Can or should we afford this house

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Topic Author
gophermobile
Posts: 25
Joined: Tue Jan 27, 2015 7:10 pm

Can or should we afford this house

Post by gophermobile » Tue Mar 12, 2019 12:48 am

Can or should we afford this house in high cost of living Southern California.

Total Income: ~375k
Husband (36) Income: 125k Moderately stable job at least for the next few years (would like to FIRE eventually)
Wife (30) Income: 250k More stable job with with a minimal chance of decreased wages
No kids yet, but plan to in a year or two

Current Net worth: ~880k,
Checking: 10k
Savings: 209k
Taxable Investments: 25k
Roth IRA #1: 94k
Roth IRA #2: 25k
401k #1: 389k
401k #2: 128k

House cost: $1,350,000
Downpayment: ~200k (~15%)
Loan / payment info:
Total Monthly Payment: $7,320 (30yr fixed, 4.537 APR, 5800 principal + interest, 1406 property tax, 100 homeowner insurance)
Total closing costs: 218K

Other costs / notes:
Our non-rent total discretionary expenditures right now are about $4,500 (includes any groceries / cars / utilities / stuff etc.)
Our overall savings rate prior to this house is ~46%, with cash savings of about $10,800 per month (doesn't include any 401k / Roth / HSA etc.)

I've run all the numbers, and even with the mortgage costs plus our discretionary costs, we'd still be making about $5,800 cash after tax each month. That's after maxing 401ks / Roths / HSA. There would be additional expenses like housing maintenance or increased utilities.

I'm wondering what opinions would be on whether this is reasonable or too big a stretch. We currently rent for $2400/month, so this would be a drastic difference in costs. The lowest cost house we would consider buying in this area would be $800-900k. I've been frugal for so long though that I don't know if I really like the idea of going with a starter home at this point - it doesn't excite me at all as they're not much different from our current apartment and I feel like we'd need to move out of it in a few years anyways with kids. I'd rather skip right to the "dream" home. The housing prices here are crazy, but we don't plan on leaving any time soon so I figure I finally need to get serious about something. We were planning on waiting until the end of the year to buy so we'd have a full 20% down and additional cash on reserve, but we have found a house we like. Thanks for the input!

HEDGEFUNDIE
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Re: Can or should we afford this house

Post by HEDGEFUNDIE » Tue Mar 12, 2019 2:55 am

Yes you can afford it.

Only suggestion I have is to consider a 5 or 7 yr ARM. You’ll be able to knock at least 1% off that interest rate, which saves you $11k/yr.

For the 5 year ARM, assuming you stay in the house 10 years, interest rates would have to go up to 6% in 5 years and stay that high for the remaining 5 years for you to come out ahead with the 30 year fixed.
Last edited by HEDGEFUNDIE on Tue Mar 12, 2019 10:56 am, edited 1 time in total.

bantam222
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Re: Can or should we afford this house

Post by bantam222 » Tue Mar 12, 2019 3:21 am

You can afford it. Although it is not “frugal” and may set back your early FIRE goals.

wilked
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Re: Can or should we afford this house

Post by wilked » Tue Mar 12, 2019 3:25 am

One thing to note with kids, daycare in Cali can be $2k/child. Factor that in now to the budget.

BarbBrooklyn
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Re: Can or should we afford this house

Post by BarbBrooklyn » Tue Mar 12, 2019 4:21 am

Make sure you check out the schools if this is where you are planning to stay.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Sam1
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Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 5:11 am

You won’t like my answer but you need the starter home. Get a 5/7 ARM (with a payment you can afford regardless). Use the time to have kids, pay for childcare, and continue saving. Your life will be so much easier unless the starter home adds two hours a day of commuting.

Childcare is VERY expensive. We make a little bit more and a mortgage of 7-9k would be fine - unless we also had childcare expenses, which we do.

Also don’t discount you might not want to use daycare. Without getting into a debate, you want options and don’t want your child’s care completely dictated by your mortgage. Some people have no choice in the matter, but you do.

If you’ve been saving what you’ve saved, you’ll be unhappy having a child and more or less not saving anything. You’ll have an occasional housing repair and then something for the child. It will be tough to save more than 1-2k a month. You may not know this but as of now, $1,200 is the monthly amount you need to save per kid for private college.

There isn’t anything wrong with a starter home. The couples I know with similar incomes who went straight to the forever home have suffered financially. They are relying on handouts from parents for kid stuff and they have failed to invest outside of one asset - their house. They barely save for college.

Another option is to continue renting. Try and save another 5 percent for the downpayment. Have a good brokerage account going. Then maybe go for the more expensive home. I live close to work in a small place and it’s been instrumental in being able to return to work and using that money to keep our savings rate high.

If you don’t want kids then ignore all of this and skip the starter home. Kids are very expensive! But so worth it. :).

Sam1
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Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 5:17 am

Also adding that I live in a HCOL area so I understand needing to spend more on housing.

Nissanzx1
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Re: Can or should we afford this house

Post by Nissanzx1 » Tue Mar 12, 2019 5:22 am

You can technically afford to borrow it but your housing costs more than triple and you will be left with almost no liquid savings for home repairs or other emergencies. The other red flag is not the full 20% down.

I’d hold off until you have the full 20% down and 6 months expenses in the emergency fund.

Property taxes alone over $1400/ mo? I’d be out on that at nearly every income level, that sounds awful and they will increase nearly every year.

Sam1
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Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 5:29 am

I’m assuming you pull in around 16k per month. Maybe less since California is high tax. Here’s your budget with a 7k mortgage

7 - mortgage
2-3 - daycare/nanny
3 - all living expenses and utilities
1 - home repairs / random child expenses
1 - college savings
1-2 brokerage
1 - transportation

Yeah you’re not going to FIRE saving only 1-2k per month. I get maybe you could decrease living expenses, not save for college, not go for the random child expenses (eg birthday party, new hike, new shoes), but do you want to live in an expensive house and not be able to buy your kid a new tricycle? Tell the grandparents you can’t throw a first birthday party because you have a $7k mortgage?

