How Much Home Can I Afford?

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Topic Author
maxutil
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How Much Home Can I Afford?

Post by maxutil » Thu Jul 11, 2019 10:21 am

I'm 35, single, and I've owned a condo before which I sold about 5 years ago. I live in Los Angeles, so the cost of living is high. I am in no rush and believe I'm not really in a position to purchase what I want.

I have about $180k cash, and in 2021 I'll probably have around $270k cash. In LA, at current prices, the type of condo (can't afford a free-standing home) I'd want would be around $600k-$700k with a $400 HOA fee and approximately 1.2% tax rate. If we assume $650k purchase price with 25% down and 4.25% interest, I'm looking at about $3600 per month for mortgage, HOA, taxes, insurance, and maintenance.

I make about $6k/month after taxes, after maxing 401k contributions, and not including year-end bonus of about $15k post-tax. If I purchase, I would keep maxing the 401k, but my cash savings rate will decline dramatically. Also at this level, the percentage of income going into the house makes me uneasy.

What would you do? I'm content with just renting for now, and building up a bigger down payment for a similar-priced home, and just wait it out 2-3 years until I can put down a lot more like 40%+. Even with that larger down payment, my budget would still be stretched. If I get married within the next few years, that would change things and make the house more affordable.

Grt2bOutdoors
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Re: How Much Home Can I Afford?

Post by Grt2bOutdoors » Thu Jul 11, 2019 10:28 am

When your monthly payment does not exceed $2K a month, in a HCOL area such as LA, okay, maybe $2,500 a month, but not more than that. Otherwise you will be house poor. I hope you have a stable job.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
maxutil
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Re: How Much Home Can I Afford?

Post by maxutil » Thu Jul 11, 2019 10:32 am

Grt2bOutdoors wrote:
Thu Jul 11, 2019 10:28 am
When your monthly payment does not exceed $2K a month, in a HCOL area such as LA, okay, maybe $2,500 a month, but not more than that. Otherwise you will be house poor. I hope you have a stable job.
My rent already exceeds $2k/month. I think $2,500/month is very unrealistic for LA.

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TomatoTomahto
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Re: How Much Home Can I Afford?

Post by TomatoTomahto » Thu Jul 11, 2019 10:36 am

35 + single = rent
Okay, I get it; I won't be political or controversial. The Earth is flat.

jabroni
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Re: How Much Home Can I Afford?

Post by jabroni » Thu Jul 11, 2019 10:38 am

I've always gone by the adage that housing should cost <=25% of after-tax income. Assuming that maxing your 401k means $1,583/month, then that would put after-tax take home at ~$7,600. giving a little leeway, I probably wouldn't spend more than $2k (maybe up to 2,300) monthly on housing. Obviously, that isn't very likely in LA.

Since math doesn't change just because it's a HCOL area, I would have to get a higher income, get a roommate, or move to a place with more reasonable housing.

Bigt3142
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Re: How Much Home Can I Afford?

Post by Bigt3142 » Thu Jul 11, 2019 10:44 am

Over 50% of your income to your mortgage is a recipe for disaster in my opinion. I'd rent and save up for a larger down payment, but that's just me. :sharebeer

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Cobra Commander
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Re: How Much Home Can I Afford?

Post by Cobra Commander » Thu Jul 11, 2019 10:45 am

What does the rest of your budget look like? Excluding your bonus, $2.4K extra per month seems like it could get tight. What about food, utilities (electric, water, cable), vacation, dates and don't forget home repairs, possibly gas and car insurance too, cell phone?

bloom2708
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Re: How Much Home Can I Afford?

Post by bloom2708 » Thu Jul 11, 2019 10:47 am

TomatoTomahto wrote:
Thu Jul 11, 2019 10:36 am
35 + single = rent
+43

I would max 401k pre-tax and Roth IRA each year. If you have more to save, invest in taxable.

That $180k and then $270k could be invested (maybe 70/30 or 60/40) and grind away. Leaving it "safe" on the sidelines earning 2% is tough.

Your budget may look better if you decide to rent, invest and see what happens. Pay raises, marriage and a second income, lots of winding paths ahead.
Last edited by bloom2708 on Thu Jul 11, 2019 10:57 am, edited 1 time in total.
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Topic Author
maxutil
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Re: How Much Home Can I Afford?

Post by maxutil » Thu Jul 11, 2019 10:50 am

Cobra Commander wrote:
Thu Jul 11, 2019 10:45 am
What does the rest of your budget look like? Excluding your bonus, $2.4K extra per month seems like it could get tight. What about food, utilities (electric, water, cable), vacation, dates and don't forget home repairs, possibly gas and car insurance too, cell phone?
I'd have a tiny bit left over (less than $200 per month). So anyway, it seems too tight for me to be comfortable. I'll just rent for the foreseeable future and build up retirement savings. Thanks.

Bobby206
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Re: How Much Home Can I Afford?

Post by Bobby206 » Thu Jul 11, 2019 10:52 am

TomatoTomahto wrote:
Thu Jul 11, 2019 10:36 am
35 + single = rent
I agree. Keep things flexible. Plus there are other costs of ownership besides mortgage, taxes, insurance, hoa. Something is always needing to be fixed or upgraded. I'd keep renting.

Omalley
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Re: How Much Home Can I Afford?

