Buying a house next year. Wife wants a big house. Thoughts?

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Topic Author
JohnQ
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Joined: Fri Aug 02, 2013 6:27 am

Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 1:52 pm

So we're looking to buy a new house in 2-3 years before our kids going to kindergarden & first grade. The main reason we're moving is to get into a better school district for the kids and likely to be here for the next 10-20 years. My wife wants a BIG house (~500-600K) and I on the other hand, wants only a house that meets our needs ( which is 3 car garage to be used a storage space of ~$350-400K). We live in a state with property tax of 3-3.5% property tax so the saving would be the that plus the interest on the diffrerence. I rather put the saving for in to retirement but my wife has a bit of the "live now" mentality. Please let me know your thoughts. Her'es our financials.

Age 38/33 - no CC/car/student loan.
My income: ..... 141K + ~20% bonus. ~15K stock bonus (RSU).
Her income: .... ~60K, no 401K, no benefits
Pension: ....... ~60K @ treasury rate
Cash saving + CD:~50K (for house downpayment)
Short term bond: ~40K (for house downpayment)
Roth IRA: .........~50K
Her tIRA:......... ~12K
Work 401K:...... ~290K - all on SP500 index
Cash brokerage.: ~40K (speculative trading)
Restricted stock: ~45K

Expenses: these are the 2 items which will change by the time we move into the new house.
Mortgage: ~1,800 (has about 150-160K equity on a ~300K house)
Childcare: 2600

We save about $2000 a month after all the expense (including the above, plus bills, 529 contribution, food, travel, etc) and max out my Roth and 401K every year. The thinking is by the time we get this new house, the elimination of childcare cost will be put into the new mortgage payment. Basically the cost for better education.

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Last edited by JohnQ on Thu Apr 11, 2019 2:55 pm, edited 1 time in total.

fanmail
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by fanmail » Thu Apr 11, 2019 1:55 pm

seems like your income is too high for roth ira which is another way of saying you can easily afford what your wife wants. whether you really want to is a different question

fposte
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by fposte » Thu Apr 11, 2019 2:02 pm

What's the square footage for each of those houses?

delamer
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by delamer » Thu Apr 11, 2019 2:08 pm

How do the mortgage (PITI) and other costs (utilities, maintenance) for the $500K house compare to those for the $350K?

If you are moving in any case, then you have to do the comparison betwen those 2 options.

EDIT: my point is that you seem to be comparing the costs of a $500K house to your current home, but that is not the correct way to look at the decision.
Last edited by delamer on Thu Apr 11, 2019 2:30 pm, edited 1 time in total.

Quickfoot
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Quickfoot » Thu Apr 11, 2019 2:09 pm

Unless your taxes are very high your payment is probably a little high. We pay $2,600 a month for a 411K loan on a 450K house with 4% interest.

Just went through this, we wound up getting the larger house but with a very clear understanding on her part that the larger house results in sacrifices in other areas of our lifestyle.

Sounds like yes you can afford it but that isn't the issue, the main issue is you want different things. How important of an issue is this to each of you? I'd encourage you to look for a compromise between what you want and what she wants. Buying a house is not a situation where you want either of you feeling like you "lost." Once spouse being angry every time they wake-up about the house is not healthy for a relationship.

If the size of the house is the most important factor for her maybe you can move to a cheaper community, or a bit longer commute to get the price point you want. Maybe she's willing to not get a new car for a longer period of time to help offset the expense of the larger house, etc.

One thing that can help is preparing a comprehensive financial picture of both scenarios including disposable income, retirement savings, even how it might affect retirement age. This allows her to decide if the large house is still worth it with all the information.

Either one of you "winning" this discussion can result in very large losses later.
Last edited by Quickfoot on Thu Apr 11, 2019 2:16 pm, edited 4 times in total.

sailaway
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by sailaway » Thu Apr 11, 2019 2:10 pm

Have you tried making lists of what it is you actually want in houses? Size is not everything. A smaller house with a layout that includes your actual wants could be a better fit for the family.

What is it you need to store in the garage? Would a shed do? Looking at actual functionality might open up your options.

I can't imagine any house with a 3 car garage is actually very small, though...

renue74
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by renue74 » Thu Apr 11, 2019 2:10 pm

Yes you can afford the house, if you are looking for affirmation. Your bank will tell you the same.

Your decision to pull the trigger on it is another. We're in a pretty hot real estate market already, which you might take into account.

Personally, I would not buy and save the money. But, that's just me.

Thegame14
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Thegame14 » Thu Apr 11, 2019 2:15 pm

JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
So we're looking to buy a new house in 2-3 years before our kids going to kindergarden & first grade. The main reason we're moving is to get into a better district for a kids and likely to be here for the next 10-20 years. My wife wants a BIG house (~500-600K) and I on the other hand, wants only a house that meets our needs ( which is 3 car garage to be used a storage space of ~$350-400K). We live in a state with property tax of 3-3.5% property tax so the saving would be the that plus the interest on the diffrerence. I rather put the saving for in to retirement but my wife has a bit of the "live now" mentality. Please let me know your thoughts. Her'es our financials.

