Sanity check: Buying new house -- 400k with 155k income?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Mon Mar 25, 2019 3:03 pm

Hi all,
As the subject says, we are looking at buying a new construction home. Stats below. Let me know if the forum feels good about our finances and/or if we should NOT move forward with a new house. We haven't put any money down -- just beginning exploratory stage. I respect many members in this forum, so I will be listening carefully. I would like to retire in my late 50s and wife has stated she wants to work until her 60s are at least part time in her 60s..

House price range of what we are looking at:
370k - 400k
Online calculators showing monthly mortgage of $2456/mo (PITI) with a 20yr fixed rate @ 3.7% interest
DTI calculator for $400k home shows a debt to income percentage of 20%

Personal Stats:

Ages: 38 (me), 31 (wife), 2yr old child, expect 1 more in the coming year
Income: I bring in 155k/yr (hit 6 figure income starting 2015) / wife is SAHM with child, wife plans to return to work in a few years after baby #2
Job details and location: software engineer (stable) , LCOL Midwest / wife has a Masters in Early childhood education
Debt: None -- 2 cars paid off, no student loans
Credit Score: Excellent
Current annual expenses: 40k-45k/yr.
Avg exp per month: 3,777 (includes mortgage)

Cash:

Online Savings: 65k (working on down payment savings to avoid PMI)
Checking: 4k
Taxable account: 14k (3month emergency fund -- will use credit cards for more if needed)

Retirement:

In 2018 we maxed everything we could: 401k, Roth IRAs, HSA and with employer 6% matching included, we saved a total of 51k.
Total in retirement accounts: 350k (90% of that is post-tax)

College fund:
$800 (just started this year...have some catching up to do, but only plan to do 200/mo per child). State offers up to 16k deduction in taxes

*Private school tuition (blue ribbon) is free for both children if wife returns to school where she worked prior (or related school system -- plenty in area), otherwise cost is $7k/yr total for 2 kids

Current House:
136k left on mortgage @ 4% 30yr fixed, estimated sale price (according to Redfin.com): 207k-229k. We bought house for 184k in 2015.

If there are any other details I should add, let me know.

I dont' want to spend more than 400k on a home, but I want to know what a reasonable limit is for us. A DTI calculator at 36% shows we are "comfortable" with a 600k house...but I don't put much stock in those calculators.

Litfury
Posts: 26
Joined: Sat Aug 10, 2013 8:43 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Litfury » Mon Mar 25, 2019 3:10 pm

I'm assuming you plan to sale the current house? Or do you plan to convert to a rental? Looking at your current stats I think a 400k house is certainly doable.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Mon Mar 25, 2019 3:14 pm

Litfury wrote:
Mon Mar 25, 2019 3:10 pm
I'm assuming you plan to sale the current house? Or do you plan to convert to a rental? Looking at your current stats I think a 400k house is certainly doable.
Yes, plan to sell current house. Now, might even do FSBO.

ohai
Posts: 912
Joined: Wed Dec 27, 2017 2:10 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by ohai » Mon Mar 25, 2019 3:17 pm

Sounds like you can do it, but you never know what might happen in terms of careers or unexpected cost. Let's say you are 85% safe with the $400k house. Would you rather be 90% safe with a $300k house? That's up to you to decide.

bloom2708
Posts: 6536
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by bloom2708 » Mon Mar 25, 2019 3:18 pm

You should have $65k in equity after selling the current place. I used a conservative $210k selling price.

You need $80k + closing costs to avoid PMI. Assuming $400k purchase.

Looks good. The tricky part will be if you want to stay in your current house until after you close on your new house. Or if you want to buy with no contingency.

With new construction, just go in with eyes wide open. Builder grade vs. what you want. Upgrades, landscaping, trees, lawn, cost overruns. You might start at $400k and get a jolt.

Good luck!
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

User avatar
DanMahowny
Posts: 918
Joined: Sun Aug 06, 2017 8:25 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by DanMahowny » Mon Mar 25, 2019 3:27 pm

Yeah I think you can do it.

But I really like your income and low expenses. If you stay put, you could be looking at a nice early retirement, and that's much better than an expensive home. But maybe you don't feel the same. Your call.

Also, I agree with bloom, a $400k home can easily end up at $450, or even $500. Happens all the time.

