Is buying a $700K first home crazy?

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Kedar
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Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 11:29 am

My spouse and I are long-time renters looking to purchase our first home within the next year. The rub is that we would like to skip buying a starter home and move into something that has more of our wants. However, we live in a VHCOL of area, so mid-range homes are generally around $700K.

We’ve saved carefully over the years (achieved partially through living in tiny apartments) and part of my strategy to offset a more expensive home is through a higher down payment. That said, I am concerned about tying up so much of our money into a house (down payment or not) and whether we can make the payments work.

Any thoughts or guidance welcome. Thank you in advance.

Details:
  • Combined gross income: $300K.
  • House: $700K
  • PITI: $3,985 (includes a rough estimate for maintenance). Current rent is $1,500.
  • Down payment: $240K (we have an emergency fund and about $300K in retirement funds).
  • Monthly non-retirement savings (some of which would be dedicated to the higher monthly housing costs): $7K
  • Ages: 33/33

badger42
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Re: Is buying a $700K first home crazy?

Post by badger42 » Wed Jan 09, 2019 11:32 am

How solid is the income / prospects for the income?

If your long term plan is FIRE, bow many extra years do you need to work to live in the house vs, say, a starter home or an apartment?

robertmcd
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Re: Is buying a $700K first home crazy?

Post by robertmcd » Wed Jan 09, 2019 11:36 am

I see no issues with buying a house for 2.33x annual income in a VHCOL. You could reduce the down payment to 20% if you want to stay more liquid.

bloom2708
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Re: Is buying a $700K first home crazy?

Post by bloom2708 » Wed Jan 09, 2019 11:42 am

Is your rent below market?

Does the house shorten your commute or add to it? Does $700k get you a house with a bunch of upgrades due?

That is a large difference between rent and the new house payment. $2,500 more per month to save, invest, spend every month. Plus flexibility.

You have the 20% down. You are clearly good savers. You have good incomes. You've checked the boxes. You can buy. Do you want to?

I'm a fan of home ownership (in some cases) but these HCOL home decisions are always tough. Maybe "almost buy" and rent a bigger place for $500-$750 more. Spend more. Having been a home owner for 20 years (money pits) I would lean toward renting. But then, the draw of home ownership is strong. Good luck!
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Re: Is buying a $700K first home crazy?

Post by goodenyou » Wed Jan 09, 2019 11:44 am

Carrying a $450k mortgage with $300k income in an area that has a hot housing market is not a problem. If that is not the upper end of the market, I think it should be fine.
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Re: Is buying a $700K first home crazy?

Post by RickBoglehead » Wed Jan 09, 2019 11:45 am

Your question needs to be looked at in context. You're 33. You've been long time renters. You could have bought a starter home years ago, and now be ready for the next home.

To me, it comes down to "can I afford this?" Since the answer is yes, it shouldn't matter that it's a bigger, more expensive home than a starter home.

Buy it and enjoy!
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KlangFool
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Re: Is buying a $700K first home crazy?

Post by KlangFool » Wed Jan 09, 2019 11:46 am

OP,

1) What is your annual savings before buying the house?

2) What is your annual savings after buying the house?

3) What is your annual expense before buying the house?

4) What is your annual expense after buying the house?

5) Is this a recourse loan or non-recourse loan? Aka, if your house is underwater, can you walk away from the house and only losing the house?

6) If you lose your job and the stock market drop 50%, how long before you lose the house?

7) Do you have job security?

8) When we hit a recession, will your job be affected?

9) What do you hope to get by spending 3K to 4K extra per month on housing expense? I could imagine multiple more enjoyable ways to spend 3K to 4K per month than feeding and maintaining a house.

KlangFool
Last edited by KlangFool on Wed Jan 09, 2019 11:49 am, edited 1 time in total.

Chuck5781
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Re: Is buying a $700K first home crazy?

Post by Chuck5781 » Wed Jan 09, 2019 11:48 am

Economics appear solid, assuming likelihood of continued employment is positive.

An aside, I personally like you referring to this purchase as a “home”, rather than a “house”. This is where you will live, enjoy one another, interact with your neighbors, relax, read, be entertained, host family and friends - in other words, make a home and live your life.

Such a decision has many more inputs than simply financial. Is this where you want to live your life?

I hope you enjoy your new home.
The richest man is not he who has the most, but he who needs the least.

FoolMeOnce
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Re: Is buying a $700K first home crazy?

Post by FoolMeOnce » Wed Jan 09, 2019 11:49 am

This looks perfectly doable on your income, and you'll still be in good shape with 300k in retirement accounts and still saving what looks like a good amount (how much would you still save per month?). Nothing wrong with skipping a starter home.