Age 38/33 - no CC/car/student loan.
My income: ..... 141K + ~20% bonus. ~15K stock bonus (RSU).
Her income: .... ~60K, no 401K, no benefits
Pension: ....... ~60K @ treasury rate
Cash saving + CD:~50K (for house downpayment)
Short term bond: ~40K (for house downpayment)
Roth IRA: .........~50K
Her tIRA:......... ~12K
Work 401K:...... ~290K - all on SP500 index
Cash brokerage.: ~40K (speculative trading)
Restricted stock: ~45K

Expenses: these are the 2 items which will change by the time we move into the new house.
Mortgage: ~1,800 (has about 150-160K equity on a ~300K house)
Childcare: 2600

We save about $2000 a month after all the expense (including the above, plus bills, 529 contribution, food, travel, etc) and max out my Roth and 401K every year. The thinking is by the time we get this new house, the elimination of childcare cost will be put into the new mortgage payment. Basically the cost for better education.

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
so your income is around $225K without stocks and mortgage would be $400K so less than 2X income. You can certainly afford it and should do it to make wife happy, and who is to say you may not need a bigger house, still time for another kid...... Oh and I would take that speculative trading money and use that for a $140K downpayment then the mortgage is closer to what you wanted while wife gets bigger house she wants, plus keeps you from getting into trouble speculating...

FreemanB
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by FreemanB » Thu Apr 11, 2019 2:23 pm

Buy a house you can afford that makes her happy. It doesn't sound like she's asking for anything extreme in terms of house prices. Saving more for retirement is always nice, but I don't think it will be worth the trade off in this case.

Topic Author
JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 2:58 pm

fposte wrote:
Thu Apr 11, 2019 2:02 pm
What's the square footage for each of those houses?
This is a mostly developing area so house sq footage overlap for those price ranges but i would say the 500-600K house is ~3700-4700 sq ft. the 400k ish house is probably going to be in the 3300-3700

Topic Author
JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 3:05 pm

delamer wrote:
Thu Apr 11, 2019 2:08 pm
How do the mortgage (PITI) and other costs (utilities, maintenance) for the $500K house compare to those for the $350K?

If you are moving in any case, then you have to do the comparison betwen those 2 options.

EDIT: my point is that you seem to be comparing the costs of a $500K house to your current home, but that is not the correct way to look at the decision.
350K house --> ~2400 payment
500K house --> ~3600 payment
The electricity and gas are the only the 2 things that i expect to differs but shouldn't be significant. I'm not worrying about maintenance cost as these houses are either new or less than 10 years. My current house of 10 years, I've never had anyone work on the house except for some new flooring work (which is not maintenance).

sschoe2
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by sschoe2 » Thu Apr 11, 2019 3:05 pm

More house is more cleaning, more maintenance, more utilities, more taxes, often longer time to sell. I believe in minimizing housing as costs balloon quickly the bigger you get.

Frisco Kid
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Frisco Kid » Thu Apr 11, 2019 3:11 pm

+ 1000 on the OP and spouse wanting different things. IMHO that needs to be addressed and common ground found before doing anything. The cost of a larger home is just the beginning, taxes maintenance, additional furnishings, etc. Can be a one way ticket on the hedonistic treadmill.

stoptothink
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by stoptothink » Thu Apr 11, 2019 3:11 pm

I'm gonna be in the same boat in a few years, (we're even the exact same age) except our income/savings is slightly higher. We made an agreement that we wouldn't even discuss the possibility of upgrading until the current house was paid off. Well, 3yrs in and we're more than halfway to having the thing paid off. Sometimes the wife thinks we actually have too much house, but then one of her friends buys another McMansion they can't afford and it starts all over again. In preparation for this upcoming discussion I regularly talk to her about all the awesome things we could do if we just bought enough house for our needs and I'm not shy about having my mom discuss with her the issues with taking care of a 4,000sq. ft home.
Last edited by stoptothink on Thu Apr 11, 2019 3:12 pm, edited 1 time in total.

Topic Author
JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 3:12 pm

Quickfoot wrote:
Thu Apr 11, 2019 2:09 pm
Unless your taxes are very high your payment is probably a little high. We pay $2,600 a month for a 411K loan on a 450K house with 4% interest.

Just went through this, we wound up getting the larger house but with a very clear understanding on her part that the larger house results in sacrifices in other areas of our lifestyle.