And truthfully, if you live in an apartment, you need furniture for a house. Even if you wait to have kids you’re going to spend the childcare expenses (prekids) on getting the house set up. Have you ever had to buy window treatments? Install an alarm system? Do any landscaping? It adds up quickly and i would find it painful to live in my forever home with little furniture and bad landscaping or whatever else.

Instead I’d do:

4 - mortgage
2-3 - daycare/nanny
3 - all living expenses and utilities
1 - home repairs / random child expenses
1 - college savings
4-5 brokerage
1 - transportation

This also leaves you comfortable if someone loses their job or is on unpaid paternal leave.

carolinaman
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Location: North Carolina

Re: Can or should we afford this house

Post by carolinaman » Tue Mar 12, 2019 7:02 am

How will having children affect your wife's income? Also, once you have children your wife may want to stay home for an extended period. Even if she does not think so now, that may change once you have children. You need to factor these considerations into your housing decision.

Cycle
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Re: Can or should we afford this house

Post by Cycle » Tue Mar 12, 2019 7:40 am

Never buy for future needs.

Wait until you have 20% down.

Understand housing is an expense and in the long run doesn't appreciate more than inflation, including where you are.

We just started a family, have a newborn. We downsized a few years ago to a 2br/1ba unit, rent out the other duplex unit, have no debt, and so our housing expenses are a profit.

Try out the minimalist thing and biking to work before plunging in an buying something, you may find your actual needs are different from today's perceived needs.

For us a top need is being able to walk to the daycare and park.

I'm also kind of into the fire thing and save $165k on $290k of income per year.
Never look back unless you are planning to go that way

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FlyAF
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Re: Can or should we afford this house

Post by FlyAF » Tue Mar 12, 2019 7:46 am

You can, but I wouldn't. What if you go through with it all only to find out you can't have kids? While we've been duped into thinking that one can get pregnant by simply exchanging a smile, the reality is much different for many folks. Many of my friends had to go the expensive IVF route which ended up with a few having twins. Talk about a wrench being thrown into your plans. I recently had a young friend die giving birth as well, which is obviously a crazy outlier worst case scenario, but that doesn't make it any less real for my friend and his newborn.

bloom2708
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Re: Can or should we afford this house

Post by bloom2708 » Tue Mar 12, 2019 7:52 am

Have 20% down. Be pregnant (wife). Verify schools and commutes. Things change quickly.

That price tag screams rent with short commute. Rent something for $5k/month. With no kids you don't need 3-4 bedrooms yet.

Patience grasshoppers.
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nexesn
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Re: Can or should we afford this house

Post by nexesn » Tue Mar 12, 2019 7:57 am

We were seriously looking for a home (in HCOL area). But, now that SALT deductions have been diminished, and you're only able to take a tax advantage on $750,000 of your mortgage, we decided to continue renting.

Housing can be a really difficult one. If there is a house you "Know" is the one for you (good school district, easy commute, etc, etc) then sometimes it's worth the cost. But, for us, at this time, there's just too much uncertainties with the market, and we weren't gaining anything with the tax benefits. The only thing we realized we were doing, would be to put a lot of money into something that would then lock us to a single point and eliminate the current flexibility that we now enjoy (I also agree that sometimes being forced to root in one area is also great...).


Good luck with the decision :sharebeer

Jack FFR1846
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Re: Can or should we afford this house

Post by Jack FFR1846 » Tue Mar 12, 2019 8:00 am

Rent until you actually have a child that can run around in a back yard. A newborn is going to be inside all the time and will have no use for a back yard. Owning a house costs more than renting and the longer you can put it off, the more you're going to save.

I'll second the "there's no guarantees you'll become pregnant". Is IVF a required, covered thing in CA insurance? (it is in my state). Adoption isn't cheap. Been there, done all of that. If one of you stays home with kids, that's a major wrench in your thoughts to save anything, especially if you have your "forever" house.
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jodydavis
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Re: Can or should we afford this house

Post by jodydavis » Tue Mar 12, 2019 8:28 am

I agree with the others - you can probably afford it, but it would be far wiser to wait, rent a larger apartment, or buy a starter home. You have no idea how much having a child can potentially change your priorities (I've seen this again and again, and gone through it myself), and it is very likely you will feel differently at that point, in ways that it is impossible to accurately anticipate. Making such a large financial commitment at this point locks you in and removes a lot of valuable flexibility (i.e. what if one of you wants to stay at home or work less, what if your child has special needs, what if ....)

Topic Author
gophermobile
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Re: Can or should we afford this house

Post by gophermobile » Tue Mar 12, 2019 9:26 am

Thanks again for all the input. A couple of responses / thoughts:

I see a few mentions of an ARM mortgage being a better choice. I thought conventional wisdom is that fixed rate is always better?

Regarding daycare / school district stuff. This is in a good school district. This house does have a detached mother-in-law suite. And I have a mom that may be available to help out. Certainly not a guarantee. It's not permitted as a rental currently, but with our city and state laws I think there is a decent chance it would be something that could be permitted. Again not a guarantee but is a factor - if it was permitted it could help offset part ($1-2k) of the mortgage cost.

I saw a mention of the high property taxes...that's just a reality in CA unfortunately. The only upshot is that they won't go up.

One other non-guaranteed factor is that my wife's income is likely to go up to 300k this year.

I currently agree with most people that it's too much money to spend on anything. I don't want to spend that much. We looked at a $4k/mo rental, and there are some around that price range or 5k that could work. They do have downsides though - a lot are outdated with no easy path to fix that, and there's of course no guarantee of long term availability since it would be dependent upon the owner. Although I mentioned $800-900k for a starter home, that's a true starter home here and not much larger than our apartment, which I think is too small (1000 sq ft 2br/1ba) to easily have a kid in. I work from home and wife does part time as well so we need somewhere to stick our offices. A more realistic minimum is $1-1.1 million.