While it looks fine, you still might be better off just renting. That seems like very inexpensive rent for a VHCOL area. I doubt the residence is comparable to the houses you are considering, so first see what houses like that rent for to get a better sense of the best way, financially, to live in the type of residence you desire.

Topic Author
Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 11:50 am

Thanks for initial feedback. Responses below.
bloom2708 wrote:
Wed Jan 09, 2019 11:42 am
Is your rent below market? Yes, significantly. Renting a nicer place would cost probably $1K more a month.

Does the house shorten your commute or add to it? Does $700k get you a house with a bunch of upgrades due? The commute wouldn't change, but we would essentially move from a 1-bedroom 650 sq ft apartment to 2-3 bedroom, 1,500 sq ft place with parking, washer/dyer, etc. There would be a lot of QOL improvements, but all of which I would characterize as wants and not needs.
badger42 wrote:
Wed Jan 09, 2019 11:32 am
How solid is the income / prospects for the income? Our combined income and job security is about as solid as it comes, thankfully.

If your long term plan is FIRE, bow many extra years do you need to work to live in the house vs, say, a starter home or an apartment? I honestly haven't done any FIRE calculations, although maybe I should? I enjoy working and am fortunate to have a job that provides enough flexibility to have fun when I need it. Spouse is generally in the same boat, although I could see this changing later in life.

btenny
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Re: Is buying a $700K first home crazy?

Post by btenny » Wed Jan 09, 2019 11:56 am

No it is not crazy to want to buy a $700K first home. Yes you can afford the house and the payments.

BUT can you really get a nice home that you like in your VCOL area? I bet that this price point does not yield that great a house or location. So you will be spending big $$ for what? Thus the real issue is what can you buy for this much money and how nice is the house and how much work or repairs will be needed to bring it up to today's standards?

Please tell us about what kind of home you want to buy and what properties are available at your price point. Then we can really discuss the issues of renting versus buying.

Good Luck.

Glockenspiel
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Re: Is buying a $700K first home crazy?

Post by Glockenspiel » Wed Jan 09, 2019 11:56 am

Not crazy as long as you're not buying a mansion in a town where the regular home price is $200k. If this is a fairly MCOL-HCOL place, you're good, as long as you believe you will have good income stability into the future. One thing to consider is if one of you were laid off, would you be able to find another comparable-paying job in an area close to the home, easily? The mortgage is easily do-able with your current income.

stoptothink
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Re: Is buying a $700K first home crazy?

Post by stoptothink » Wed Jan 09, 2019 12:00 pm

Affordability isn't a concern, but I want to know what VHCOL area has rents in the $1500 range? That gets you a decent condo where I live and we are nowhere near VHCOL.

Topic Author
Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 12:01 pm

Thanks, Klang. Responses below.
KlangFool wrote:
Wed Jan 09, 2019 11:46 am
OP,

1) What is your annual savings before buying the house? $84K, not including retirement (15% of gross income).

2) What is your annual savings after buying the house? $50K, again not counting retirement.

3) What is your annual expense before buying the house? $55K

4) What is your annual expense after buying the house? $84K.

5) Is this a recourse loan or non-recourse loan? Aka, if your house is underwater, can you walk away from the house and only losing the house? Good question. I didn't know there were resource loans. This is something I will need to look into. Thanks.

6) If you lose your job and the stock market drop 50%, how long before you lose the house? We could cover the mortgage on one income, although it would be extremely tight. Our money in the market isn't something I would consider using until it was absolutely the last thing between us and losing the house

7) Do you have job security? Yes.

8) When we hit a recession, will your job be affected? No, I work for the federal government and the spouse is a mid-level healthcare provider.

9) What do you hope to get by spending 3K to 4K extra per month on housing expense? I could imagine multiple more enjoyable ways to spend 3K to 4K per month than feeding and maintaining a house. I don't want to be house poor, but our goal is to live in something more than a tiny apartment. Our rent is below market, so realistically to have something larger would cost us at least another $1K a month regardless of whether we buy or rent. This is a good point, but I my hope is that we have the income to buy this house and still have fun on the side. Welcome any further thoughts you have on this.

KlangFool

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Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 12:05 pm

btenny wrote:
Wed Jan 09, 2019 11:56 am
No it is not crazy to want to buy a $700K first home. Yes you can afford the house and the payments.

BUT can you really get a nice home that you like in your VCOL area? I bet that this price point does not yield that great a house or location. So you will be spending big $$ for what? Thus the real issue is what can you buy for this much money and how nice is the house and how much work or repairs will be needed to bring it up to today's standards?

Please tell us about what kind of home you want to buy and what properties are available at your price point. Then we can really discuss the issues of renting versus buying.

Good Luck.
We would be targeting a mid-range home in a decent neighborhood. Houses in my city can easily go into the millions, so this is by no means top of the market.

