200k. Through in some undergrad and you could easily be looking at a 500k starting balance.

The house is definitely affordable. Heck it is even doable on 1 salary. Up to you if you want to spend the money on a house or something else.

OnTrack2020
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Re: $1 million house--- sanity check

Post by OnTrack2020 » Tue Jun 26, 2018 8:53 pm

I have never heard the words "incredible deal" and "$950,000 house" used in the same sentence. :shock:

Personally, I wouldn't do it. We have 4 kids (2 in college, but still here during summers) with a 1,900 sq. ft. home and sometimes it feels really large. When our older 2 are at college during the school year, it often feels like we need to downsize.

I would continue to pay off the student loan debt and save. You will still be pretty comfortable in your home with one child. Maybe reassess when a second child comes along; but even then 3,000 sq. ft. is a lot of room.

runner540
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Re: $1 million house--- sanity check

Post by runner540 » Tue Jun 26, 2018 9:04 pm

Pajamas wrote:
Tue Jun 26, 2018 3:05 pm
DS1986 wrote:
Tue Jun 26, 2018 11:45 am
The reason I'm even considering this is that the prices are going out of control in our neighborhood. . . If we wait until we have a few kids, this house will be $1.5 million. . . . I'm not sure we could afford to live in this size house ever again unless we act now.
Classic bubble talk complete with the sense of urgency. BUY NOW BECAUSE PRICES CAN ONLY GO HIGHER!!!!

It's rarely if ever true. You had no plans of moving until you saw this house for sale cheap. That's what's known as an impulse buy.
+1
Think about it this way: if 2 dentists making $400k can't afford a home in 5 years, then how many buyers are left to prop up prices? Sure, some folks who are equity rich with RSUs if the tech valuations hold up. But who else? My point is that you are in the top 1% and in your early 30s. If it gets to a point that you can't afford a home, the market is broken and irrational.

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Pajamas
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Re: $1 million house--- sanity check

Post by Pajamas » Tue Jun 26, 2018 9:16 pm

OnTrack2020 wrote:
Tue Jun 26, 2018 8:53 pm
I have never heard the words "incredible deal" and "$950,000 house" used in the same sentence. :shock:
In the SF Bay Area, the median price for a house is about that amount, $935 thousand:

https://www.sfgate.com/expensive-san-fr ... 024580.php

A decent, true one-bedroom apartment for under $1 million is rare around here (Manhattan). Most of the ones that are advertised for much less than that are really alcove studios with a jerry-rigged wall or else have some severe problem or problems such as views of an air shaft or being on the fourth floor of a walk-up.
runner540 wrote:
Tue Jun 26, 2018 9:04 pm
Think about it this way: if 2 dentists making $400k can't afford a home in 5 years, then how many buyers are left to prop up prices? Sure, some folks who are equity rich with RSUs if the tech valuations hold up. But who else? My point is that you are in the top 1% and in your early 30s. If it gets to a point that you can't afford a home, the market is broken and irrational.
In some counties in California, $117,400 is considered "low income" for a family of four, see article above. It doesn't seem sustainable and apparently tech companies are starting to realize it and diversify geographically. However, they are having a hard time finding suitable cities.

pennylane
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Re: $1 million house--- sanity check

Post by pennylane » Tue Jun 26, 2018 9:17 pm

Yea go for it. You can afford it.

$1500 a month extra in a home you will live in forever and be comfortable is a small price to pay. You both make more than enough.

Just don’t get crazy with increasing other expenses.

You’ll have bigger appreciation over 30 years on this home than you will on your existing and $1500 in your case will NOT break the bank. It’s a no brainer DO IT

Bacchus01
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Re: $1 million house--- sanity check

Post by Bacchus01 » Tue Jun 26, 2018 9:34 pm

lws wrote:
Tue Jun 26, 2018 2:54 pm
From experience, 3000 sq ft is too big for four.
Huh?

We have 5,400 for 5. Feels okay.

Bacchus01
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Re: $1 million house--- sanity check

Post by Bacchus01 » Tue Jun 26, 2018 9:36 pm

Seriously?

Yes, OP, you can afford it. We make about what you make, and with a family of 5, we carry loans on 3 properties that are about $900k total value. Our $4k/mo mortgages plus $1100/mo taxes are no major strain.

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Re: $1 million house--- sanity check

Post by Glockenspiel » Tue Jun 26, 2018 10:22 pm

In the end, I think you will end up fine and will not regret your decision. When my wife and I were 25 in 2010, we bought a $300k home on $105k annual income with 10% down payment and very little cash left over after closing. If one of us lost our jobs, yes we would have struggled to pay the mortgage. But since then, our income has increased by 75%, and the value of the home has increased 40%. It worked out well even though we lived in this 2200 sq ft home by ourselves for 5 years before having our first child. I say go for it, with the understanding that it will push back retirement a few years.