Good luck with whatever you guys decide.
Funding secured

Jordan4FI
Posts: 190
Joined: Mon May 28, 2018 11:00 am
Location: Honduras

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Jordan4FI » Mon Mar 25, 2019 3:29 pm

With your #'s the house should be paid off in 5 years or less..

KlangFool
Posts: 13239
Joined: Sat Oct 11, 2008 12:35 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by KlangFool » Mon Mar 25, 2019 3:47 pm

OP,

1) Why are you buying more house when you don't need to?

2) You will be spending $1,500 to $2,000 more per month on the house. Why do that when you could spend the money elsewhere? What do you hope to get by spending that much more on the house?

KlangFool

DesertDiva
Posts: 458
Joined: Thu Mar 01, 2018 12:49 pm
Location: In the desert

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by DesertDiva » Mon Mar 25, 2019 4:25 pm

bloom2708 wrote:
Mon Mar 25, 2019 3:18 pm
You should have $65k in equity after selling the current place. I used a conservative $210k selling price.

You need $80k + closing costs to avoid PMI. Assuming $400k purchase.

Looks good. The tricky part will be if you want to stay in your current house until after you close on your new house. Or if you want to buy with no contingency.

With new construction, just go in with eyes wide open. Builder grade vs. what you want. Upgrades, landscaping, trees, lawn, cost overruns. You might start at $400k and get a jolt.

Good luck!
+1 The model houses always have premium kitchens, baths, fixtures, etc., and that escalates costs very quickly. Also find out if the lot is included in the price, and/or if there is a lot premium on the lot you want. You may not know the true cost of the house right now.
Last edited by DesertDiva on Mon Mar 25, 2019 4:31 pm, edited 1 time in total.

JBTX
Posts: 5239
Joined: Wed Jul 26, 2017 12:46 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by JBTX » Mon Mar 25, 2019 4:31 pm

Like Klang fool, I'd guess I'd ask why?

I think you can afford the house at that price, but is it an optimal use of your savings?

I'm guessing $400k in a LCOL buys a pretty nice house. Why would you want a bigger/nicer house with two toddlers?

We've been in our house 20 years. We do seem to be the exception.

I feel like there is a societal pressure to keep moving up in bigger and more expensive houses. It is just assumed that is what you do.

User avatar
DanMahowny
Posts: 918
Joined: Sun Aug 06, 2017 8:25 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by DanMahowny » Mon Mar 25, 2019 4:36 pm

JBTX wrote:
Mon Mar 25, 2019 4:31 pm
We've been in our house 20 years. We do seem to be the exception.
Smart people are always (almost) the exception. Well done.
Funding secured

JBTX
Posts: 5239
Joined: Wed Jul 26, 2017 12:46 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by JBTX » Mon Mar 25, 2019 4:42 pm

DanMahowny wrote:
Mon Mar 25, 2019 4:36 pm
JBTX wrote:
Mon Mar 25, 2019 4:31 pm
We've been in our house 20 years. We do seem to be the exception.
Smart people are always (almost) the exception. Well done.
Or maybe we are just to lazy to move.

The other thing about a larger and newer house is you'll want to fill the house up with more stuff.

User avatar
8foot7
Posts: 1560
Joined: Mon Jan 05, 2015 7:29 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by 8foot7 » Mon Mar 25, 2019 4:45 pm

Easily doable. Enjoy.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Mon Mar 25, 2019 4:53 pm

Our current house is 1250sqft and while it's OK for 3 people, we expect to have another kid and I feel it's going to be a bit small, especially when they are teens. Also, we are homebodies and would like more usable space for a entertainment and fitness. We have cold Missouri winters but no garage. Our basement is unusable (it flooded due to rising water table a few years ago). i was playing with the idea of renovating the basement but I don't trust the water issue...i even put a tile drain in myself. The noise from the top floor is LOUD and that will need to be taken care of (first floor only has original douglas fir planks on top of joists -- no subfloor) and leaks seep through into the basement. My home office is next to the hvac right now and I need to wear noise canceling headphones for now. Kitchen is small and needs to be expanded (we love to cook) and we have 1 bathroom + 1.5 bathroom. There are several other items...if you want me to lay them out I will, but this house is just not that comfortable for me (wife is OK with it, though..but floorplan needs work). We are open to looking for a slightly bigger house that costs less than 300k, so that is an option.