Sounds like yes you can afford it but that isn't the issue, the main issue is you want different things. How important of an issue is this to each of you? I'd encourage you to look for a compromise between what you want and what she wants. Buying a house is not a situation where you want either of you feeling like you "lost." Once spouse being angry every time they wake-up about the house is not healthy for a relationship.

If the size of the house is the most important factor for her maybe you can move to a cheaper community, or a bit longer commute to get the price point you want. Maybe she's willing to not get a new car for a longer period of time to help offset the expense of the larger house, etc.

One thing that can help is preparing a comprehensive financial picture of both scenarios including disposable income, retirement savings, even how it might affect retirement age. This allows her to decide if the large house is still worth it with all the information.

Either one of you "winning" this discussion can result in very large losses later.
Houses that we've been looking at are in a new/developing area where the tax is quite high 3.5% as opposed to ~3% everywhere else in the city. So a 500K house result in a 14.5K in tax a year alone. She has a long list of must have's and want so it's a bit tough to find a house with all of those features in the 350-400k range. I think laying out our financial picture for both scenarios would be helpful. Thanks for your advice.

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Darth Xanadu
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Darth Xanadu » Thu Apr 11, 2019 3:14 pm

JohnQ wrote:
Thu Apr 11, 2019 2:58 pm
fposte wrote:
Thu Apr 11, 2019 2:02 pm
What's the square footage for each of those houses?
This is a mostly developing area so house sq footage overlap for those price ranges but i would say the 500-600K house is ~3700-4700 sq ft. the 400k ish house is probably going to be in the 3300-3700
The difference between the big house and the smaller house is larger than my entire house. I'd be curious, were I in your shoes, why the wife wants such a big house, and how, specifically, she plans to fill it.

Now, that said, I do think you can afford it, and I also think that, depending on the answers to the above questions, there may be a higher probability of regretting the smaller house house vs. the larger house over the long-term.
"A courageous teacher, failure is."

Quickfoot
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Quickfoot » Thu Apr 11, 2019 3:16 pm

Another thing to consider is multiple studies have found large houses (over 3,500 sqft) are becoming increasingly hard to sell and in many cases are being sold for less than the last purchase price and this isn't expected to be a short term trend. There is a LARGE generational shift in what people are looking for in houses and mega houses are expected to continue to lose popularity. Millennials and generation next as a group simply don't want the very large houses. When buying a house one of the things that needs to be considered is how easily the house can be sold in the future.

I would be very reluctant to go for a house larger than 3,500 sqft. 3,500 is already considerably larger than most houses, the average in 2015 was 2,567 and houses are getting smaller as cost per sqft goes up.

https://www.census.gov/const/C25Ann/sft ... vgsqft.pdf has some really good information about median and average house sizes based on location.

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mhadden1
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by mhadden1 » Thu Apr 11, 2019 3:23 pm

You and your family will live in about 800 sf. The rest of the large house will gather dust and junk, barring extraordinary efforts to clean and declutter. Don't ask me how I know. :(
Oh I can't, can I? That's what they said to Thomas Edison, mighty inventor, Thomas Lindberg, mighty flyer,and Thomas Shefsky, mighty like a rose.

delamer
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by delamer » Thu Apr 11, 2019 3:26 pm

JohnQ wrote:
Thu Apr 11, 2019 3:05 pm
delamer wrote:
Thu Apr 11, 2019 2:08 pm
How do the mortgage (PITI) and other costs (utilities, maintenance) for the $500K house compare to those for the $350K?

If you are moving in any case, then you have to do the comparison betwen those 2 options.

EDIT: my point is that you seem to be comparing the costs of a $500K house to your current home, but that is not the correct way to look at the decision.
350K house --> ~2400 payment
500K house --> ~3600 payment
The electricity and gas are the only the 2 things that i expect to differs but shouldn't be significant. I'm not worrying about maintenance cost as these houses are either new or less than 10 years. My current house of 10 years, I've never had anyone work on the house except for some new flooring work (which is not maintenance).
Then the PITI is 50% higher for a roughly 20% increase in interior space.

I was thinking of maintenance as yard care and interior housecleaning. For a larger place, you pay more — either with your time or with your checkbook.

Your childcare costs won’t be eliminated, just reduced. There may still be before/after school and definitely summers.

All that said, this is a priorities question more than a purely financial one. Just make sure your wife sees all the numbers comparing the 2 house sizes.

And if she has any interest in environmental issues, point out that more square footage means more negative impact on the climate and natural resources.

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JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 3:31 pm

Darth Xanadu wrote:
Thu Apr 11, 2019 3:14 pm
JohnQ wrote:
Thu Apr 11, 2019 2:58 pm
fposte wrote:
Thu Apr 11, 2019 2:02 pm
What's the square footage for each of those houses?
This is a mostly developing area so house sq footage overlap for those price ranges but i would say the 500-600K house is ~3700-4700 sq ft. the 400k ish house is probably going to be in the 3300-3700
The difference between the big house and the smaller house is larger than my entire house. I'd be curious, were I in your shoes, why the wife wants such a big house, and how, specifically, she plans to fill it.