So given that I can't help but wonder if the difference between a nice ($1-1.1 mil) and this one is really that big a difference. It's hard to find property in SoCal that has much of a yard and this place has a good sized one, that means a lot for me. My wife loves the house style - it was built in 1929. I would think financially speaking the age is a bad thing as it means more stuff needs fixing / updating (electrical, plumbing etc). It seems to be in good condition though - would still need to get an inspection.

I'm of the mindset of the majority here that this is a stretch, but I always tend to plan for the worst case and I sometimes worry that I let too much life go by while waiting for everything to line up perfectly. Not sure if a $1.35 million house is the right way to address that though. If a couple of the more positive life-events were to happen, it seems like this could work out just fine and be a great house. With those above factors, would you still wait / go for something less expensive?

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FlyAF
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Re: Can or should we afford this house

Post by FlyAF » Tue Mar 12, 2019 9:38 am

Honestly, it makes me like the house even less. Spouse's salary "likely" to go up. Mother in law suite "might" be able to be permitted as a rental, but who wants someone living on their property with their spouse and young children? Your mom "may be available to help out". House is almost a century old, etc.......Seems like you're hoping a whole lot of uncontrollable stuff all breaks your way. How is any of that planning for the "worst case" as you put it?

But it sounds like you've made up your mind and you can afford it, so......enjoy.

Edit to add: Don't fool yourself into thinking this exact same house or one similar won't be available 12, 18, 24, 36 months from now.

FoolMeOnce
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Re: Can or should we afford this house

Post by FoolMeOnce » Tue Mar 12, 2019 9:52 am

Even after this house, you'll be maxing your 401k/Roth/HSAs and saving another $5,800 per month? I think you'll be fine. Even with added maintenance and then future possible day-care costs, you could be maxing those accounts and saving ~$3,000 more each month.

This might set back your FIRE plans by a number of years, but only you can decide if that is worth it for this house. Run some scenarios starting with your remaining ~670k liquid assets + expected post-house savings to see how long it will take to reach your "number" at various growth rates.

alfaspider
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Re: Can or should we afford this house

Post by alfaspider » Tue Mar 12, 2019 10:01 am

You can afford the house on your current income. The real question should never be "can I afford?" but "am I willing to make the sacrifices necessary for this purchase?" To put it bluntly, the purchase of this house at your income level is not compatible with FIRE. You will still be able to save, but not the portion of your income necessary to retire significantly early, and its fixed costs will greatly increase the amount you need to retire.

I have to admit that I have a somewhat similar long term dilemma. We are potentially looking to upsize before our kids start school (~3 years). To get everything we want in a house in the location we want, we are looking at ~$1.2-1.3 million. But I really don't want to spend that much because it will mean becoming a slave to our house as it will mean that we both have to continue working at our remunerative jobs to own the house. I would much rather have the freedom and security of knowing that either of us could quit or be laid off and have no worry about affording our home.

As a final point, I'd also be wary of borrowing more than $750k under the new tax law. Your borrowing costs on that additional portion are ~30% higher, which just seems like a very poor deal. I'd want to put $500k down if I were spending $1.25 million.

cherijoh
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Re: Can or should we afford this house

Post by cherijoh » Tue Mar 12, 2019 11:00 am

gophermobile wrote:
Tue Mar 12, 2019 12:48 am
Can or should we afford this house in high cost of living Southern California.
I'm pretty sure you would be able to find a mortgage lender based on the info you provided. Mortgage lenders don't care that you are currently spending $4500/month on non-home related expenses while living in a small apartment with no kids yet. They would be fine with you eating rice and beans or ramen noodles to make your house payment. :wink:

Should you? Absolutely not IMO. If you do this, you can pretty much kiss FIRE goodbye even with no adverse events like job loss, infertility treatments, unexpected medical expenses, etc. As a benchmark, saving 15%/year towards retirement until age 65 should give you a comfortable retirement. To retire early you need to be looking at 20 - 25% to retire at 60 to 55 respectively. At your income levels, simply maxing out tax-advantaged retirement plans isn't going to cut it. Also, the problem with having to work until 65 to pay off your mortgage is that quite often either your health or your employer won't let you. Upper income individuals who get laid off in their 40s or 50s rarely find jobs paying the same amount since employers would rather hire someone younger for less. Lots of people lost their dream houses during the Great Recession becuase their "plan" depended on them staying fully employed at the same salary until they decided they could afford to retire.

As many posters already pointed out, buying your dream house now will have repercussions for years - for example you will need to stay dual income in order to afford the house, save for retirement and save for kids education. You are also likely limiting your family size and your future lifestyle (vacations, enrichment activities for the kids, etc).

Another consideration is how the latest tax law impacts home ownership in high cost states like CA. Mortgage interest is only deductible for debt up to $750K (vs. the previous $1MM) and of course you will be hit by the $10K cap on SALT deductions. At your income, I imagine you are already hit with the SALT cap jsut based on your income therefore none of your property taxes would count towards itemized deductions. Both of these things will likely suppress housing price growth in the future.

With respect to mention of ARM mortgages, I would only consider if you were 99% confident that you would be moving before the first reset. Otherwise in circumstances of rising interest rates they are a time bomb waiting to happen IMO.

As a current renter you are in the catbird seat for purchasing a home since you don't have to worry about selling one house to buy another. If buying a starter home doesn't appeal to you, then I would wait until you actually have (or are expecting) a child to purchase your first home. Or if there is another recession and housing prices come down to more reasonable levels (Not that CA home prices will ever be truly reasionable! :annoyed ) you can jump in and buy from someone who really needs to sell their house.
Last edited by cherijoh on Tue Mar 12, 2019 11:05 am, edited 1 time in total.

fasteddie911
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Re: Can or should we afford this house

Post by fasteddie911 » Tue Mar 12, 2019 11:02 am

I live in a HCOL area, in a similar age and life stage as you, and I'd continue renting until the future becomes clearer. The picture with kids is unknown as others have suggested, things don't always go as planned. Husband job stability for next few years gives me pause. Also, future commitment to the area can be murky. Things can change with kids, priorities, job and opportunities come and go. The only thing that seems to reliably keep people in an area, that would favor buying an expensive house, is family. In the next 3yrs, you could sock away another 5-600k while renting, at which point husband job may change, kids may change things, etc. It would be nice to have 1.5M w/ options and not be anchored down by a large mortgage.