KlangFool
Posts: 13239
Joined: Sat Oct 11, 2008 12:35 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by KlangFool » Mon Mar 25, 2019 5:17 pm

doss wrote:
Mon Mar 25, 2019 4:53 pm
Our current house is 1250sqft and while it's OK for 3 people, we expect to have another kid and I feel it's going to be a bit small, especially when they are teens. Also, we are homebodies and would like more usable space for a entertainment and fitness. We have cold Missouri winters but no garage. Our basement is unusable (it flooded due to rising water table a few years ago). i was playing with the idea of renovating the basement but I don't trust the water issue...i even put a tile drain in myself. The noise from the top floor is LOUD and that will need to be taken care of (first floor only has original douglas fir planks on top of joists -- no subfloor) and leaks seep through into the basement. My home office is next to the hvac right now and I need to wear noise canceling headphones for now. Kitchen is small and needs to be expanded (we love to cook) and we have 1 bathroom + 1.5 bathroom. There are several other items...if you want me to lay them out I will, but this house is just not that comfortable for me (wife is OK with it, though..but floorplan needs work). We are open to looking for a slightly bigger house that costs less than 300k, so that is an option.
doss,

Don't buy more house than you need to. If you do, you will have less flexibility in term of the spouse stay at home versus working.

<<Also, we are homebodies and would like more usable space for a entertainment and fitness.>.

How to do that when both parents need to work in order to feed the house?

KlangFool

pop77
Posts: 417
Joined: Wed Dec 12, 2007 7:57 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by pop77 » Mon Mar 25, 2019 5:26 pm

If you have a house you look forward to get back to , that itself is a nice feeling. You will go out less for entertainment :happy .

You seem to be pretty organized and buttoned up in other aspects of finance. I would say go for it. Shop around for 15 year fixed as well and see if you can knock down the interest rate. Pay down aggressively for the first two years and then let it ride once the principal crosses a threshold.

GuayaquilEcu
Posts: 6
Joined: Thu Oct 18, 2018 9:02 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by GuayaquilEcu » Mon Mar 25, 2019 5:31 pm

Numbers looks pretty good for the new house, Here are my 2 cents (personal experience from buying two homes and selling 2 homes in the last 6 years)
Get an experienced & reputable local realtor who can accurately get you a number ,Redfin numbers are aggregate and derived from an algorithm and they have no idea how your home looks from inside and needs to be taken with a pinch of salt. Also with the basement lower water table you might have to price in that in to your estimate as well and an experienced realtor would be able to give you a quote for free to get your business. Also might help you with your home search.

Olemiss540
Posts: 1038
Joined: Fri Aug 18, 2017 8:46 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Olemiss540 » Mon Mar 25, 2019 5:33 pm

Yes you can afford it. Is the 155k income all base or include bonus? You will have more flexibility in 5 years, but I think you can definately swing it if you want to. I would make sure 400k is your puke point though and try everything to ensure the house stays under budget.

Personally, I would go the 30 year route to ensure you are still able to fill your tax advantaged accounts as much as possible.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Slacker
Posts: 713
Joined: Thu May 26, 2016 8:40 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Slacker » Mon Mar 25, 2019 5:40 pm

Does the new house have an HOA? It seems like most new builds have HOAs now...add in that monthly cost if applicable.

Will the new house have a yard? Our new construction had a front yard but no backyard, no fence, the builder's patio was unusable so we opted to have that built by a local contractor too. All in, our $407K house ended up costing us closer to $440K (we had to buy appliances and more furniture too since we were coming from a rental situation).

Quickfoot
Posts: 1155
Joined: Fri Jan 11, 2013 1:03 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Quickfoot » Mon Mar 25, 2019 5:44 pm

You can afford it, I agree that you should do a 30 year mortgage. If you can afford to pre-pay you have that option but aren't locked into the higher payment in the event someone loses a job or other unexpected financial events occur. With today's low mortgage rates I wouldn't prioritize pre-paying the mortgage and would invest for retirement instead. At retirement time you can payoff the mortgage, downsize or refinance to lower the payment if a balance is still owed.