Now, that said, I do think you can afford it, and I also think that, depending on the answers to the above questions, there may be a higher probability of regretting the smaller house house vs. the larger house over the long-term.
We have 3 kids and sometimes having her out-of-town parents coming over (about 2-3 times a year). Also we have friends and family gathering every 2 months or so. Our house is ~2700 sq ft and we utilize all those space currently.

She basically said that our incomes will go gradually go up but the house payment doesn't. And thinking back at our current house that we've purchased 10 years ago, we were stretching our budget then but it got better over time.

fru-gal
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by fru-gal » Thu Apr 11, 2019 3:34 pm

Both of those houses are very large compared to the comfortable house I and my two siblings grew up in. What features is it that your wife wants? We don't even know how many bedrooms you're talking about or how many kids you have (two?) update: I see it's three.

I really don't understand the giant house world view. A comfortable house, a comfortable retirement, college costs for the kids, experience vacations, all seem better ways to spend money to me. I yearn for the days of smaller houses with big yards, trees, where people knew their neighbors.

As for your incomes always going up, what happens if one or both of you lose your jobs? It would be nice to have a bigger savings cushion.

GT99
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by GT99 » Thu Apr 11, 2019 3:47 pm

JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
...We live in a state with property tax of 3-3.5% property tax...

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Would you truly have to pay $15,000-$17,500 a year in property taxes on a $500k home? Surely that can't be right? Can I ask what state you're in?
We have a $544k mortgage, and our PITI is $3503/month at 4.125%.

ohai
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by ohai » Thu Apr 11, 2019 4:00 pm

Don't forget to add other "big house" expenses to that cost. On top of taxes and mortgage, it will cost more to heat/cool, furnish, landscape, clean, repair, insure, and whatever else you do with the house. Also, the higher liability increases your risk of ruin in the case of job loss, disability, economic downturn, or other negative scenario.

I think what might end up happening is you meet in the middle. That is, your high range is $400k and wife's low range is $500k. So maybe there's room for negotiating to $450k. Of course, I don't know what the house looks like or what this difference would make.

For what it is worth, most of the people I know who struggle financially despite high income have one thing in common: max housing expense (and sometimes, many kids). Not saying you'll be in this bucket.

veindoc
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by veindoc » Thu Apr 11, 2019 4:06 pm

Would building be an option? Or another community? We had a situation where we wanted a house with certain features: brick exterior, two floors, 3 car garage, walk out basement etc

The homes in our desired price range were older homes built in the 50s and didn’t even come close to having all the features I wanted. The newer homes, 2x the cost and the size did.

If I had been more patient and more willing to look outside that community we would have found a home with the features we wanted at the size we wanted in the price range we wanted with good schools to boot. One of my friends built in this neighborhood and got the right home at the right price.

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JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 4:07 pm

GT99 wrote:
Thu Apr 11, 2019 3:47 pm
JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
...We live in a state with property tax of 3-3.5% property tax...

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Would you truly have to pay $15,000-$17,500 a year in property taxes on a $500k home? Surely that can't be right? Can I ask what state you're in?
We have a $544k mortgage, and our PITI is $3503/month at 4.125%.
Texas. All-in property tax is 3.5% for new neighborhood where as established neighborhood is ~3%. The extra 0.5% is to recoup the cost for all the infratructure, sewer, water, etc. We don't pay state income tax in Texas so part of the property tax (1.44%) goes to the school districts
Last edited by JohnQ on Thu Apr 11, 2019 4:16 pm, edited 1 time in total.

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JohnQ
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by JohnQ » Thu Apr 11, 2019 4:15 pm

ohai wrote:
Thu Apr 11, 2019 4:00 pm
Don't forget to add other "big house" expenses to that cost. On top of taxes and mortgage, it will cost more to heat/cool, furnish, landscape, clean, repair, insure, and whatever else you do with the house. Also, the higher liability increases your risk of ruin in the case of job loss, disability, economic downturn, or other negative scenario.

I think what might end up happening is you meet in the middle. That is, your high range is $400k and wife's low range is $500k. So maybe there's room for negotiating to $450k. Of course, I don't know what the house looks like or what this difference would make.

For what it is worth, most of the people I know who struggle financially despite high income have one thing in common: max housing expense (and sometimes, many kids). Not saying you'll be in this bucket.
I agree that that meeting in the middle is probably a good idea. This would allow us to set some money aside for the raining day or retirement. I wouldn't be to hesitant on getting the larger home if we have a bit more in our retirement account and feel like a bit behind. We haven't been saving much prekids and only really saving for the last 3-4 years.