As for the type of dwelling, we are open but generally favor a townhouse or row house. Our market research does indicate we can generally find something we would enjoy at this price point without a ton of work. It wouldn't be huge (i.e., more than 1,500 sq ft) but still probably double what we have now.

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Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 12:06 pm

stoptothink wrote:
Wed Jan 09, 2019 12:00 pm
Affordability isn't a concern, but I want to know what VHCOL area has rents in the $1500 range? That gets you a decent condo where I live and we are nowhere near VHCOL.
Haha. We rent from a private individual who owns our condo and pay well below market value. Our condo is also...not the nicest. Average rent in my neighborhood is much higher, although typically with nicer units.

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Nate79
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Re: Is buying a $700K first home crazy?

Post by Nate79 » Wed Jan 09, 2019 12:11 pm

Some more questions.

1. How much assets do you currently have not including down payment? (Emergency fund, retirement and non retirement accounts)
2. Are you debt free?
3. Any chance of kids in the future? Any chance one of you would want to stay home and not work?

I would say if you have a good amount in emergency fund and retirement accounts already, no plans to stay at home (thus income hit), and are debt free I don't see a problem. If answer is negative to any of these then I would not do it.

barnaclebob
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Re: Is buying a $700K first home crazy?

Post by barnaclebob » Wed Jan 09, 2019 12:14 pm

Doesn't look crazy to me.

KlangFool
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Re: Is buying a $700K first home crazy?

Post by KlangFool » Wed Jan 09, 2019 12:16 pm

Kedar wrote:
Wed Jan 09, 2019 12:01 pm
Thanks, Klang. Responses below.
KlangFool wrote:
Wed Jan 09, 2019 11:46 am
OP,

1) What is your annual savings before buying the house? $84K, not including retirement (15% of gross income).

2) What is your annual savings after buying the house? $50K, again not counting retirement.

3) What is your annual expense before buying the house? $55K

4) What is your annual expense after buying the house? $84K.

5) Is this a recourse loan or non-recourse loan? Aka, if your house is underwater, can you walk away from the house and only losing the house? Good question. I didn't know there were resource loans. This is something I will need to look into. Thanks.

6) If you lose your job and the stock market drop 50%, how long before you lose the house? We could cover the mortgage on one income, although it would be extremely tight. Our money in the market isn't something I would consider using until it was absolutely the last thing between us and losing the house

7) Do you have job security? Yes.

8) When we hit a recession, will your job be affected? No, I work for the federal government and the spouse is a mid-level healthcare provider.

9) What do you hope to get by spending 3K to 4K extra per month on housing expense? I could imagine multiple more enjoyable ways to spend 3K to 4K per month than feeding and maintaining a house. I don't want to be house poor, but our goal is to live in something more than a tiny apartment. Our rent is below market, so realistically to have something larger would cost us at least another $1K a month regardless of whether we buy or rent. This is a good point, but I my hope is that we have the income to buy this house and still have fun on the side. Welcome any further thoughts you have on this.

KlangFool
Kedar,

1) What is your annual savings including retirement before buying the house?

<<6) If you lose your job and the stock market drop 50%, how long before you lose the house? We could cover the mortgage on one income, although it would be extremely tight. Our money in the market isn't something I would consider using until it was absolutely the last thing between us and losing the house >>

2) Your annual expense after buying the house is 84K. So, how could you cover your annual expense and pay the mortgage with one income?

<<9) What do you hope to get by spending 3K to 4K extra per month on housing expense? I could imagine multiple more enjoyable ways to spend 3K to 4K per month than feeding and maintaining a house. I don't want to be house poor, but our goal is to live in something more than a tiny apartment. Our rent is below market, so realistically to have something larger would cost us at least another $1K a month regardless of whether we buy or rent. This is a good point, but I my hope is that we have the income to buy this house and still have fun on the side. Welcome any further thoughts you have on this. >>

3) You do not have any kid yet. So, why would you spend a lot of money to feed and maintain a house? Take the money and see the world instead.

<<so realistically to have something larger would cost us at least another $1K a month regardless of whether we buy or rent. >>

4) Which is a lot cheaper than buying a house. And, you did not count the opportunity cost of 320K down payment. That 320K could earn you at least 5% per year if it is not in the house. That is at least another 15K per year.

I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun

KlangFool

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220volt
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Re: Is buying a $700K first home crazy?

Post by 220volt » Wed Jan 09, 2019 12:17 pm

Moneywise you should be good, but with 300k salary plus 500k in savings, I personally would be retired in 4-5 years. Done.
"If I had only followed the advice of financial analysts in 2008, I'd have a million dollars today, provided I started with a hundred million dollars" - Jon Stewart

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Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 12:23 pm

Nate79 wrote:
Wed Jan 09, 2019 12:11 pm
Some more questions.