As others mentioned you have to plan for other expenses, we just built a custom home at base price of 437K, after closing costs and upgrades it was 463K, combined income is about 230K and we paid upgrades and closing costs out of pocket.

chessknt
Posts: 174
Joined: Wed Jul 13, 2016 3:15 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by chessknt » Mon Mar 25, 2019 6:46 pm

I think it looks fine. A lot of people here sacrifice houses, cars, lawn service etc to the altar of austerity to pay homage to the all powerful FIRE God but if your kids spend their entire childhood in cramped quarters that irritates you so you can retire 5-8 years earlier, is it worth it? Only you can answer that. I know for me the joy I derive from living in my beautiful house is worth the time tradeoff but I also don't hate my job.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Fri Mar 29, 2019 7:24 am

Olemiss540 wrote:
Mon Mar 25, 2019 5:33 pm
Yes you can afford it. Is the 155k income all base or include bonus? You will have more flexibility in 5 years, but I think you can definately swing it if you want to. I would make sure 400k is your puke point though and try everything to ensure the house stays under budget.

Personally, I would go the 30 year route to ensure you are still able to fill your tax advantaged accounts as much as possible.
@Olemiss, the 155k is base. I can get a bonus on top of that if I "work hard" but I'd rather play hard at home with the wife and kids.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Fri Mar 29, 2019 7:29 am

Slacker wrote:
Mon Mar 25, 2019 5:40 pm
Does the new house have an HOA? It seems like most new builds have HOAs now...add in that monthly cost if applicable.

Will the new house have a yard? Our new construction had a front yard but no backyard, no fence, the builder's patio was unusable so we opted to have that built by a local contractor too. All in, our $407K house ended up costing us closer to $440K (we had to buy appliances and more furniture too since we were coming from a rental situation).
@slacker, yes the neighborhood has a HOA depending on what street you're on. The 400k+ homes have a HOA of $300 a year. The smaller homes (villas) less than $350k which I am now looking at has HOA of 100/mo but that includes everything (snow removal, grass cutting, etc of the area around the home).

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Fri Mar 29, 2019 7:39 am

Reporting in.....I think we are going to limit ourselves with a home not more than $350k. We priced out a "dream" home but that was 435k...and it didn't have a finished basement, which was one of my requirements. I know we can still negotiate and cut out some of the options and probably get it down to around $410k*, but like mentioned elsewhere in this topic, 400k is my "puke point".....and I am going to bring that down even lower to like 360k. Never thought I'd see myself buying a 400k home before retirement...I always thought 300k homes were too much!

*btw, the city has an incentive right now where the labor unions are giving money back to homeowners to stimulate housing construction. We would get $6k in cash and the builder would match that for another $6k at closing for a total of $12k. In affect, that would recover closing fees. So maybe negotiating the house down to $410k and then getting the $12k would make me digest the overall purchase cost?

inbox788
Posts: 6396
Joined: Thu Mar 15, 2012 5:24 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by inbox788 » Fri Mar 29, 2019 9:33 am

doss wrote:
Fri Mar 29, 2019 7:39 am
Reporting in.....I think we are going to limit ourselves with a home not more than $350k. We priced out a "dream" home but that was 435k...and it didn't have a finished basement, which was one of my requirements. I know we can still negotiate and cut out some of the options and probably get it down to around $410k*, but like mentioned elsewhere in this topic, 400k is my "puke point".....and I am going to bring that down even lower to like 360k. Never thought I'd see myself buying a 400k home before retirement...I always thought 300k homes were too much!

*btw, the city has an incentive right now where the labor unions are giving money back to homeowners to stimulate housing construction. We would get $6k in cash and the builder would match that for another $6k at closing for a total of $12k. In affect, that would recover closing fees. So maybe negotiating the house down to $410k and then getting the $12k would make me digest the overall purchase cost?
It sounds like you could afford this house, but don't really need it right now. There is ironic possibility that as soon as you move into your dream house, you get a dream job offer that requires you to move. Leaves you wondering why you just moved and if that offer would have come if you didn't move. Life has a way of throwing curves, even good ones. Good luck on your new project.