Post by Omalley » Thu Jul 11, 2019 10:56 am

I don't think the $2,500/month mortgage budget suggested by Grt2bOutdoors was meant to imply a reasonable mortgage amount for the LA market. That is the limit of a reasonable monthly mortgage payment you should personally take on considering your stated take-home income of $6,000/month.

Continue to save a down-payment that allows the remaining mortgaged amount to be below $2,500/month. Perhaps a mortgage of $350k, with HOA fees, property tax, and insurance resulting in a monthly payment around $2,500. Most likely a $250-350k down-payment on a $600-700k property.

If marriage is a possibility in the next few years, consider renting (and saving) until after the wedding and buying a property that meets your needs at that time.

jharkin
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Re: How Much Home Can I Afford?

Post by jharkin » Thu Jul 11, 2019 10:57 am

Good decision.

My wife and I just bought a house in that price range at 4.125% and the payment feels a little uncomfortable to me at our income level of just under 20k/mo (pretax). For you it would be crushing, you would literally be eating rice and ramen.

Jags4186
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Re: How Much Home Can I Afford?

Post by Jags4186 » Thu Jul 11, 2019 11:01 am

Keep in mind that if you’re single you’d be able to get a pretty big deduction.

Between $10k SALT and approximately $17000 in mortgage interest on a $430k loan you’d save approximately $3300/yr on taxes.

Not suggesting that this is a good move, just something to be cognizant of.

alfaspider
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Re: How Much Home Can I Afford?

Post by alfaspider » Thu Jul 11, 2019 12:37 pm

Keep in mind that "How much home can I afford?" and what is worth actually spending your hard earned money on are two totally different questions. The former is mostly a question of math, and a bank will be happy to answer it for you. The latter is a much more important question that speaks to personal value.

I concur with others that you should rent while single unless you have special needs that require a place that isn't available in rent properties. You have no idea what a future partner might want in a house, and selling a house is a very expensive proposition.

Topic Author
maxutil
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Re: How Much Home Can I Afford?

Post by maxutil » Thu Jul 11, 2019 12:53 pm

Ok thanks for all the replies. I was already planning on renting for now until I could put a sizable enough DP on a home to make the monthly outlay comfortable for me. I will just stockpile the cash for another 2-3 years.

I am already on a plan to max 401k and roth IRA. This year is the first year I'm getting serious about retirement. I will max until I stop working.

stoptothink
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Re: How Much Home Can I Afford?

Post by stoptothink » Thu Jul 11, 2019 12:54 pm

jharkin wrote:
Thu Jul 11, 2019 10:57 am
Good decision.

My wife and I just bought a house in that price range at 4.125% and the payment feels a little uncomfortable to me at our income level of just under 20k/mo (pretax). For you it would be crushing, you would literally be eating rice and ramen.
Sounds like my compensation is almost identical to OP's, but then so is my wife's, and I couldn't imagine being comfortable with a $600k mortgage. I am all about home ownership, but this sounds like a situation where there is little to no upside to purchasing.

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Watty
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Re: How Much Home Can I Afford?

Post by Watty » Thu Jul 11, 2019 1:31 pm

Don't forget that there will also be your normal maintenance costs that you are responsible for and there can also be special assessments by the condo association

maxutil wrote:
Thu Jul 11, 2019 10:21 am

.... in 2021 I'll probably have around $270k cash

What would you do?
I would keep renting and saving and then at some point move to a less expensive area where I could buy a condo or even a house for cash.

But that is just me.

The median US single family home price(not a condo) is only $254,800 so there should be lots of nice places where you will soon be able to buy a nice home for cash.

https://www.nar.realtor/research-and-st ... ordability

When you go on vacations or business trips be sure to check out other parts of the country to see if you can find someplace that you would want to live. You could also take flights on long weekends to check out other parts of the country.

You did not give many details about the rest of your situation but I would guess that if you were willing to move to a much less expensive area then you could retire or semi-retire sometime in your 40s.

There are a lot areas that are very nice except the job market is bad, but if you are retired that does not matter.

Grt2bOutdoors
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Re: How Much Home Can I Afford?

Post by Grt2bOutdoors » Thu Jul 11, 2019 3:35 pm

Omalley wrote:
Thu Jul 11, 2019 10:56 am
I don't think the $2,500/month mortgage budget suggested by Grt2bOutdoors was meant to imply a reasonable mortgage amount for the LA market. That is the limit of a reasonable monthly mortgage payment you should personally take on considering your stated take-home income of $6,000/month.

Continue to save a down-payment that allows the remaining mortgaged amount to be below $2,500/month. Perhaps a mortgage of $350k, with HOA fees, property tax, and insurance resulting in a monthly payment around $2,500. Most likely a $250-350k down-payment on a $600-700k property.

If marriage is a possibility in the next few years, consider renting (and saving) until after the wedding and buying a property that meets your needs at that time.
Thank you for clarifying. That is exactly what I meant.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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WestUniversity
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Re: How Much Home Can I Afford?

Post by WestUniversity » Thu Jul 11, 2019 7:47 pm

jabroni wrote:
Thu Jul 11, 2019 10:38 am
I've always gone by the adage that housing should cost <=25% of after-tax income. Assuming that maxing your 401k means $1,583/month, then that would put after-tax take home at ~$7,600. giving a little leeway, I probably wouldn't spend more than $2k (maybe up to 2,300) monthly on housing. Obviously, that isn't very likely
+1 on the 25%

I’ve never wanted to be house poor or car poor...

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