1. How much assets do you currently have not including down payment? (Emergency fund, retirement and non retirement accounts). Emergency fund is about one year of expenses. Retirement accounts are about $300K. We max out our tax advantaged space and add a little more to get to 15% of gross income.
2. Are you debt free? Yes.
3. Any chance of kids in the future? Any chance one of you would want to stay home and not work? Not sure about the kids and that is something we are trying to decide before buying so we can account for schools and extra space (or not). If we did have kids, both of us would continue to work.

I would say if you have a good amount in emergency fund and retirement accounts already, no plans to stay at home (thus income hit), and are debt free I don't see a problem. If answer is negative to any of these then I would not do it.

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Re: Is buying a $700K first home crazy?

Post by MarkRoulo » Wed Jan 09, 2019 12:27 pm

Kedar wrote:
Wed Jan 09, 2019 11:29 am
My spouse and I are long-time renters looking to purchase our first home within the next year. The rub is that we would like to skip buying a starter home and move into something that has more of our wants. However, we live in a VHCOL of area, so mid-range homes are generally around $700K.

We’ve saved carefully over the years (achieved partially through living in tiny apartments) and part of my strategy to offset a more expensive home is through a higher down payment. That said, I am concerned about tying up so much of our money into a house (down payment or not) and whether we can make the payments work.

Any thoughts or guidance welcome. Thank you in advance.

Details:
  • Combined gross income: $300K.
  • House: $700K
  • PITI: $3,985 (includes a rough estimate for maintenance). Current rent is $1,500.
  • Down payment: $240K (we have an emergency fund and about $300K in retirement funds).
  • Monthly non-retirement savings (some of which would be dedicated to the higher monthly housing costs): $7K
  • Ages: 33/33
For what it is worth, my wife and I did something like this about 20 years ago. At the time (1997) our purchase
looked like this:
Details:
  • Combined gross income: $100K.
  • House: $400K
  • PITI: $2,600. Current rent was $1,000.
  • Down payment: $40K (we have an emergency fund of $40K).
  • Ages: 29/29
It was aggressive, but the $40K cushion let us sleep well at night. Which was good because my wife was laid off the day after we closed.

For what it is worth, things turned out fine and we're still in that house and hope to retire-in-place in it.

The two of you can clearly afford what you are proposing, even if the jump is a large one.

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Kedar
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Re: Is buying a $700K first home crazy?

Post by Kedar » Wed Jan 09, 2019 12:33 pm

More responses below (I removed some of the old posts for clarity).
KlangFool wrote:
Wed Jan 09, 2019 12:16 pm

Kedar,

1) What is your annual savings including retirement before buying the house?

Right now, $129K.

2) Your annual expense after buying the house is 84K. So, how could you cover your annual expense and pay the mortgage with one income?

My calculations assume reduced expenses (i.e. no vacations to Europe). That said, it would be tight.

3) You do not have any kid yet. So, why would you spend a lot of money to feed and maintain a house? Take the money and see the world instead.

I guess my question is whether we can afford the house and still see the world through annual vacations. I honestly don't know what else we would do with the money, other than shave some years off working (I realize what a 1st world problem this and do not intend to come off as entitled). This is something I need to calculate and discuss with the spouse, but I am reasonably confident neither of us will want to retire at 55.

4) Which is a lot cheaper than buying a house. And, you did not count the opportunity cost of 320K down payment. That 320K could earn you at least 5% per year if it is not in the house. That is at least another 15K per year.

I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun

KlangFool

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Ben Mathew
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Re: Is buying a $700K first home crazy?

Post by Ben Mathew » Wed Jan 09, 2019 12:36 pm

This looks perfectly fine to me. It is not necessary to buy a starter home before buying the permanent home. Just buy the home that is right for you given your circumstances.

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Re: Is buying a $700K first home crazy?

Post by Dottie57 » Wed Jan 09, 2019 12:40 pm

OP,

You have the income. 650 sq feet is small for 2 people. And desire for amenities like washer and dryer is very understandable. I would purchase. Keep to your savings goals and you will be fine.

btenny
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Re: Is buying a $700K first home crazy?

Post by btenny » Wed Jan 09, 2019 12:42 pm

I don't know about you but I would be really bothered by paying $4K per month to buy a modest sized townhouse. That just seems like big $$$ to me versus space. I am bothered by the risk of property values going down in the short to medium term time frame. Prices are very high right now. How would you feel if you bought a $700K house and found it was only worth $500K when you need to sell in 4-5 years?

What could you rent in your town for say $4K. I know in my VHCOL area you can get a really nice home with 4 bedrooms and 3 baths and a two car garage and a nice yard for that much money. Have you looked at big rental properties? Landlords of big homes want good renters with big incomes and will accept much less than "market rent" to get a good renter. I think you should look around and see what you can find before you make a purchase. Doing this will let you see how much space you want and like versus how much you spend. Just saying.