Jags4186
Posts: 3575
Joined: Wed Jun 18, 2014 7:12 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Jags4186 » Fri Mar 29, 2019 10:12 am

If it’s what you want I say go for it. It is not out of line, especially considering your wife doesn’t work and intends to go back at some point. Even if she never returns to work you’re well on your way to success. We work to be able to live and have things we want. If you want the house go get it. I certainly am not working to leave my future kids buckets of money to spend on the stuff I didn’t have for myself.

sjt
Posts: 241
Joined: Fri May 26, 2017 3:03 pm
Location: NC

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by sjt » Fri Mar 29, 2019 12:02 pm

You can afford it, but when I think of LCOL midwest where I lived, $400k bought a lot of house. A lot. But if thats what you want, go for it!

We ended up in a house that was 2500 sqft because houses in our neighborhood are not listed for sale frequently. Ideally I was looking for 2000-2200 for a family of 4. I can't believe some of the 4000 sqft places my coworkers get - you have to furnish and maintain all that space!
"The one who covets is the poorer man, | For he would have that which he never can; | But he who doesn't have and doesn't crave | Is rich, though you may hold him but a knave." - Wife of Bath tale

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Tue Apr 02, 2019 12:49 pm

So...I ended up trying to get a new house built. The base price was $376k but we got to $440k REALLY FAST. And that was without a finished basement and an expanded kitchen. I couldn't stomach paying almost half a million dollars for a home. We tried to chop off the optional things as much as possible (e.g, stone fireplace, powder room, etc) but still were not able to get the price down to where we wanted to be. The builder's sales agent was really pushy. Also, we had a time crunch because the city was offering a "homebuilder's union credit" where you could apply up to 6k towards closing cost by the end of March 2019 (we literally had to sign the contract in 24hrs)...but the catch is you had to either use the builder's preferred lender and/or find a third party lender that would not be afraid to use the credit/certificate towards closing cost which is nearly impossible.

We ended up not moving forward with it, but I do have a bit of remorse of perhaps we should have.

bloom2708
Posts: 6536
Joined: Wed Apr 02, 2014 2:08 pm
Location: Fargo, ND

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by bloom2708 » Tue Apr 02, 2019 2:20 pm

doss wrote:
Tue Apr 02, 2019 12:49 pm
So...I ended up trying to get a new house built. The base price was $376k but we got to $440k REALLY FAST. And that was without a finished basement and an expanded kitchen. I couldn't stomach paying almost half a million dollars for a home. We tried to chop off the optional things as much as possible (e.g, stone fireplace, powder room, etc) but still were not able to get the price down to where we wanted to be. The builder's sales agent was really pushy. Also, we had a time crunch because the city was offering a "homebuilder's union credit" where you could apply up to 6k towards closing cost by the end of March 2019 (we literally had to sign the contract in 24hrs)...but the catch is you had to either use the builder's preferred lender and/or find a third party lender that would not be afraid to use the credit/certificate towards closing cost which is nearly impossible.

We ended up not moving forward with it, but I do have a bit of remorse of perhaps we should have.
I don't think your experience is unusual. You escaped without signing the deal. Many sign on a $375k home and end up paying $50k or $100k more just to finish. Tough on the budget.

Let other folks use active funds. Let other folks build. Find a nice/new enough home that fits your budget and wish list. People that I know build their dream home and then live in and would probably change 5 or 10 things. Find a good enough/nice enough home.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

InvisibleAerobar
Posts: 330
Joined: Mon Jan 15, 2018 12:33 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by InvisibleAerobar » Tue Apr 02, 2019 3:57 pm

doss wrote:
Tue Apr 02, 2019 12:49 pm
So...I ended up trying to get a new house built. The base price was $376k but we got to $440k REALLY FAST. And that was without a finished basement and an expanded kitchen. I couldn't stomach paying almost half a million dollars for a home. We tried to chop off the optional things as much as possible (e.g, stone fireplace, powder room, etc) but still were not able to get the price down to where we wanted to be. The builder's sales agent was really pushy. Also, we had a time crunch because the city was offering a "homebuilder's union credit" where you could apply up to 6k towards closing cost by the end of March 2019 (we literally had to sign the contract in 24hrs)...but the catch is you had to either use the builder's preferred lender and/or find a third party lender that would not be afraid to use the credit/certificate towards closing cost which is nearly impossible.