RollTide31457
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Re: Can or should we afford this house

Post by RollTide31457 » Tue Mar 12, 2019 11:18 am

Net worth looks a bit low for such high incomes. Focus on saving more.

Topic Author
gophermobile
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Re: Can or should we afford this house

Post by gophermobile » Tue Mar 12, 2019 12:06 pm

So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). That price is highly unlikely something they'd sell for, but doesn't seem like there would be any harm in trying. If it somehow did work, it would be much a more manageable mortgage situation. If it doesn't then we will just wait for now, probably start trying to have kids in our current apartment and reassess later this year.

Sam1
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Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 12:08 pm

fasteddie911 wrote:
Tue Mar 12, 2019 11:02 am
I live in a HCOL area, in a similar age and life stage as you, and I'd continue renting until the future becomes clearer. The picture with kids is unknown as others have suggested, things don't always go as planned. Husband job stability for next few years gives me pause. Also, future commitment to the area can be murky. Things can change with kids, priorities, job and opportunities come and go. The only thing that seems to reliably keep people in an area, that would favor buying an expensive house, is family. In the next 3yrs, you could sock away another 5-600k while renting, at which point husband job may change, kids may change things, etc. It would be nice to have 1.5M w/ options and not be anchored down by a large mortgage.
This is good advice. I’d try and make a savings target and say renting the next 2-3 years at a minimum.

I’ll also add that you don’t need much space for babies. It’s normal to think you need more space when you’re about to have a baby but you really don’t. Most parents are told the baby should sleep in your room until 6 months of age. Kids start walking around one or so and then the toys come at that point. My point is that even if your wife got pregnant today, you would have close to 2 years before you even really need more space. I’d definitely stay put these next 2 years.

UALflyer
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Re: Can or should we afford this house

Post by UALflyer » Tue Mar 12, 2019 12:37 pm

cherijoh wrote:
Tue Mar 12, 2019 11:00 am
Upper income individuals who get laid off in their 40s or 50s rarely find jobs paying the same amount since employers would rather hire someone younger for less. Lots of people lost their dream houses during the Great Recession becuase their "plan" depended on them staying fully employed at the same salary until they decided they could afford to retire.
This is a fair concern, but, depending on the OP's wife's occupation, may not be a serious one. Certain occupations enjoy very solid job security and aren't affected by recessions and the like. The OP's post suggests that his wife's occupation fits this description.
... of course you will be hit by the $10K cap on SALT deductions. At your income, I imagine you are already hit with the SALT cap jsut based on your income therefore none of your property taxes would count towards itemized deductions.
Prior to the most recent tax reform, in the OP's situation property taxes also would not have been deductible, as they would've been hit by the AMT, and property taxes have never been deductible under the AMT. So, the $10 SALT cap actually did not have an adverse consequence in the OP's tax situation.
With respect to mention of ARM mortgages, I would only consider if you were 99% confident that you would be moving before the first reset. Otherwise in circumstances of rising interest rates they are a time bomb waiting to happen IMO.
There are different types of ARM's out there. For instance, 5/5 ARM's only reset every five years, typically have a 2% adjustment limit and a 5% lifetime adjustment cap. Depending on the differential between the 5/5 ARM and the 30 year fixed, even in the worst case scenario the latter may not become advantageous for 10+ years.
HEDGEFUNDIE wrote:
Tue Mar 12, 2019 2:55 am
Only suggestion I have is to consider a 5 or 7 yr ARM. You’ll be able to knock at least 1% off that interest rate, which saves you $11k/yr.

For the 5 year ARM, assuming you stay in the house 10 years, interest rates would have to go up to 6% in 5 years and stay that high for the remaining 5 years for you to come out ahead with the 30 year fixed.
I wouldn't do it with a 5/1 or a 7/1 ARM, unless the OP is certain that they would move prior to the first adjustment date.That's because with those types of ARM's, the adjustments happen on an annual basis. Something like a 5/5 ARM, which is what I mentioned earlier, is a totally different story and is significantly safer, but is typically only offered by credit unions.

welsie
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Re: Can or should we afford this house

Post by welsie » Tue Mar 12, 2019 1:04 pm

wilked wrote:
Tue Mar 12, 2019 3:25 am
One thing to note with kids, daycare in Cali can be $2k/child. Factor that in now to the budget.
+1

At least for us: $2.5K/month for 45-50 hours a week day care, plus $3K a year in a 529, a couple thousand a year for diapers/formula, depending on your health insurance (we are HDHP) a couple thousand for unexpected hospitalization. Also they create more work instability, a fever at daycare and you are out of commission for a couple of days at work. I think you will be fine, but our baby is almost 1 and if you asked me a year ago I don't think I appreciated the totality of the expense.

If you live in California and both are full time in demanding jobs, having a couple of infants can cost $50-$70K a year (after tax) for care, 529, medical and child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.

Dottie57
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Re: Can or should we afford this house

Post by Dottie57 » Tue Mar 12, 2019 1:11 pm

bantam222 wrote:
Tue Mar 12, 2019 3:21 am
You can afford it. Although it is not “frugal” and may set back your early FIRE goals.
This. I think you need to choose between a 1.3m house and FIRE.

Dottie57
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Re: Can or should we afford this house

Post by Dottie57 » Tue Mar 12, 2019 1:19 pm

gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). That price is highly unlikely something they'd sell for, but doesn't seem like there would be any harm in trying. If it somehow did work, it would be much a more manageable mortgage situation. If it doesn't then we will just wait for now, probably start trying to have kids in our current apartment and reassess later this year.
Um, most responses say don’t buy. Read them again.