Good Luck.

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Re: Is buying a $700K first home crazy?

Post by Clever_Username » Wed Jan 09, 2019 12:44 pm

My first house (it's a townhome) is about $700k, I make about half of what you make (with half as many people), and I closed on it shortly before my 34th birthday. I did own a condo before then, though, but had various reasons for wanting more house (including not wanting to live in under 500 square feet).

Greater Los Angeles area, so whatever that cost of living is.

Mortgage + HOA dues are $4000/month, I spend about $5200/month total across all bills, although my car has been paid off for a while.

I still have healthy retirement savings (max out 403(b) and Series I Bonds and put five figures into not-tax-advantaged savings annually) and a well funded emergency plan (more than two years' expenses readily accessible if needed).
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: Is buying a $700K first home crazy?

Post by randomguy » Wed Jan 09, 2019 12:47 pm

badger42 wrote:
Wed Jan 09, 2019 11:32 am
How solid is the income / prospects for the income?

If your long term plan is FIRE, bow many extra years do you need to work to live in the house vs, say, a starter home or an apartment?
700k is a starter home in VHCOL area.:) In a HCOL it might be the step up. 1500 to 4k is a big step up though in monthly payments. Now I am guessing 1500 or so is savings (i.e. you are paying down your mortgage) but even 1k/month is a lot of vacations and living. Some of that might unavoidable (i.e. going to 3 people in the future might require a more expensive rental) as some levels of frugality aren't sustainable long term. Even MMM had to get a new car and take a tropical vacation after living his lifestyle for a while:)

The house is easily affordable. It is just up to you if you want it or not. Nobody can tell you if waiting is good (i.e. house prices drop 10%, you decide to move,...) or horrible (interest rates go to 6%, your house goes up 25%, and your rent doubles.). You can look at the other options (500k house, Larger rental) to see if they are viable.

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Re: Is buying a $700K first home crazy?

Post by KlangFool » Wed Jan 09, 2019 12:50 pm

Kedar wrote:
Wed Jan 09, 2019 12:33 pm
More responses below (I removed some of the old posts for clarity).
KlangFool wrote:
Wed Jan 09, 2019 12:16 pm

Kedar,

1) What is your annual savings including retirement before buying the house?

Right now, $129K.

2) Your annual expense after buying the house is 84K. So, how could you cover your annual expense and pay the mortgage with one income?

My calculations assume reduced expenses (i.e. no vacations to Europe). That said, it would be tight.

3) You do not have any kid yet. So, why would you spend a lot of money to feed and maintain a house? Take the money and see the world instead.

I guess my question is whether we can afford the house and still see the world through annual vacations. I honestly don't know what else we would do with the money, other than shave some years off working (I realize what a 1st world problem this and do not intend to come off as entitled). This is something I need to calculate and discuss with the spouse, but I am reasonably confident neither of us will want to retire at 55.

4) Which is a lot cheaper than buying a house. And, you did not count the opportunity cost of 320K down payment. That 320K could earn you at least 5% per year if it is not in the house. That is at least another 15K per year.

I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun

KlangFool
Kedar,

Let's assume that financially you can buy the house, then, the question would be why would you spend your time maintaining the house? You could rent instead. Life is too short to be wasted maintaining a house. You would be spending more time and money buying a house. Why would you want to do this?

KlangFool

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Watty
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Re: Is buying a $700K first home crazy?

Post by Watty » Wed Jan 09, 2019 1:02 pm

Kedar wrote:
Wed Jan 09, 2019 11:29 am
Combined gross income: $300K.
House: $700K
PITI: $3,985 (includes a rough estimate for maintenance). Current rent is $1,500.
Down payment: $240K (we have an emergency fund and about $300K in retirement funds).

I am normally the guy that says that is crazy and you should move to a lower cost of living area but you are fine.

Even with the the closing costs your mortage would be less than $500K and part of each month's mortage payment would go towards paying down the principal which will build up your home equity and net worth over time.

One thing I have not seen mentioned is if the house would be in a good school district or not. You do not want to buy the house now and then need to move again in six years when a kid is ready to start school. Even if you don't plan on having kids your plans might change. Even if you don't have kids eventually selling a home in an area with bad schools can also be a lot harder in a bad housing market so the quality of the schools is still a factor to consider.

All that said you might also want to consider moving to a lower cost of living area if you don't have stronge ties to the area. In probably 80% of the country you would be close to being able able to buy a much better home for cash for what your down payment will be there. If you will have kids then you may also want to consider what it will be like for them to try to afford to live in that area when they grow up. It is a long time away but 30 years from now any kids and grandkids might not be able to afford to live near you if they don't have a real high income and that is important to some people.