WhiteMaxima
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by WhiteMaxima » Thu Apr 11, 2019 4:29 pm

That's all depend on mortgage interest rate. If the rate is still low, then you can get a big house. Also location (or school district) is more important than the size of the house.

fourkids
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by fourkids » Thu Apr 11, 2019 4:33 pm

we have a 4000sf+ house. It's a PITA. I miss my old 3200sf house.
Get the "smaller" house.

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Cycle
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Cycle » Thu Apr 11, 2019 4:35 pm

My DW is on board with keeping costs low for as long as possible. This means living in a 1100 sqft 2br/1ba unit with kids. Currently have 1, planning on another.

Ignoring the sunk cost of owning a home outright, we profit from our housing situation, as we rent out the other unit in our duplex. We also don't need a car for where we live, though my DW still has one.

Kids college and private High school will be funded in the 529 before child #1 turns 2 and child #2 is born. We will likely retire in 6-10 years. Our incomes are similar to OP, NW at 35 1.5MM.

If u don't have a ton of stuff small spaces seem large, so Marie kondo your life. Needing a 3 car garage for storage flags that you have too much stuff. Stuff costs money, which diminishes savings and delays true FI.

The living now mentality your significant other has should have nothing to do with anyTHING you own. I'm in the middle of a 3 day fast now, and eating a balogna sandwich right now would give me more pleasure than any possession I have ever owned. I don't even like balogna.

covertfantom
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by covertfantom » Thu Apr 11, 2019 4:38 pm

You can afford it... and a happy wife is a happy life. I know looking at a house as an investment is generally frowned upon here... but you can definitely try using your house to diversify your portfolio a bit.

cherijoh
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cherijoh » Thu Apr 11, 2019 4:42 pm

JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
So we're looking to buy a new house in 2-3 years before our kids going to kindergarden & first grade. The main reason we're moving is to get into a better school district for the kids and likely to be here for the next 10-20 years. My wife wants a BIG house (~500-600K) and I on the other hand, wants only a house that meets our needs ( which is 3 car garage to be used a storage space of ~$350-400K). We live in a state with property tax of 3-3.5% property tax so the saving would be the that plus the interest on the diffrerence. I rather put the saving for in to retirement but my wife has a bit of the "live now" mentality. Please let me know your thoughts. Her'es our financials.

Age 38/33 - no CC/car/student loan.
My income: ..... 141K + ~20% bonus. ~15K stock bonus (RSU).
Her income: .... ~60K, no 401K, no benefits
Pension: ....... ~60K @ treasury rate <--- Is this a cash balance pension? Is the annual amount you expect to draw or the current total balance? If the former, how much have you (or she) accrued to date? My last employer had a cash-balance pension that was frozen about 18 month after I became eligible to participate. It no longer got any employee credits (i.e., x% of my salary) although it continues to generate earnings credits. But my balance is stuck at < $10K 8 years after it got frozen
Cash saving + CD:~50K (for house downpayment)
Short term bond: ~40K (for house downpayment)
Roth IRA: .........~50K
Her tIRA:......... ~12K
Work 401K:...... ~290K - all on SP500 index <-- total retirement balances are not IMO that impressive based on your ages and salaries. I will assume you have only recently started maxing out your 401k since S&P 500 index fund is up over 4x in the last 10 years.
Cash brokerage.: ~40K (speculative trading)
Restricted stock: ~45K

Expenses: these are the 2 items which will change by the time we move into the new house.
Mortgage: ~1,800 (has about 150-160K equity on a ~300K house) <--- are you paying extra on this mortgage or are you thinking about regular principal payments?
Childcare: 2600 <-- Unless your wife works part-time (or is a teacher), you need to consider the cost of after-school care and programs in the summer-time. You may not be cutting out the entire amount of childcare until kids are at least in middle school or even HS. Also, if you move into the ritzy new house, you may feel obligated to enroll your kids in the pricey summer camp or enrichment programs their friends are doing - this could be way more than your current childcare. Kids mostly get more expensive as they age. :wink:

We save about $2000 a month after all the expense (including the above, plus bills, 529 contribution, food, travel, etc) and max out my Roth and 401K every year. The thinking is by the time we get this new house, the elimination of childcare cost will be put into the new mortgage payment. Basically the cost for better education. <--- What is your annual savings rate for retirement purposes (not down payment fund, 529 fund, etc)? The rule of thumb I use is 15% savings rate your entire work period to retire comfortably at 65. Make it 20% to retire at 60 and 25% to retire at 55. With your current house (or the more modest new one), it sounds like you are on track even though you previously had lower savings rates. Not so much with the house your wife wants. Big new house means $$$ for new furniture and new furnishings which I don't see in the budget. In addition to the higher taxes and insurance you mention also expect higher and utilities due to larger sq. footage.