Sam1
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Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 1:22 pm

welsie wrote:
Tue Mar 12, 2019 1:04 pm
wilked wrote:
Tue Mar 12, 2019 3:25 am
One thing to note with kids, daycare in Cali can be $2k/child. Factor that in now to the budget.
+1

At least for us: $2.5K/month for 45-50 hours a week day care, plus $3K a year in a 529, a couple thousand a year for diapers/formula, depending on your health insurance (we are HDHP) a couple thousand for unexpected hospitalization. Also they create more work instability, a fever at daycare and you are out of commission for a couple of days at work. I think you will be fine, but our baby is almost 1 and if you asked me a year ago I don't think I appreciated the totality of the expense.

If you live in California and both are full time in demanding jobs, having a couple of infants can cost $50-$70K a year (after tax) for care, 529, medical and child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.
And I assume you only have to save $3k per year because you’re in California and can use a public university for way less? $1,200 a month is what we were quoted for out of state. Believe it was $600 per month for public.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 1:24 pm

gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). That price is highly unlikely something they'd sell for, but doesn't seem like there would be any harm in trying. If it somehow did work, it would be much a more manageable mortgage situation. If it doesn't then we will just wait for now, probably start trying to have kids in our current apartment and reassess later this year.
Wow. Even with $1.2, you’re forcing your wife (or you) to return to work when the baby is VERY young. When your wife is crying for a month straight and blaming you for the house (even though she gladly agreed to it), you’ll be majorly regretting it. Same when you realize you’ll be working till the age of 70 unless you increase your earnings significantly.

UALflyer
Posts: 542
Joined: Thu Jan 17, 2013 10:42 am

Re: Can or should we afford this house

Post by UALflyer » Tue Mar 12, 2019 1:29 pm

bloom2708 wrote:
Tue Mar 12, 2019 7:52 am
Rent something for $5k/month.
I share people's concerns, but how would renting something for $5K/month help things? Of the OP's mortgage payment, the interest expense is roughly $4,300 (principal is not an expense), plus $1,406/month in property taxes, plus $100/month in property insurance. This means that his monthly expense would be $5,806 minus the tax deduction (interest on the first $750K would be tax deductible, and even with the $10K SALT cap, they'll exceed the standard deduction), plus repair and maintenance.

So, at $5K/month their rental cost would roughly equal the overall net homeownership expense, meaning that renting at $5K/month wouldn't get them any closer to FIRE, but would result in a more difficult living situation for them. If continuing to rent something decent for $2,400/month was a viable option, it'd be a different story, but it doesn't sound like that's the case.
Sam1 wrote:
Tue Mar 12, 2019 1:24 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). That price is highly unlikely something they'd sell for, but doesn't seem like there would be any harm in trying. If it somehow did work, it would be much a more manageable mortgage situation. If it doesn't then we will just wait for now, probably start trying to have kids in our current apartment and reassess later this year.
Wow. Even with $1.2, you’re forcing your wife (or you) to return to work when the baby is VERY young. When your wife is crying for a month straight and blaming you for the house (even though she gladly agreed to it), you’ll be majorly regretting it. Same when you realize you’ll be working till the age of 70 unless you increase your earnings significantly.
How does renting for $5K/month help with this?

bloom2708
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Location: Fargo, ND

Re: Can or should we afford this house

Post by bloom2708 » Tue Mar 12, 2019 1:35 pm

UALflyer wrote:
Tue Mar 12, 2019 1:29 pm
bloom2708 wrote:
Tue Mar 12, 2019 7:52 am
Rent something for $5k/month.
I share people's concerns, but how would renting something for $5K/month help things? Of the OP's mortgage payment, the interest expense is roughly $4,500 (principal is not an expense), plus $1,406/month in property taxes, plus $100/month in property insurance. This means that his monthly expense would be $5,806 minus the tax deduction (interest on the first $750K would be tax deductible, and even with the $10K SALT cap, they'll exceed the standard deduction), plus repair and maintenance.

So, at $5K/month their rental cost would roughly equal the overall net homeownership expense, meaning that renting at $5K/month wouldn't get them any closer to FIRE, but would result in a more difficult living situation for them. If continuing to rent something decent for $2,400/month was a viable option, it'd be a different story, but it doesn't sound like that's the case.
From my experience, owning is (much) more expensive than just the principle/interest/insurance/taxes you mention.

If it is not cheaper before the other things, renting wins. $800/month plus not having the repairs/maintenance/upgrades/lawn care/etc. A 1929 house might be even worse. Roofs and foundations and heating/cooling. Wiring. Walls where you don't want walls. Small closets.

That is plenty to tip the difference to renting. It is what the rent vs. buy calculator is attempting to do.

Buying is always the right answer when you want to buy a home. I like good back and forth. If all expenses (known and unknown) add up to equal to rent, then buy away. Not my $1.3 million.
"People want confirmation, not advice" Unknown | "We are here to provoke thoughtfulness, not agree with you" Unknown | Four words: Whole food, plant based

welsie
Posts: 91
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Re: Can or should we afford this house

Post by welsie » Tue Mar 12, 2019 1:40 pm

Sam1 wrote:
Tue Mar 12, 2019 1:22 pm
welsie wrote:
Tue Mar 12, 2019 1:04 pm
wilked wrote:
Tue Mar 12, 2019 3:25 am
One thing to note with kids, daycare in Cali can be $2k/child. Factor that in now to the budget.
+1

At least for us: $2.5K/month for 45-50 hours a week day care, plus $3K a year in a 529, a couple thousand a year for diapers/formula, depending on your health insurance (we are HDHP) a couple thousand for unexpected hospitalization. Also they create more work instability, a fever at daycare and you are out of commission for a couple of days at work. I think you will be fine, but our baby is almost 1 and if you asked me a year ago I don't think I appreciated the totality of the expense.

If you live in California and both are full time in demanding jobs, having a couple of infants can cost $50-$70K a year (after tax) for care, 529, medical and child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.
And I assume you only have to save $3k per year because you’re in California and can use a public university for way less? $1,200 a month is what we were quoted for out of state. Believe it was $600 per month for public.
Yeah, basically, for all of California's failures, we do have a good variety of public colleges. Well also the $3K is us and grandparents fund another K, so yeah, if you are self funding entirely or have more expensive colleges in mind it could a lot more. It also depends on your goals, if I can have $100K in 2019 dollars per child at the head of the day, I think that is a perfectly good head start. They can then figure out if they want to doing two years at CC and go to a good private school, or do 4 years in state (with no/minimal loans).