Your $300K income is great but a lot of it will go to taxes and your mortage payment so comparing that to a lower cost of living area is like converting money to a foreign currency. In some low cost of living area with a paid off house, or small mortage, you would be able to have the same standard of living with a fraction of your current income or even just one income.

For example here is the type of home you could buy for cash in the suburbs here in Atlanta.

https://www.realtor.com/realestateandho ... 10&view=qv

Prices vary greatly by area here but in most areas $400k would get you a McMansion.

A lot of college towns are affordable and might be a nice to live in.

jharkin
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Re: Is buying a $700K first home crazy?

Post by jharkin » Wed Jan 09, 2019 1:05 pm

If your income is stable and 700k is a resalable market price for a house that fits your needs (i.e. not some 8 bathrom McMansion that you will never fully utilize) than I dont see why not... your ratios are well within the range that's typically considered safe.

Think of it like this.. If some young kid in Iowa comes in with a 60k income and asks about buying a 150k house with 40 down most of us wouldn't think twice. Its the big absolute number (700) that's scary. And a dose of concern that a VHCOL area might be either an income bubble or housing bubble that may not last...


----------
EDIT: I see now that you said this 700k house will be 1500sqft with 2 bedrooms. Ignore my McMansion comment and realize that if you have kids in the future even that may end up a starter house.

sergio
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Re: Is buying a $700K first home crazy?

Post by sergio » Wed Jan 09, 2019 1:11 pm

The numbers look good. With interest rates as low as they are, I'd put down 20% and keep the extra liquidity.

I like the idea of skipping a starter home. Real estate transactions have expensive fixed costs and selling/buying/moving is a huge hassle. If this $700k home is reasonably "future proof" (e.g. you don't need to move if you end up having kids, you don't need to sell ASAP if one of you loses their jobs etc.) then your plan sounds reasonable. A 1500 sq ft townhouse with 2br sounds like a starter home to be. Go for 3br if at all possible.

I'd consider what $2500/month rent gets you in your metro area. That's a lot less than $4000/month and fewer headaches to deal with, and you may get place that's comparable to the one you're thinking of buying. Although it sounds like you're getting a great deal now, will that still hold if the owner sells the unit?

I lived in tiny apartments for a number of years and then two years with my wife, and we were fed up with it so we bought a 3br/4bath 2000sq ft townhouse, for $220k. Having things like an in-unit washer/dryer, dishwasher, a deck, no neighbors above or below us, an attached garage, central HVAC, has been a huge step up in QOL. I can also do whatever I want inside my place and don't have prick landlords to deal with. And while HOA and property taxes can go up, they are a small part of my overall monthly payment so I don't need to worry about getting hit with something like a 30% rent increase if my area becomes "hot".

I also like the suggestions of roughing it for a few more years and retiring or going part-time by 40. If you don't plan to have kids, this is a totally reasonable in your scenario. Buying a $700k house would potentially put a damper on that idea, and if you plan to travel around later, having to deal with a small apartment is far preferable to a single family home.

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Watty
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Re: Is buying a $700K first home crazy?

Post by Watty » Wed Jan 09, 2019 1:17 pm

220volt wrote:
Wed Jan 09, 2019 12:17 pm
Moneywise you should be good, but with 300k salary plus 500k in savings, I personally would be retired in 4-5 years. Done.
4-5 years might be optimistic but reaching financial independence by your early 40's could be an option. Even if you do not actually retire being financially independent and being able to work on your own terms has a lot to be said for it.

Other than the transaction costs of buying and selling the house deciding to buy the house or not is likely not a big factor since it would likely only change the date you reach financial independence by a small amount.

mac808
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Re: Is buying a $700K first home crazy?

Post by mac808 » Wed Jan 09, 2019 2:34 pm

Your question comes down 100% to stability of income. If you are two pediatricians, then you're more than fine. If you are two marketing professionals who perceive strong job security because you work for a stable company - things can change fast. Just be very honest with yourselves about that.

nyclon
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Re: Is buying a $700K first home crazy?

Post by nyclon » Wed Jan 09, 2019 2:35 pm

Kedar wrote:
Wed Jan 09, 2019 11:50 am
Thanks for initial feedback. Responses below.
bloom2708 wrote:
Wed Jan 09, 2019 11:42 am
Is your rent below market? Yes, significantly. Renting a nicer place would cost probably $1K more a month.

Does the house shorten your commute or add to it? Does $700k get you a house with a bunch of upgrades due? The commute wouldn't change, but we would essentially move from a 1-bedroom 650 sq ft apartment to 2-3 bedroom, 1,500 sq ft place with parking, washer/dyer, etc. There would be a lot of QOL improvements, but all of which I would characterize as wants and not needs.
badger42 wrote:
Wed Jan 09, 2019 11:32 am
How solid is the income / prospects for the income? Our combined income and job security is about as solid as it comes, thankfully.