We ended up not moving forward with it, but I do have a bit of remorse of perhaps we should have.
you dodged a bullet there, as they invariably would charge quite a bit more than what you could get from other lenders

when my dad bought his place, the builder offered something like $5k in builder's credit, with the caveat that the builder's lender be used. The builder's lender charged 3.65% (cf. 3.20% that he could have gotten elsewhere). The math doesn't work out in the long term, but somehow my dad took that offer :oops:

Quirkz
Posts: 171
Joined: Mon Jan 14, 2019 5:32 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Quirkz » Tue Apr 02, 2019 4:11 pm

doss wrote:
Tue Apr 02, 2019 12:49 pm
We ended up not moving forward with it, but I do have a bit of remorse of perhaps we should have.
Nah, I think you were smart. The last thing you want to do is rush into the largest purchase of your life chasing a 1.5% discount. If literally anything went wrong, it'd probably cost you more than that.

KyleAAA
Posts: 7303
Joined: Wed Jul 01, 2009 5:35 pm
Contact:

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by KyleAAA » Tue Apr 02, 2019 4:24 pm

You could reasonably afford up to $600k unless you have a lot of debt you didn't mention. If your wife went back to work you could afford even more. Point is, you won't have a cash flow problem with a $400k house.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Sun Apr 07, 2019 7:20 am

Hello all.

We are back in the game here with the same builder.

How does the group feel with a house sales price of $430k? It meets all of our "nice to haves and must haves" requirements and something we plan to grow and live in for the next 20 years. I am still negotiating, but don't think I'll be able to get it lower. We would have one of the cheaper homes in the neighborhood, and also the builder is going to put a new luxurious market home (500k base) across the street from us.

Debt to income calculators show we are more than OK with this purchase (19% ratio vs the 36% recommended), but thought I'd ask for another sanity check here. Mortgage payments should be around $2,200/mo on a 30yr fixed with 20% down.

Thoughts on this price point and my income/debt? I plan to contribute to retirement as much as possible with this mortgage.

Again, have 0 debt at the moment and wife is a SAHM with a Masters degree (she says she wants to return to work in a few years).

Note: Something interesting....if you drive 26 minutes further south of this neighborhood, you can buy the same house for a base price of $640k! That is also without the options...but if you build this same house in the community where we currently live, our base is $417k (with our options it is $430k).
Last edited by doss on Sun Apr 07, 2019 7:23 am, edited 1 time in total.

Jags4186
Posts: 3575
Joined: Wed Jun 18, 2014 7:12 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Jags4186 » Sun Apr 07, 2019 7:22 am

If you want the house you should buy the house. You don’t need a websites permission. The financials work. Sell your old house first.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Sun Apr 07, 2019 7:26 am

Jags4186 wrote:
Sun Apr 07, 2019 7:22 am
If you want the house you should buy the house. You don’t need a websites permission. The financials work.
Thanks, but I grew up in a home that cost only 50k. Parents struggled. I never thought I'd pay this much for a house. You always hear horror stories here and since this is the biggest financial decision I've yet to make in my life...you are right about not needing a websites permission....but this is the BH community and I appreciate the feedback.

User avatar
8foot7
Posts: 1560
Joined: Mon Jan 05, 2015 7:29 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by 8foot7 » Sun Apr 07, 2019 7:43 am

You can do it. But what changed? You were in discussions above at 360k and then you said your puke point was 400k and now you’re at 420k. Are you sure you or your wife don’t have house fever? Maybe time to step back and make sure you’re even getting what you want?

Strayshot
Posts: 572
Joined: Thu Mar 05, 2015 8:04 am
Location: New Mexico

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Strayshot » Sun Apr 07, 2019 7:51 am

You can afford it, and you can afford it even more after your wife goes back to work in 3-7 or so years. Your current house is too small (my opinion, but I have been there done that) there is no way 1250 sq ft fits a work at home software engineer and 2 kids with a SAHM.

Yes, you need to save for retirement appropriately and need to continue to do so. Yes, a larger mortgage payment will make an early retirement less likely. But there are trades that need to be made for living in the “now” and if this is one of those trades for you, I say go for it.

User avatar
Tamarind
Posts: 1577
Joined: Mon Nov 02, 2015 2:38 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Tamarind » Sun Apr 07, 2019 8:12 am

Sounds like house fever to me as you are pushing past your point of discomfort with a builder who previously tried to hard sell you.