What state are you in?

3funder
Posts: 1245
Joined: Sun Oct 15, 2017 9:35 pm

Re: Can or should we afford this house

Post by 3funder » Tue Mar 12, 2019 1:42 pm

wilked wrote:
Tue Mar 12, 2019 3:25 am
One thing to note with kids, daycare in Cali can be $2k/child. Factor that in now to the budget.
+1

UALflyer
Posts: 542
Joined: Thu Jan 17, 2013 10:42 am

Re: Can or should we afford this house

Post by UALflyer » Tue Mar 12, 2019 1:49 pm

bloom2708 wrote:
Tue Mar 12, 2019 1:35 pm
From my experience, owning is (much) more expensive than just the principle/interest/insurance/taxes you mention.

If it is not cheaper before the other things, renting wins. $800/month plus not having the repairs/maintenance/upgrades/lawn care/etc.
Again, I agree with the overall concern, but your calculations are incorrect. Assuming that their only deductions will consist of mortgage interest on the first $750K of their mortgage and $10K in SALT, that's about $33.5K/year in interest (at 4.5%, which is what the OP referenced), plus $10K in SALT, which makes it $43.5K/year or so. The standard deduction is $24K, which means that they'll get an additional deduction on the $19,500 over and above the standard deduction. They're in the 32% tax bracket, so the tax deduction alone will save approximately $500/month over and above the standard deduction.

I completely agree that a 1929 house is obviously going to require maintenance, which should be added to the expense side of the equation. You do also have to account for long term appreciation as well as the fact that long term, their rental rates will go up, while their 30 year mortgage will remain fixed. Even if you assume long term appreciation rate of only 2%, which, on a long term basis, is very conservative in the OP's area, it will more than cover the annual maintenance and upkeep.

In other words, on a long term basis, a $5K/month rental is highly unlikely to save them money. Like I mentioned above, I do agree with the overall concerns about the OP's situation, but a $5K/month rental isn't exactly a good solution, nor is it likely to get the OP and his family any closer to FIRE.

cdu7
Posts: 329
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Re: Can or should we afford this house

Post by cdu7 » Tue Mar 12, 2019 1:58 pm

Yes you can afford it, but it will impact your ability to retire early. Housing isn’t a frivolous expense. If you want this house and it makes sense for your life you should get it.

Topic Author
gophermobile
Posts: 25
Joined: Tue Jan 27, 2015 7:10 pm

Re: Can or should we afford this house

Post by gophermobile » Tue Mar 12, 2019 2:12 pm

Dottie57 wrote:
Tue Mar 12, 2019 1:19 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). ...
Um, most responses say don’t buy. Read them again.
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.

Also just to note, I put FIRE as a goal at the very top of my original post but there isn't really a big emphasis on that. It's a goal for me, but I don't have a set timeline nor do I even know if I'd truly want to stop working. My wife on the other hand seems to very much enjoy working and has no desire to stop, though again who knows what happens if kids were in the picture.

That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now. I can plug all the numbers in (even with things like daycare, increased maintenance, possible decreased wages) and I still see a reasonable path that allows for savings and cash flow. But I have no life-experience with a house or kids or school or anything like that so it's very helpful to know how it changed others lives and what they would have done.

welsie
Posts: 91
Joined: Tue Feb 12, 2019 6:11 pm

Re: Can or should we afford this house

Post by welsie » Tue Mar 12, 2019 2:30 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
Dottie57 wrote:
Tue Mar 12, 2019 1:19 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). ...
Um, most responses say don’t buy. Read them again.
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.

Also just to note, I put FIRE as a goal at the very top of my original post but there isn't really a big emphasis on that. It's a goal for me, but I don't have a set timeline nor do I even know if I'd truly want to stop working. My wife on the other hand seems to very much enjoy working and has no desire to stop, though again who knows what happens if kids were in the picture.

That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now. I can plug all the numbers in (even with things like daycare, increased maintenance, possible decreased wages) and I still see a reasonable path that allows for savings and cash flow. But I have no life-experience with a house or kids or school or anything like that so it's very helpful to know how it changed others lives and what they would have done.
My experience with home ownership has been that there are lot of little, unexpected expenses that pop up, but most of the significant expenses tend to have some level of deferment to them. I am sure there is someone with a horror story, but you don't need a new roof over night, or remodel your bathroom, or to restucco/paint your house. It tends to be the surprise roof leak/skylight, or roots in your sewer line sort of variety.

However I would strongly recommend doing remodeling prior to moving in. It is a lot easier for people to make a mess in your house prior to all of your possession being in there or your baby. If I had a time machine I would have updated our bathrooms prior to us moving in. Also throw in another $100 a month for earthquake insurance.

ThatGuy
Posts: 957
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Re: Can or should we afford this house

Post by ThatGuy » Tue Mar 12, 2019 2:38 pm

welsie wrote:
Tue Mar 12, 2019 1:04 pm
… child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.
Hahahahahahaha.

As the kiddos get older they require more enrichment activities so they can compete with all of the other highly educated professional families in your good school district.
Work is the curse of the drinking class - Oscar Wilde

alfaspider
Posts: 2458
Joined: Wed Sep 09, 2015 4:44 pm

Re: Can or should we afford this house

Post by alfaspider » Tue Mar 12, 2019 2:44 pm

ThatGuy wrote:
Tue Mar 12, 2019 2:38 pm
welsie wrote:
Tue Mar 12, 2019 1:04 pm
… child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.
Hahahahahahaha.

As the kiddos get older they require more enrichment activities so they can compete with all of the other highly educated professional families in your good school district.
I realize this post was dripping with sarcasm, but from a practical standpoint, you can choose to play that game to the degree you feel its necessary. You can't really choose whether to find daycare or nanny services if you want to both work. That said, most dual earner families will still need to find after school care.