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
JohnQ wrote:
Thu Apr 11, 2019 3:12 pm
Quickfoot wrote:
Thu Apr 11, 2019 2:09 pm
Unless your taxes are very high your payment is probably a little high. We pay $2,600 a month for a 411K loan on a 450K house with 4% interest.

Just went through this, we wound up getting the larger house but with a very clear understanding on her part that the larger house results in sacrifices in other areas of our lifestyle.

Sounds like yes you can afford it but that isn't the issue, the main issue is you want different things. How important of an issue is this to each of you? I'd encourage you to look for a compromise between what you want and what she wants. Buying a house is not a situation where you want either of you feeling like you "lost." Once spouse being angry every time they wake-up about the house is not healthy for a relationship.

If the size of the house is the most important factor for her maybe you can move to a cheaper community, or a bit longer commute to get the price point you want. Maybe she's willing to not get a new car for a longer period of time to help offset the expense of the larger house, etc.

One thing that can help is preparing a comprehensive financial picture of both scenarios including disposable income, retirement savings, even how it might affect retirement age. This allows her to decide if the large house is still worth it with all the information.

Either one of you "winning" this discussion can result in very large losses later.
Houses that we've been looking at are in a new/developing area where the tax is quite high 3.5% as opposed to ~3% everywhere else in the city. So a 500K house result in a 14.5K in tax a year alone. She has a long list of must have's and want so it's a bit tough to find a house with all of those features in the 350-400k range. I think laying out our financial picture for both scenarios would be helpful. Thanks for your advice.
Quickfoot is absolutely right. It sounds like you are on different pages, which is not a good thing. It is hard to convince someone who doesn't get delayed gratification that you are better off in the long run without spending as much as the bank says you can afford.

I don't think your wife has any understanding of what the opportunity costs of getting a 4700 sq. ft house would be. IMO she is ruling out becoming a stay at home parent. You will need both incomes in order to continue to stay on track for retirement with the bigger house. Maybe that's okay with her, but would she be expected to take care of her parents as they decline in health? Having the option to quit work can be a lifesaver in those circumstances.

You can also pretty much rule out retiring early or trading less stress for a lower salary. Any kind of hiccup in the economy will likely result in you needing to work longer - especially if you stick with a 100% stock allocation. I don't see any mention of an emergency fund. The period between buying the new house and selling the old one is especially vulnerable since it looks like you would be left with no cushion in case of an ecomonic downturn.

Also, most people slow down in terms of increasing salaries once they hit their 40s. (I speak from experience). You can sometimes goose your salary by switching jobs or getting into management, but many companies are flattening their organizations. So your wife's assumption that your salaries will continue to increase at the same pace as the last decade may not be valid. It is also much harder for older workers to get a new job at a higher salary in case of a job loss. The sweet spot is usually 7 - 10 years experience IMO. You are beyond that.

Have you gotten your arms around the impact of the new tax law? It sounds like you would be losing out on itemized deductions due to the SALT cap. Some people still have the mindset that their entire PITI is being subsidized by a tax break. The combination of higher standard deduction, absence of personal deductions, and cap on state and local taxes, may mean that you'll be pulling the full weight of any increase in your housing costs.

cherijoh
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cherijoh » Thu Apr 11, 2019 4:56 pm

Cycle wrote:
Thu Apr 11, 2019 4:35 pm
My DW is on board with keeping costs low for as long as possible. This means living in a 1100 sqft 2br/1ba unit with kids. Currently have 1, planning on another.

Ignoring the sunk cost of owning a home outright, we profit from our housing situation, as we rent out the other unit in our duplex. We also don't need a car for where we live, though my DW still has one.

Kids college and private High school will be funded in the 529 before child #1 turns 2 and child #2 is born. We will likely retire in 6-10 years. Our incomes are similar to OP, NW at 35 1.5MM.

If u don't have a ton of stuff small spaces seem large, so Marie kondo your life. Needing a 3 car garage for storage flags that you have too much stuff. Stuff costs money, which diminishes savings and delays true FI.

The living now mentality your significant other has should have nothing to do with anyTHING you own. I'm in the middle of a 3 day fast now, and eating a balogna sandwich right now would give me more pleasure than any possession I have ever owned. I don't even like balogna.
I currently have too much stuff for my house, but my house is under 1400 sq. ft. Goodness only knows how much stuff I would collect if I had a larger house! Now that I am retired I am slowly making a dent in getting rid of stuff, but I think I need to step up the pace.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cherijoh » Thu Apr 11, 2019 5:03 pm

covertfantom wrote:
Thu Apr 11, 2019 4:38 pm
You can afford it... and a happy wife is a happy life. I know looking at a house as an investment is generally frowned upon here... but you can definitely try using your house to diversify your portfolio a bit.
Huh? Tying up more of your assets in your primary residence is NOT diversifying. You could argue that making an investment in rental real estate is diversification, but not for the house in which you live.