I suspect your sense of "needed" is beginning to shift. Consider pressing pause and looking at existing houses for a couple of weeks.

chevca
Posts: 2667
Joined: Wed Jul 26, 2017 11:22 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by chevca » Sun Apr 07, 2019 8:18 am

doss wrote:
Sun Apr 07, 2019 7:20 am
Thoughts on this price point and my income/debt?
Go for it!

DW an I have a slightly higher combined income and bought a proportionally higher cost home than you guys are looking it. It's easily affordable for us with a 30 year mortgage. And, if your wife plans to go back to work in a few years, it will just be that much easier for you guys once that happens.

We are also homebodies and love to be at home. Even if it's more than we need, it's wonderful to have a house we love coming home to and love being in. We also don't feel the need to put stuff in every square foot of our house. I'm sure more often than not people buy a bigger house and feel like they need to fill it with stuff. But, we aren't like that. We aren't sitting on lawn chairs either. It is possible to have nice stuff but not enough to fill every foot and enjoy the space a bigger home offers. Openness is nice too. But, to each their own that way.

I agree with many things BH's come to a general consensus on. But, I feel they can be a bit overly conservative on houses and cars. To me, those are very important things and make me happy to have nice ones. None of us younger types know for sure we will even make it to retirement. As long as it's affordable and I/we can still save for retirement, I want some nice stuff now. Never know.....

veindoc
Posts: 587
Joined: Sun Aug 14, 2016 9:04 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by veindoc » Sun Apr 07, 2019 8:44 am

Delete
Last edited by veindoc on Sun Apr 07, 2019 8:56 am, edited 1 time in total.

veindoc
Posts: 587
Joined: Sun Aug 14, 2016 9:04 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by veindoc » Sun Apr 07, 2019 8:53 am

What are you going to do with current house? Can you swing two mortgages if you have to? Also you don’t have enough for down payment. Not even close.

BradJ
Posts: 314
Joined: Sun Jan 21, 2018 6:06 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by BradJ » Sun Apr 07, 2019 9:02 am

Because you asked....

I am 35 years old with an income of 131k (111k base plus 20k bonus), with a SAHM wife who is about to start work again as a teacher, so I’m guessing 40k salary. No debt, two kids, safe job, and a very cheap house note (89k left, 15 year mortgage, house worth 165k). Our savings match up almost dollar to dollar as well.......that being said my wife and I wouldn’t dream of buying a home at that price. Heck, I wouldn’t touch a house worth 300k, but that’s just me. Life throws too many curveballs, I like having some padding in my budget.

Pioneer
Posts: 36
Joined: Sat Nov 24, 2018 9:34 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by Pioneer » Sun Apr 07, 2019 9:27 am

doss wrote:
Sun Apr 07, 2019 7:20 am
Hello all.

We are back in the game here with the same builder.

How does the group feel with a house sales price of $430k? It meets all of our "nice to haves and must haves" requirements and something we plan to grow and live in for the next 20 years. I am still negotiating, but don't think I'll be able to get it lower. We would have one of the cheaper homes in the neighborhood, and also the builder is going to put a new luxurious market home (500k base) across the street from us.

Debt to income calculators show we are more than OK with this purchase (19% ratio vs the 36% recommended), but thought I'd ask for another sanity check here. Mortgage payments should be around $2,200/mo on a 30yr fixed with 20% down.

Thoughts on this price point and my income/debt? I plan to contribute to retirement as much as possible with this mortgage.

Again, have 0 debt at the moment and wife is a SAHM with a Masters degree (she says she wants to return to work in a few years).

Note: Something interesting....if you drive 26 minutes further south of this neighborhood, you can buy the same house for a base price of $640k! That is also without the options...but if you build this same house in the community where we currently live, our base is $417k (with our options it is $430k).
My partner and I just escaped this nearly identical situation. My partner bought a new, $450k townhome in a fabulous location in our MCOL city. It was new construction, which sold the dream that this home wouldn't need expensive repairs for many, many years, that everything would be customized and perfect, etc. (And of course, there's a development of single families across the street for $600k-$800k) What actually happened is that everything was fine for a year, and then my partner realized that the showers had been incorrectly tiled with sanded grout, meaning they'd all have to be redone. And there was a problem with the dryer vent that would need to be replaced eventually, etc. My partner paid thousands in upgrades for engineered hardwoods (because real hardwoods were not an option), and those have begun to look worn and terrible. The other attractive part of this for my partner was the lack of yard work and the HOA's maintenance. Well, for $200 a month we pay in fees, we could easily have a superior lawn service come out, not the cut-rate one they hire.