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Sasquatch
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Re: $1 million house--- sanity check

Post by Sasquatch » Tue Jun 26, 2018 10:23 pm

Pajamas wrote:
Tue Jun 26, 2018 3:05 pm
Classic bubble talk complete with the sense of urgency. BUY NOW BECAUSE PRICES CAN ONLY GO HIGHER!!!!
I have seen so many trucks for general contractors and trades vans lately in my area. So many new companies that have sprung up. The last time I saw it like this was 2006 :shock:

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Re: $1 million house--- sanity check

Post by PhilosophyAndrew » Tue Jun 26, 2018 10:57 pm

lws wrote:
Tue Jun 26, 2018 2:54 pm
From experience, 3000 sq ft is too big for four.
This is a highly personal matter, and one that is likely highly variable in the sense that many of us could probably adapt just fine to a wide variety of house sizes.

My family’s house is 2,800 square feet for three humans and three pets. My wife and I lived happily here before our child was born, and I imagine that we’ll I’ve happily here after she leaves home.

Andy.

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randomizer
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Re: $1 million house--- sanity check

Post by randomizer » Tue Jun 26, 2018 11:06 pm

Sounds like a lot of money to me, even if you think the price is good. I just can't imagine paying NorCal prices, even with a healthy income and stable industry like yours. Having said that, it seems you can afford it.
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Re: $1 million house--- sanity check

Post by 4Health » Tue Jun 26, 2018 11:09 pm

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
-Monthly take home is around 21K after maxing 401Ks. All left over $ goes toward student loans and Index funds.
Just curious how your take home is 21k month. Are you self employed and purchase your own benefits? We too live in NorCal, salary is higher than yours and we max out all our retirement accounts and our take home is $2k less than you. Have you had a full tax year with those salaries? Just be careful that you are withholding enough.

Missedtheboat
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Re: $1 million house--- sanity check

Post by Missedtheboat » Tue Jun 26, 2018 11:29 pm

Do it. Lots of these posters don't realize how high prices are in California. In SoCal on the Westside my daughter just bid 1,050,000 for a 1500 foot tear down. Got beat out by 26 other bids. Just as well as she didn't have the money to build a new house.

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Re: $1 million house--- sanity check

Post by Flyer24 » Tue Jun 26, 2018 11:55 pm

lws wrote:
Tue Jun 26, 2018 2:54 pm
From experience, 3000 sq ft is too big for four.
I think that is just personal preference. We lived in a 3000 sq ft house for 12 years with 2 kids. It never felt too big. Sometimes it was nice to have a little extra room just for sanity. Ha.

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Re: $1 million house--- sanity check

Post by 4nwestsaylng » Wed Jun 27, 2018 12:20 am

DS1986 wrote:
Tue Jun 26, 2018 2:28 pm
Thanks for all the responses. Again, we definitely do not need this house now, we are just forward thinking and are afraid of not being able to afford it when we need it later on.

To answer some questions, I think the house is underpriced as it's not on one of the "nice streets" (meaning mostly >$1 mil homes) in the neighborhood and it's one of the first of the older homes on the street to be renovated and added on to. We don't care though because it's 1 story and unassuming from the front, you can hardly tell how far back it extends from the street. We currently don't live on one of the "nice streets" and are fine with it. The bigger size leading to increased furnishing and maintenance costs scare me a bit.

Yes kids aren't guaranteed, which is scary. As is some unforeseen medical issue causing one of us to not be able to work; luckily we both spend a ton on great disability plans.

We would live here forever with firmly established jobs and families in area, it's a very convenient location. Public school all the way for future kids.

If we waited 5 or more years, saved up, then purchased a similar home for 1.3 million (or any higher price), our mortgage payments would be higher. We could lock in the lower monthly payment now. This is assuming our home sale would cover the down payment in either scenario. Is there something wrong with this way of thinking? I appreciate all the advice/criticism.
With all respect, you are too confident about your future. You absolutely cannot say you would live in the home forever, you have already said it is cheaper because it is not on one of the "nice" streets. That street may become even less "nice" over the years, you don't know. You say "public school all the way for future kids". Again, you don't know, the state of California public schools has gone down dramatically over the past few decades; I would not put my kids in them,my years in public school are probably now superior to most state colleges, we actually learned to read and write coherent essays!