ColoradoNewBiker
Posts: 50
Joined: Sun Apr 05, 2015 1:08 pm

Re: Can or should we afford this house

Post by ColoradoNewBiker » Tue Mar 12, 2019 2:50 pm

I see a lot of "no buy" here because it'll slow down your FIRE. On the other side, do you feel this is good investment? I heard California housing market has been so good that many people just get FIRE due to their properties. Maybe you'll think of relocating to a lower-cost area later and then this is a property you can reap some investment gain (especially you said it's in a good school district).

welsie
Posts: 91
Joined: Tue Feb 12, 2019 6:11 pm

Re: Can or should we afford this house

Post by welsie » Tue Mar 12, 2019 2:51 pm

alfaspider wrote:
Tue Mar 12, 2019 2:44 pm
ThatGuy wrote:
Tue Mar 12, 2019 2:38 pm
welsie wrote:
Tue Mar 12, 2019 1:04 pm
… child related expenses. Those expenses go down when they get older, so make sure you are somewhere with good public schools.
Hahahahahahaha.

As the kiddos get older they require more enrichment activities so they can compete with all of the other highly educated professional families in your good school district.
I realize this post was dripping with sarcasm, but from a practical standpoint, you can choose to play that game to the degree you feel its necessary. You can't really choose whether to find daycare or nanny services if you want to both work. That said, most dual earner families will still need to find after school care.
That is still at a much lower cost. Like I said, we pay ~$2,500/month for 45-50 hours/week daycare. We will have another child in the next year. The prices go down as the kids get older (plus we get a discount for more kids), but it is still going to be ~$45-$50K a year for two small kids in daycare. After school care for children is a fraction of that, so once the kids reach public schools the savings will be immense on our end.

I am not saying kids are free when they are older, but full-time child care for infants is fairly expensive.

ThatGuy
Posts: 957
Joined: Fri Feb 05, 2010 9:00 am

Re: Can or should we afford this house

Post by ThatGuy » Tue Mar 12, 2019 2:53 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy.
You're getting that crazy talk from people who have never competed for a house in a HCOL.

Housing is expensive, no doubt about it. Spending on a house in a HCOL will initially curtail spending in other areas of life.

However, using a multiple of salary is just wrong for several reasons. First off, you don't pay any expenses based on a multiple of salary. In fact, the interest rate and duration has a greater impact on the monthly payment than what your salary is. For instance, using nice round numbers, the monthly payment on a $1,000,000 loan at 5% is $5,368.22. At 4% it is $4,774.15, or a difference of $594.07. For the same principle.

Second, not everything scales at the same rate in a HCOL. Food is not 400% more expensive, even if the house is. An Xbox cost the same from Amazon (ignoring local sales tax) whether you're in California or Tennessee. So yes, you should be able to spend a higher percentage of your income on a house in a HCOL vs. a LCOL.

The only way you can figure out if this is affordable is to make a budget! Figure out how much you have coming in. Price out what you spend on various things. Then add in all house costs and determine if it makes life untenable. In my experience, this is where people mess up, they don't accurately gauge house costs. That's why you have first time landlords who think they're real estate geniuses.
Work is the curse of the drinking class - Oscar Wilde

Dottie57
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Location: Earth Northern Hemisphere

Re: Can or should we afford this house

Post by Dottie57 » Tue Mar 12, 2019 3:04 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
Dottie57 wrote:
Tue Mar 12, 2019 1:19 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). ...
Um, most responses say don’t buy. Read them again.
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.

Also just to note, I put FIRE as a goal at the very top of my original post but there isn't really a big emphasis on that. It's a goal for me, but I don't have a set timeline nor do I even know if I'd truly want to stop working. My wife on the other hand seems to very much enjoy working and has no desire to stop, though again who knows what happens if kids were in the picture.

That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now. I can plug all the numbers in (even with things like daycare, increased maintenance, possible decreased wages) and I still see a reasonable path that allows for savings and cash flow. But I have no life-experience with a house or kids or school or anything like that so it's very helpful to know how it changed others lives and what they would have done.
I think people are saying
1) 20% downis the minimum
2) don’t buy before you need to
3) yearly non-mortgage costs will be more than you think
4) furniture will cost a bundle.

You don’t need experience in putting in a bid, so don’t. The tricky part in buying is negotiating, having an inspector (not your realtors), and if problems are found - negotiating repair or reducing your offer.

Dottie57
Posts: 8141
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Can or should we afford this house

Post by Dottie57 » Tue Mar 12, 2019 3:04 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
Dottie57 wrote:
Tue Mar 12, 2019 1:19 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). ...
Um, most responses say don’t buy. Read them again.
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.

Also just to note, I put FIRE as a goal at the very top of my original post but there isn't really a big emphasis on that. It's a goal for me, but I don't have a set timeline nor do I even know if I'd truly want to stop working. My wife on the other hand seems to very much enjoy working and has no desire to stop, though again who knows what happens if kids were in the picture.

That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now. I can plug all the numbers in (even with things like daycare, increased maintenance, possible decreased wages) and I still see a reasonable path that allows for savings and cash flow. But I have no life-experience with a house or kids or school or anything like that so it's very helpful to know how it changed others lives and what they would have done.
I think people are saying
1) 20% downis the minimum
2) don’t buy before you need to
3) yearly non-mortgage costs will be more than you think
4) furniture will cost a bundle.
K
You don’t need experience in putting in a bid, so don’t. The tricky part in buying is negotiating, having an inspector (not your realtors), and if problems are found - negotiating repair or reducing your offer.

Spending a lot on housing can limit what you do after purchase - just be aware.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 3:15 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
Dottie57 wrote:
Tue Mar 12, 2019 1:19 pm
gophermobile wrote:
Tue Mar 12, 2019 12:06 pm
So based on all the responses I think what we're going to do is just lowball an offer ($1.2 maybe). ...
Um, most responses say don’t buy. Read them again.
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.