We decided to cut our losses and move. In the new construction homes we saw in our area (tract built, but if you're talking custom outside a development this may be different), they resembled townhomes more than anything else, with little space between the houses. (Not that we would ever do another tract built home again, but for reference). The problem with that is that you're so squeezed in tight with your neighbors that they quickly become annoying. In the townhome, the unit across from us was running an illegal daycare, so there were kids coming and going all the time. And our next door neighbors were a group of 4 renters, so there are never any free parking spaces by our unit. The other trend we saw was putting the garage behind the house, detached. That is such a scam. It makes the garage basically useless. How do you carry in groceries like that? Or load up kids?

Anyway, long story short, we ended up looking at 40+ older homes and finally found one that met every one of our requirements, in a great neighborhood, for $50k less than the top of our budget. Definitely do the searching and see if you can find something that's not new construction in your area. With the savings, we're planning on putting in a gourmet kitchen.

InvisibleAerobar
Posts: 330
Joined: Mon Jan 15, 2018 12:33 pm

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by InvisibleAerobar » Sun Apr 07, 2019 11:32 am

Jags4186 wrote:
Sun Apr 07, 2019 7:22 am
If you want the house you should buy the house. You don’t need a websites permission. The financials work. Sell your old house first.
exactly this

A ratio of 3:1 would be deemed reasonable by most people who are financially prudent, and that's all there is to it. Some would argue that anything more than 2x income would be too much, but that's really verging on the territory of letting perfect be the enemy of good. Of course, this is not a guarantee that the purchase is risk-free from a debt/income perspective, but if one were to be serious about it, neither is buying something at 2x income were income to shrink to 1/3 or 1/2 of current level.

it's a whole separate issue of whether the OP is getting a good deal on the place. As mentioned above, just b/c a place is new construction does not mean the place is free from issues. When my dad bought a new construction, the builders failed to install the gutters correctly, and it led to water pooling whenever it was more than a passing shower. Can't remember if my dad had to pay out of pocket to get that addressed. That said, these issues are mostly minor, and what one most likely prevents when buying new is having to replace a big-ticket item 5-10 years down the road (in most cases).

Then there's the issue the OP mentioned above re: having to use the builder's preferred lender. What sort of rate is this preferred lender offering relative to what's available elsewhere.

Topic Author
doss
Posts: 263
Joined: Tue Nov 01, 2011 9:52 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by doss » Sun Apr 07, 2019 1:20 pm

Thanks for the feedback, guys. Stuff to think about.

caffeperfavore
Posts: 236
Joined: Thu Aug 06, 2015 11:45 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by caffeperfavore » Sun Apr 07, 2019 1:31 pm

doss wrote:
Fri Mar 29, 2019 7:39 am
*btw, the city has an incentive right now where the labor unions are giving money back to homeowners to stimulate housing construction.
Sounds like it is or will soon be a buyer’s market in your area. I would bide your time. Don’t let house fever rush you into a bad decision.

MarkRoulo
Posts: 123
Joined: Mon Jun 22, 2015 10:25 am

Re: Sanity check: Buying new house -- 400k with 155k income?

Post by MarkRoulo » Sun Apr 07, 2019 1:39 pm

doss wrote:
Sun Apr 07, 2019 7:26 am
Jags4186 wrote:
Sun Apr 07, 2019 7:22 am
If you want the house you should buy the house. You don’t need a websites permission. The financials work.
Thanks, but I grew up in a home that cost only 50k. Parents struggled. I never thought I'd pay this much for a house. You always hear horror stories here and since this is the biggest financial decision I've yet to make in my life...you are right about not needing a websites permission....but this is the BH community and I appreciate the feedback.
And you (predictably) now have responses ranging from "Yes, you can buy the house," to "why are you buying more house?"

:-)

Financially, you CAN afford this house (though I'd favor a 30 year mortgage ... you can always pre-pay it and the 30 year gives you flexibility).

Whether you SHOULD is a value judgement for you and your wife.

Internet strangers can't help you much with the value judgement.

Based on other housing threads at bogleheads, you will find other folks here who have purchased with much less margin that you are contemplating, so you aren't in uncharted risk territory.

Good luck.

Post Reply