Another thing- an older single story that does not look impressive from the front but is extended in the back for the square footage is not a good deal.
I don't care if they remodelled it with the best quart countertops and hardwood floors, it is a poor design in that price range. The 3000 sq ft of that design does not compare to a two story on a better street. It is not a good value at $950k compared to a better design on a better street at $1.5M.

You will likely not relocate unless you are currently employee dentists; I say pay off those student loans and all other debt and stay in the current house for now. Dave Ramsey is obnoxious but I have to agree with him on reducing debt. He is on KSFO 6-9pm in your area.

I think a bigger house is in the future but don't box yourself in with fixed thoughts now that you will never move and always use public schools, etc.
As the saying goes, there are too many "unknowable unknowables" at your stage in life.

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Re: $1 million house--- sanity check

Post by PhilosophyAndrew » Wed Jun 27, 2018 6:26 am

OP, I don’t recommend the emergence of a “deal” change your prior decision about when to purchase your first house. Instead, I would continue building your career, saving money, and paying off your debt.

I believe deferring this large purchase is appropriate for two reasons First, your careers may not unfold as you believe they will. Perhaps one or both of you will decide that dentistry is not for you. Perhaps one or both of you will decide that living in Northern California is not for you. Perhaps one of you will decide that leaving the work force to raise your kids is for you. Perhaps you will end up having fewer or more kids than you expect. Perhaps one of you will die or become unable to work Perhaps one of you will choose to reduce your earnings so you have more time to care for an ailing parent or a special needs child. Each of these possibilities is relevant either to your ability to afford the house you are considering or to the desirability of living in that specific house. Unless your current housing doesn’t meet your needs, I would defer entering the housing market until you are able to see if your careers develop as you imagine they will.

The second reason why your enthusiasm to pursue this “screaming deal” now gives me pause is that you haven’t given a compelling reason to believe that the house is not priced fairly. Why exactly is it priced so low? How confident are you that you understand this accurately and that you wouldn’t end up paying too much for a house with significant limitations that you didn’t fully understand? How do you know hat your future selves will be happy to live with those limitations? Given those limitations, will this house be difficult to sell if you need to move? Unless you are an expert in the housing market and are certain that you can answer these questions accurately, there seems to me a reasonable risk that letting excitement over “getting a deal” could lead you to a ba decision.

In sum, purchasing a house seems hasty and purchasing this specific house seems risky. Each of the issues I’ve raised can be overcome, but there are so many potential downfalls here that it seesms prudent to wait unless your housing status quo is unbearable, which doesn’t seem to be the case.

Andy.

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Re: $1 million house--- sanity check

Post by DanMahowny » Wed Jun 27, 2018 8:58 am

bloom2708 wrote:
Tue Jun 26, 2018 12:47 pm
Borrowing another $500k is never a "deal".

Great incomes. Pay off your student loans. Save up for the next house so you have 20%+ down.

Many paths ahead, no need to jump to a near million dollar home on a whim. Just my 2 cents.

When in doubt refer to the quote: Don't just do something. Stand there. :wink:
This is precisely what I wanted to say. But bloom2708 said it better than I would've.
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Re: $1 million house--- sanity check

Post by il0kin » Wed Jun 27, 2018 10:09 am

I know exactly how you feel as we went from a 1200 sq ft house to a 2500 sq foot house a few years ago. At the time it was 2x our income (130k at the time, 260k house). We have a toddler and another on the way. We traded the starter house in a barely OK school district for the forever house in the excellent school district. On one hand I am really glad we bought it when we did because prices have continued upwards and our house would likely sell for 300-320k now, but our old house would have sold for 30k more so it’s kind of a wash anyways.

If you weren’t looking last week and it’s an impulse buy, you don’t need it. Focus on getting loans all paid off and buffer up your savings more. We did that before selling and it eased my anxiety about a 30% higher monthly mortgage. We actually sold earlier than planned because a buyer i knew from school fell into our lap so there were no realtor costs.

I know exactly how you feel and I think you should wait until Kid #1 shows up. Don’t forget how expensive daycare is.

researcher
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Re: $1 million house--- sanity check

Post by researcher » Wed Jun 27, 2018 10:19 am

DS1986 wrote:
Tue Jun 26, 2018 11:45 am
The only increase will be the mortgage. Rough estimates are around 5K a month.
Basically, with the sale of our current house, the only change would be paying an extra $1500 a month toward the mortgage.
Is this crazy? What am I not considering? Any other numbers that I haven't listed that I should be putting here?
The new house is DOUBLE the size, and nearly DOUBLE the price.
Yet you think the only cost that will increase in the mortgage?