If your long term plan is FIRE, bow many extra years do you need to work to live in the house vs, say, a starter home or an apartment? I honestly haven't done any FIRE calculations, although maybe I should? I enjoy working and am fortunate to have a job that provides enough flexibility to have fun when I need it. Spouse is generally in the same boat, although I could see this changing later in life.
Have you checked how much it would cost to rent such a home?

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ginmqi
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Re: Is buying a $700K first home crazy?

Post by ginmqi » Wed Jan 09, 2019 3:06 pm

mac808 wrote:
Wed Jan 09, 2019 2:34 pm
Your question comes down 100% to stability of income. If you are two pediatricians, then you're more than fine. If you are two marketing professionals who perceive strong job security because you work for a stable company - things can change fast. Just be very honest with yourselves about that.
He said that he works for the federal govt (interestingly, there is a shutdown going on...) and his wife is a midlevel healthcare provider (potentially something like a nurse practitioner). Combined income of 300k is very nice.

BUT as I've read before, you should ALWAYS be conservative and imagine that 1 spouse can lose their income and that you can shoulder everything on just 1 income.

Not just job loss but for other potential life events such as: pregnancy/birth (twins, triplets?), unexpected health issues, disabling motor vehicle or other injury/accident.

Goal33
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Re: Is buying a $700K first home crazy?

Post by Goal33 » Wed Jan 09, 2019 3:13 pm

I think we need to start putting parameters around HCOL vs VHCOL... where I live (in a cheaper part of the San Francisco Bay Area), 700k is a 2 bedroom condo
A man with one watch always knows what time it is; a man with two watches is never sure.

Bulgogi Head
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Re: Is buying a $700K first home crazy?

Post by Bulgogi Head » Wed Jan 09, 2019 3:14 pm

Do the x-times gross income rules of thumb apply to the loan amount or the total cost of the home? In my own situation, I’ll likely have a high downpayment but only medium salary.

Thegame14
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Re: Is buying a $700K first home crazy?

Post by Thegame14 » Wed Jan 09, 2019 3:14 pm

if that income is secure, then you can afford it. Just make sure you factor in closing costs, furniture and costs like lawnmower, maintenance, etc.. You don't want to put all your liquid into the house and not be able to furnish it or repaint, or maintain the house. Id stick to 20% down the rest liquid, you will have more expenses than you realize with a home, water bill, utilities, gas, electic, sewer, property taxes......

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beyou
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Re: Is buying a $700K first home crazy?

Post by beyou » Wed Jan 09, 2019 3:23 pm

We made a similar decision years ago. Rented until about the same age, specifically so we can avoid buying a starter home,
and instead wait until we can afford something we'd be happy with for decades. Has worked out, income rose, house value rose.
Tough first few years but as income rose, paid down mortgage until it was gone. Now my home is debt free and worth more than double what I originally paid.

So it was a good idea for us !

Starfish
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Re: Is buying a $700K first home crazy?

Post by Starfish » Wed Jan 09, 2019 3:23 pm

stoptothink wrote:
Wed Jan 09, 2019 12:00 pm
Affordability isn't a concern, but I want to know what VHCOL area has rents in the $1500 range? That gets you a decent condo where I live and we are nowhere near VHCOL.

Rent control in San Francisco. I rented a 2 bdr for exactly that and rent would have been about the same today.
But of course there is no midrange home in bay area for 700k. More like double. So of course 700k is not VHCOL.

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ginmqi
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Re: Is buying a $700K first home crazy?

Post by ginmqi » Wed Jan 09, 2019 3:59 pm

Starfish wrote:
Wed Jan 09, 2019 3:23 pm
stoptothink wrote:
Wed Jan 09, 2019 12:00 pm
Affordability isn't a concern, but I want to know what VHCOL area has rents in the $1500 range? That gets you a decent condo where I live and we are nowhere near VHCOL.

Rent control in San Francisco. I rented a 2 bdr for exactly that and rent would have been about the same today.
But of course there is no midrange home in bay area for 700k. More like double. So of course 700k is not VHCOL.
Yeah certainly when someone pulls out a term "VHCOL" it seems like it can be localized to zip codes within a city. Since generally cities are known to be HCOL (San Francisco, NYC, Honlulu, etc.)

Certain VHCOL localized areas in my city of Honolulu/Oahu island has homes in the several million dollar range and 700k is not even on the radar for 1 home.

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calmaniac
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Re: Is buying a $700K first home crazy?

Post by calmaniac » Wed Jan 09, 2019 7:10 pm

What IS you and your wife's commute?

I would also think about you time, which ultimately is worth more than money. If your commute is ≥20 minutes, can you shorten it with this move?