The reason why considering your house as an investment is frowned upon is that unless your timing is impecable, the return will be better over time in the market with better liquidity and much better diversification.
Last edited by cherijoh on Thu Apr 11, 2019 10:58 pm, edited 1 time in total.

cusetownusa
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cusetownusa » Thu Apr 11, 2019 5:31 pm

GT99 wrote:
Thu Apr 11, 2019 3:47 pm
JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
...We live in a state with property tax of 3-3.5% property tax...

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Would you truly have to pay $15,000-$17,500 a year in property taxes on a $500k home? Surely that can't be right? Can I ask what state you're in?
We have a $544k mortgage, and our PITI is $3503/month at 4.125%.
I pay $11,000 on a $300,000 house. A $500k house around me would easily be that amount.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Dottie57 » Thu Apr 11, 2019 5:37 pm

I would not increase to 500-600k house. A lot of extra space is a lot of extra work. Heating/cooling and electricity are more. Probably more yard to care for too. More bathrooms to clean.

I kept a small home and was able to retire slightly early. You have to decide on priorities.
Last edited by Dottie57 on Thu Apr 11, 2019 5:48 pm, edited 1 time in total.

staythecourse
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by staythecourse » Thu Apr 11, 2019 5:43 pm

Is your wife planning on working full time when the kids are young? How stable are both your incomes? How will this effect your retirement saving goals or higher educational goals for the kids? Any more kids? Some of the questions that pop up in my head.

As I have said before really the major expenses in life surround: House, retirement, kid's school (elementary through college). Figuring out your plan to attack each of these will give you your answer. If it ends up fine either make the wife happy is always the tie breaker.

Personally, my wife and I both like a nice house as we like staying at home (hate vacations) so it was an easy decision to splurge on a big house. Wouldn't have changed anything.

Good luck.
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by chevca » Thu Apr 11, 2019 5:50 pm

JohnQ wrote:
Thu Apr 11, 2019 2:58 pm
fposte wrote:
Thu Apr 11, 2019 2:02 pm
What's the square footage for each of those houses?
This is a mostly developing area so house sq footage overlap for those price ranges but i would say the 500-600K house is ~3700-4700 sq ft. the 400k ish house is probably going to be in the 3300-3700
I agree with others, those are both in the "big house" range, IMO. I also saw you're in TX, so makes sense as you get a lot of house for the money down there.

You guys can afford any house you're looking at. So, it's just a matter of give/take/compromise between you two. Seems something in the 3700 sq ft range would be a good meeting point. Find something that meets most of the needs you both want. It's unlikely you will find a house to perfectly satisfy the both of you.

z91
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by z91 » Thu Apr 11, 2019 6:13 pm

I have a similar income and wouldn't take that kind of mortgage on..

MJS
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by MJS » Thu Apr 11, 2019 6:45 pm

Pick up a copy of Susanka's Not So Big House at your library. It gives you a sense of what makes a house livable and comfortable. You may need the larger house - this will give you a sense of the functional zones & zonal relationships that make one house great while another, with the same footage, is just a hollow cavern.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by GT99 » Thu Apr 11, 2019 7:55 pm

cusetownusa wrote:
Thu Apr 11, 2019 5:31 pm
GT99 wrote:
Thu Apr 11, 2019 3:47 pm
JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
...We live in a state with property tax of 3-3.5% property tax...

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Would you truly have to pay $15,000-$17,500 a year in property taxes on a $500k home? Surely that can't be right? Can I ask what state you're in?
We have a $544k mortgage, and our PITI is $3503/month at 4.125%.
I pay $11,000 on a $300,000 house. A $500k house around me would easily be that amount.
Very interesting. I knew our taxes were low, but I didn't realize how low (relatively speaking). We pay $7000 on a $700k house.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Socrates » Thu Apr 11, 2019 8:06 pm

Sit down with your wife and talk it out. Go over pros and cons and evaluate your goals together and point out how some goals may not happen if costs are unrealistic. Perhaps compromise in the middle, you are not far off. You can afford the house-especially once those childcare costs are gone. If it is in nice neighborhood, especially South Texas, prices are rapidly appreciating.
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Leemiller » Thu Apr 11, 2019 9:22 pm

I’m confused, do you have 160k or so equity in your current house in addition to the 100k downpayment? That should really change the numbers. But one conversation might be around going smaller to get a 15 year mortgage.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by LadyGeek » Thu Apr 11, 2019 9:39 pm

I removed a number of posts disagreeing on acceptable square footage of the new house. Also, I removed several posts conjecturing on which spouse will make the purchasing decision. The discussion was getting derailed.

Please stay on-topic, which are the financial aspects.
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by finite_difference » Thu Apr 11, 2019 9:47 pm

No difference in commute?