What about...
- Taxes
- Insurance
- Heating/cooling
- Water/sewer
- Maintenance/landscaping
- Furnishings
- Opportunity costs of fewer funds going towards student loans, investing, ect.

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Re: $1 million house--- sanity check

Post by researcher » Wed Jun 27, 2018 10:24 am

il0kin wrote:
Wed Jun 27, 2018 10:09 am
We traded the starter house in a barely OK school district for the forever house in the excellent school district.
I wonder how many people who buy a supposed "forever house" actually stay there forever and never purchase another home.

My guess is the % is quite small.

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Re: $1 million house--- sanity check

Post by GodelianKnot » Wed Jun 27, 2018 10:31 am

The idea that you won't be able to afford a bigger house in the future is nonsense. You make a ton of money. Your earnings will absolutely out-pace the housing market. You can live comfortably on one paycheck, and easily save 100k+/year (in addition to retirement).

Even if these houses are 1.5M in 5 years, you'll have saved an additional 500k in addition to your own increased home equity. And don't discount the very decent possibility of a housing drop in the next 3-5 years, or the possibility that you may end up changing your mind about staying in the neighborhood forever once you start to consider children and schools and whatnot.

Also, btw, why are you aggressively paying off student loans at 3.125% instead of your mortgage at 3.75%?
Last edited by GodelianKnot on Wed Jun 27, 2018 10:57 am, edited 1 time in total.

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Re: $1 million house--- sanity check

Post by Nappyloxs » Wed Jun 27, 2018 10:39 am

I had similar situation last year. We don’t have your income but we do very well. We live in a HCOL area, but had plenty of equity in our old home. My wife got pregnant in late 2017. Although our house was fine, we wanted to upgrade with a kid on the way. We always looked around and found what I call the “retirement” house last year. We bought it and rent out our old house. With that income, the new house mortgage is less than the old house. The new house is twice the size and I think we already gained 80k or close to it in equity in one year.

With that said, it is tighter financially. Daycare is a mortgage. Seriously, daycare for an infant in my area costs as much as my mortgage on the old house. (Mortgage+taxes+insurance). We are forunate that we get a “discount” on daycare or else we would probably be paying an additional $300-400 per month or more than my other mortgage. In my HLOC area, daycare is around $1,500-2,000 per month for infants. So I would imagine yours is similar.

Plus, the bigger house we had added expenses such as professional lawncare, dog poop cleaner, and recently house cleaner. So probably an additional $600 per month in expenses. Utilities actually haven’t been that much more despite the house being larger. In fact I think they are lower on average since switching all lights to LED bulbs. (Crazy that it made a noticable change in bill). While financially it has gotten tighter, we love the house and would buy it again.

You mentioned you like to travel. I think the primary budget cut has been vacations for us but that was also do to other factors, so we haven’t taken vacations this year (although we have traveled for the baby tour as I call it). We hope to start traveling again next year but we will see as the wife already starts talking about the 2nd one. In which case, we will be seriously reviewing everything.

Just wanted to share my experience with you. If you plan on having kids soon, say next 1-2 years, my advice is to look at what you would do for daycare now and factor that into the financial picture. Not only do daycares have year long waitlists, but it will help you plan accordingly. There are so many options (daycare, au pair, nanny, nanny share) but none of them are cheap. You will get tax credits and there are other ways to offset the expense, but planning conversatively (on current income and most expensive daycare you prefer) I think could help you with your decision. Good luck!

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Re: $1 million house--- sanity check

Post by il0kin » Wed Jun 27, 2018 11:05 am

researcher wrote:
Wed Jun 27, 2018 10:24 am
il0kin wrote:
Wed Jun 27, 2018 10:09 am
We traded the starter house in a barely OK school district for the forever house in the excellent school district.
I wonder how many people who buy a supposed "forever house" actually stay there forever and never purchase another home.

My guess is the % is quite small.
A valid point. Even when I said forever house, what that really means is raise the kids house and maybe retire, maybe sell for a lake place and a small house in our city.

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Re: $1 million house--- sanity check

Post by randomguy » Wed Jun 27, 2018 11:13 am

GodelianKnot wrote:
Wed Jun 27, 2018 10:31 am

Also, btw, why are you aggressively paying off student loans at 3.125% instead of your mortgage at 3.75%?
OP would have to put in his exact numbers but given something like 32% fed and 9% CA, I have a hard time imaging that the mortgage rate is higher than the student loan rate. I expect the mortgage rate is down around 2.5% or so.

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