Also just to note, I put FIRE as a goal at the very top of my original post but there isn't really a big emphasis on that. It's a goal for me, but I don't have a set timeline nor do I even know if I'd truly want to stop working. My wife on the other hand seems to very much enjoy working and has no desire to stop, though again who knows what happens if kids were in the picture.

That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now. I can plug all the numbers in (even with things like daycare, increased maintenance, possible decreased wages) and I still see a reasonable path that allows for savings and cash flow. But I have no life-experience with a house or kids or school or anything like that so it's very helpful to know how it changed others lives and what they would have done.
The reason is because you said you’d like to have kids. Your one child is going to cost you at least $3k per month. So it’s like you’re lookkng to buy a $1.7 million home.

If you don’t have kids, then you can buy and keep saving.

The childcare + house + savings don’t add up.

Here’s a good preview of what it’s like to be a high earning but dual income family with children. Even at $375k you have to make smart decisions or you’ll end up spending it all and not understand why.

Sam1
Posts: 506
Joined: Mon Apr 09, 2018 7:24 am

Re: Can or should we afford this house

Post by Sam1 » Tue Mar 12, 2019 3:18 pm

ThatGuy wrote:
Tue Mar 12, 2019 2:53 pm
gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy.
You're getting that crazy talk from people who have never competed for a house in a HCOL.

Housing is expensive, no doubt about it. Spending on a house in a HCOL will initially curtail spending in other areas of life.

However, using a multiple of salary is just wrong for several reasons. First off, you don't pay any expenses based on a multiple of salary. In fact, the interest rate and duration has a greater impact on the monthly payment than what your salary is. For instance, using nice round numbers, the monthly payment on a $1,000,000 loan at 5% is $5,368.22. At 4% it is $4,774.15, or a difference of $594.07. For the same principle.

Second, not everything scales at the same rate in a HCOL. Food is not 400% more expensive, even if the house is. An Xbox cost the same from Amazon (ignoring local sales tax) whether you're in California or Tennessee. So yes, you should be able to spend a higher percentage of your income on a house in a HCOL vs. a LCOL.

The only way you can figure out if this is affordable is to make a budget! Figure out how much you have coming in. Price out what you spend on various things. Then add in all house costs and determine if it makes life untenable. In my experience, this is where people mess up, they don't accurately gauge house costs. That's why you have first time landlords who think they're real estate geniuses.
Not true at all about HCOL. Many of us here live in a HCOL city, including me. We simply are able to do the math and understand how expensive childcare is in a HCOL city. We are also aware of other higher income costs like 529 savings, high taxes, expectations for your child.

I already posted a budget above and showed how little they will be able to save by spending 2-3k on childcare, 7k on the house, 1k on transportation. They will be able to save 1k a month if that.

Look, if OP doesn’t want to save any money then yes, they can afford the house and childcare. But also save money? No, it’s really not possible.

User avatar
vineviz
Posts: 5597
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Re: Can or should we afford this house

Post by vineviz » Tue Mar 12, 2019 3:19 pm

gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
To add more, I still don't think we'll buy and much more likely to wait longer. But I feel like as a first time buyer I want to at least throw a bid in to get myself familiar with the process. If it somehow did get accepted I will re-evaluate.
If your offer is accepted, your options to "re-evaluate" will likely cost you money. Please don't make an offer unless you are SURE you'll buy if the offer is accepted.
gophermobile wrote:
Tue Mar 12, 2019 2:12 pm
That said, I'm surprised people are saying even at $1.2 million is still too much on a $375k salary. That's 3.2x salary. Doesn't seem that crazy. Our net worth is admittedly low for the income right now.
I think it's the fact that your savings is low relative to your income that is causing people to urge you to be cautious, and I think that caution is warranted. For someone at your age and with your household income, I'd expect net worth to be something like 1.5x or 2x what you've accumulated.

A couple in their 30s with no children and income of $375k should IMHO have a savings rate of 20% or so. So unless you are putting $75k/year into retirement and/or taxable brokerage accounts you should probably be looking for ways to spend less and save more. Maxing out 401ks and HSAs only gets you half the way there.

It sounds as if you CAN save at this rate, given the numbers you've provided, so I'd encourage to you spend at least a year or two more DOING it before committing such a large purchase. Being frugal by default is the number one characteristic of financially secure people at every income level. If you've never read the book The Millionaire Next Door I strongly recommend it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

majiaknight
Posts: 117
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Re: Can or should we afford this house

Post by majiaknight » Tue Mar 12, 2019 3:21 pm

IMO your family could afford the $1.35M house. As you expect to grow your family in a year or two and also plan to accommodate visiting parents, you don't need to wait until the time when you have to move to a larger rental like 3B which could be much more expensive or buy a non-ideal house in a short time. You've been quite frugal by living in a $2400/m apt given your income level and saved quite a lot compared to most 1st time homeowners in the Bay Area and SoCal that I know including myself (my family moved from SoCal to the Bay Area several years back). So, I'd say you've got very good results out of your saving plan and now it's also a good timing considering the cooling housing market in CA.

However, as someone also pointed out that you might consider to get at least 20% down payment and a 5/1 or 7/1 ARM to qualify for the best mortgage rate (>4.5% @30Y Fixed Jumbo is quite high and you should get more quotes as I've heard 3.25% @5/1 ARM for Jumbo loan very recently), and you could always refinance to a new ARM or 15Y Fixed before the rate jump after 5/7 years. Typical time to spend in buying a house in the Bay Area could be 6-12 months, so you could be a little bit more patient in touring more open houses in SoCal. Good luck!

Add more comments after seeing all the previous replies: the OP should notice that most Bogleheads are more conservative than normal folks in big purchases like housing and cars, and also many of them are not living in HCOL areas. I'd consider $1.35M house is relatively cheap given your income level and assets. If considering the calculated risk, the worst case scenario is to sell your house at w/ 6% loss to cover the agent fees assuming no RE market crash and no housing price appreciation after a few years.
Last edited by majiaknight on Tue Mar 12, 2019 4:24 pm, edited 1 time in total.

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