I think 3k sqft is plenty for 4 people. If you had more like 6 then could consider upping that, but otherwise I’d try to go for nicer but smaller. And less commute.

I’d rather have a well-maintained 3k sqft house than a less well-maintained 5k sqft house. It might not cost 67% more to maintain a 5k sqft house, but it could cost 50% more.

But it depends on what makes you happy. My parents were house poor but it worked out and I think sacrificing now for later does make sense up to a certain point. You might have to work longer, but if you enjoy your job (and it’s stable) then that might not be a big deal. Your pension looks solid.
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Golf maniac » Thu Apr 11, 2019 9:48 pm

This is a perfect example of why people should talk about money before they get married. One person wants to save and retire early the other wants to live in the “now” financially. It can cause a lot of stress. I’m glad my wife and I were on the same page. We always lived well below our means and saved as much as possible. Focusing on long term retirement goals first should be your priority, then budget for the house you can afford after retirement is fully funded. Can you afford it, sure, should you do it, probably not (just my opinion).

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by Nissanzx1 » Thu Apr 11, 2019 10:03 pm

I’d compromise. She wants the big place but the down payment fund is a touch light. You two as a team scrape a total of 50% down in cash. Make her participate in the sacrifice. You’ll be more content and less worried about risks of job loss and she still gets the big home.

Jobs paying what you both make don’t just grow on trees in the back yard, it could take some time to find another one, if God forbid, you had to.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by inbox788 » Thu Apr 11, 2019 10:03 pm

Happy wife, happy life?

I noticed this related thread a few lines up:

Purchasing a rental house for ex-wife
viewtopic.php?p=4489136#p4489136

Seems you can afford it, and although it will cost a little more upkeep, it's also an investment, so probably a wash in the lifetime.

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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by majiaknight » Thu Apr 11, 2019 10:24 pm

The math shows that the bigger house (e.g. $500K vs. $400K) costs you roughly $674/m more plus extra ~$100/m? on insurance and maintenance. If the bigger house is your wife's dream house and she plans to stay in for 10-20 years, I'd say it's an easy decision and your income could afford it.

Diff in Property tax: $100K*3.5%/12 =$292/m
Diff in Mortgage (20% down, 30Y Fixed @4%): $1910 ($400K) - $1528 ($320K) = $382/m
Last edited by majiaknight on Thu Apr 11, 2019 11:35 pm, edited 2 times in total.

cherijoh
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cherijoh » Thu Apr 11, 2019 11:01 pm

cusetownusa wrote:
Thu Apr 11, 2019 5:31 pm
GT99 wrote:
Thu Apr 11, 2019 3:47 pm
JohnQ wrote:
Thu Apr 11, 2019 1:52 pm
...We live in a state with property tax of 3-3.5% property tax...

I worked out the number for a 4%/30-year loan on a 400K loan (500K house with 100K down payment) would be ~3,600 (principal, interest, ins, property tax). I want make sure the wife is happy but this is too much of a mortgage to take on?
Would you truly have to pay $15,000-$17,500 a year in property taxes on a $500k home? Surely that can't be right? Can I ask what state you're in?
We have a $544k mortgage, and our PITI is $3503/month at 4.125%.
I pay $11,000 on a $300,000 house. A $500k house around me would easily be that amount.
Yikes! I think my house is worth somewhere between $250 and $275K and my property tax last year was $2700. Of course NC has a relatively high state income tax and a high sales tax.

cherijoh
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Re: Buying a house next year. Wife wants a big house. Thoughts?

Post by cherijoh » Thu Apr 11, 2019 11:43 pm

finite_difference wrote:
Thu Apr 11, 2019 9:47 pm

But it depends on what makes you happy. My parents were house poor but it worked out and I think sacrificing now for later does make sense up to a certain point. You might have to work longer, but if you enjoy your job (and it’s stable) then that might not be a big deal. Your pension looks solid.
Apparently your parents were lucky. The combination of "house poor" and the Great Recession were a disaster for many people. IMO an acceptable outcome for a sample size of 1, really doesn't tell you whether the strategy was a good one - especially with respect to recommending it for other people. And I'm convinced most people (or t least those who are not self-employed) overestimate their job security until it is usually too late to do much about it.

I'm not sure where you got the idea that the pension "looks solid". The OP simply posted a dollar amount and no other details. I'm not even sure if that is a projected annual payout or the current lump sum value - the OP has not yet responded to my questions regarding it. There is a huge difference between the $60K/year or taking a safe withdrawal from a lump sum of $60k growing at the same rate as a 10-yr treasury note.

Besides, anyone can get a pension projection 20 - 30 years out that looks great, but that doesn't mean you will ever be able to collect it. You might not be in that job when you retire or the pension could easily get frozen and you might end up with a fraction of the projected amount. When it comes to pensions, it's a good idea not to count your chickens before they hatch.

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