Clearly, you can afford the $700k house.

Katietsu
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Re: Is buying a $700K first home crazy?

Post by Katietsu » Wed Jan 09, 2019 7:42 pm

The new home might be cheap in the long run.... I know I would be divorced after too many years sharing 650 sq ft.😀

And yes, you can afford it.

majiaknight
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Re: Is buying a $700K first home crazy?

Post by majiaknight » Wed Jan 09, 2019 7:50 pm

I'd say just go for it.

Your ages and financials look similar as ours 4 years ago. And our combined income was a little short of $300K back then and bought a TH >$800K in VHCOL in 2014. At your ages with good job security, I think your family deserves a better life with your own house.

As you also mentioned in the reply, please also be prepared to get enough emergency fund and have a plan if single income needs to cover all expenses for some period. My DW was affected during company M&A event around 2016 after we bought the house, and there was some pressure during a short period. However, it turned out to be a good thing for DW as she got a good severance package and seamlessly switched to a better job w/ higher pay in a big corp. Now we have quickly accumulated enough assets to payoff the mortgage if we really want to. Hope for the best, plan for the worst. :beer

david
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Re: Is buying a $700K first home crazy?

Post by david » Wed Jan 09, 2019 8:19 pm

nyclon wrote:
Wed Jan 09, 2019 2:35 pm
Kedar wrote:
Wed Jan 09, 2019 11:50 am
Thanks for initial feedback. Responses below.
bloom2708 wrote:
Wed Jan 09, 2019 11:42 am
Is your rent below market? Yes, significantly. Renting a nicer place would cost probably $1K more a month.

Does the house shorten your commute or add to it? Does $700k get you a house with a bunch of upgrades due? The commute wouldn't change, but we would essentially move from a 1-bedroom 650 sq ft apartment to 2-3 bedroom, 1,500 sq ft place with parking, washer/dyer, etc. There would be a lot of QOL improvements, but all of which I would characterize as wants and not needs.
badger42 wrote:
Wed Jan 09, 2019 11:32 am
How solid is the income / prospects for the income? Our combined income and job security is about as solid as it comes, thankfully.

If your long term plan is FIRE, bow many extra years do you need to work to live in the house vs, say, a starter home or an apartment? I honestly haven't done any FIRE calculations, although maybe I should? I enjoy working and am fortunate to have a job that provides enough flexibility to have fun when I need it. Spouse is generally in the same boat, although I could see this changing later in life.
Have you checked how much it would cost to rent such a home?
I think this is the comparison you should be making. Compare apples (what you want to buy) to apples (having a similar place as a rental). Then you can compare the two with the New York times rent or buy calculator.

Renting allows you to right size, with the caveat that you have to move to do it. But buying allows you to customize you space and reap the rewards of improvements. Comparing a big beautiful space with a tiny dump isn't a good comparison it distorts the calculus.

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Re: Is buying a $700K first home crazy?

Post by TropikThunder » Wed Jan 09, 2019 9:33 pm

KlangFool wrote:
Wed Jan 09, 2019 12:16 pm
I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun
That's not for you to say.

KlangFool
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Re: Is buying a $700K first home crazy?

Post by KlangFool » Wed Jan 09, 2019 9:49 pm

TropikThunder wrote:
Wed Jan 09, 2019 9:33 pm
KlangFool wrote:
Wed Jan 09, 2019 12:16 pm
I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun
That's not for you to say.
TropikThunder,

I am entitled to my own opinion. It is up to OP to decide whether it is worthwhile.

KlangFool

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Re: Is buying a $700K first home crazy?

Post by Golf maniac » Thu Jan 10, 2019 9:38 am

For me that would be a big jump in housing expenses. I agree with the comments at least look at the cost of renting what you want to buy. Financially from the information above you can do it, but it may be a shock from the increase. Don’t forget to add all the extra expenses to your calculations if you buy (furniture, painting, window treatments, floors, appliances, other changes and updates, lawn maintenance, etc). Always remember a home is a lifestyle, not an investment.

lostdog
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Re: Is buying a $700K first home crazy?

Post by lostdog » Thu Jan 10, 2019 10:10 am

KlangFool wrote:
Wed Jan 09, 2019 9:49 pm
TropikThunder wrote:
Wed Jan 09, 2019 9:33 pm
KlangFool wrote:
Wed Jan 09, 2019 12:16 pm
I do not see what do you get out of buying a house. You could spend the money elsewhere with a lot more fun
That's not for you to say.
TropikThunder,

I am entitled to my own opinion. It is up to OP to decide whether it is worthwhile.

KlangFool
If I had the chance to start over, I would not have bought a house and stayed renting. I would be more rich and have more freedom. It's over rated. Don't do it.

We might have an opportunity to move soon and this will be our last home.
VT, BNDW and chill.

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