[Yet Another] How much house can I afford ?

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davidsorensen32
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[Yet Another] How much house can I afford ?

Post by davidsorensen32 » Mon Sep 09, 2019 12:34 am

Bogleheads, I'm about to embark on the most significant financial decision of my life. Will really appreciate your opinion.

Location: SF Bay Area. Age : 42/36 . Total income 380k . Stable jobs. NW $2.6M (even split between taxable and retirement) . Options

* $1.7M house - very basic, not very desirable : Down $420K Total monthly mortage (PITI + others) = $7,208

* $2.6M house - nice, desirable : Down $600K . Total monthly mortgage expense = $11,179

A variety of other houses are available between these extremes.

What do you think ?

softwaregeek
Posts: 243
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Re: [Yet Another] How much house can I afford ?

Post by softwaregeek » Mon Sep 09, 2019 1:46 am

You have the income to buy the 2.6 house; I just don't think there is a need when you can get into some very nice places for less. Don't put yourself in a situation where you are house poor on a high income. This is a classic Silicon Valley trap that I have seen among co-workers. It's been a good investment for the last 10 years, but I'm old enough to have been through a couple of cycles.

I wouldn't buy now, prices are going down and selection is going up.

Consider getting a place that has expansion potential as a way of splitting the difference. Renovation prices are insane right now but when the cycle turns it will be a better investment.

Based on the numbers you give, I assume you are getting something like a 10/1 ARM at 2.5%?

HomeStretch
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Re: [Yet Another] How much house can I afford ?

Post by HomeStretch » Mon Sep 09, 2019 4:00 am

The $2.6 million house seems a bit of a stretch at 7x annual salary and 35% of your pretax income.

Is the mortgage for a 30-year term? If so, you will be paying mortgage until age 72.

If you buy this house, will you be able to save 20-25% of gross income for retirement? If not, a lower priced house may make better financial sense.

ryman554
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Re: [Yet Another] How much house can I afford ?

Post by ryman554 » Mon Sep 09, 2019 9:13 am

davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
Bogleheads, I'm about to embark on the most significant financial decision of my life. Will really appreciate your opinion.

Location: SF Bay Area. Age : 42/36 . Total income 380k . Stable jobs. NW $2.6M (even split between taxable and retirement) . Options

* $1.7M house - very basic, not very desirable : Down $420K Total monthly mortage (PITI + others) = $7,208

* $2.6M house - nice, desirable : Down $600K . Total monthly mortgage expense = $11,179

A variety of other houses are available between these extremes.

What do you think ?
380k salary = ~100k in taxes. 280k left.
PITI of 11k = 135k in mortgage (or 86k for smaller mortgate). = 155k to 200k left to do things like invest and eat and have fun and stuff.

For my personal frugal(ish) standards, I stand at the lower point in your range. My income is substantially lower, but my PITI is also substantially lower, with an aim of removing it (well, the PI part, anyhow) in the next 3-4 years. I'm able to fully invest pre-tax (no after-tax 401(k) sadly), have a sizable taxable account contribution monthly (almost able to cash flow a roof replacement), pay for pre-school and competitive sports, and take the family on 3-4 vacations a year. We are on track for an early retirement. But we are also frugal in that we don't spend on clothes, food, entertainment and other stuff like money grows on trees. (example: I think I only bought new undies this year. Sadly because I'm getting too fat because I work too hard. edit: I got some new t-shirts, too.)

You will not be able to do this if you get the 2.6M house. You will be much better off than us if you buy the 1.7M house (better than our house equivalent, and our house is above average in all things but location). But you have to watch your lifestyle.

What about kids and how do they play with your income assumptions?

Can you do the 2.6MM? Sure. But you also lock yourself in longer to the hamster wheel of silicon valley. The 1.7M house will spring you free much sooner.

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Mon Sep 09, 2019 9:31 am

davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
Bogleheads, I'm about to embark on the most significant financial decision of my life. Will really appreciate your opinion.

Location: SF Bay Area. Age : 42/36 . Total income 380k . Stable jobs. NW $2.6M (even split between taxable and retirement) . Options

* $1.7M house - very basic, not very desirable : Down $420K Total monthly mortage (PITI + others) = $7,208

* $2.6M house - nice, desirable : Down $600K . Total monthly mortgage expense = $11,179

A variety of other houses are available between these extremes.

What do you think ?
What are the equivalent rents on both houses?

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Tue Sep 10, 2019 9:12 pm

softwaregeek wrote:
Mon Sep 09, 2019 1:46 am
Based on the numbers you give, I assume you are getting something like a 10/1 ARM at 2.5%?
Thats right. I'll post more details of my rate purchase on the private relationships mortgage thread.
Last edited by davidsorensen32 on Tue Sep 10, 2019 9:19 pm, edited 1 time in total.

Topic Author
davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Tue Sep 10, 2019 9:15 pm

HomeStretch wrote:
Mon Sep 09, 2019 4:00 am
The $2.6 million house seems a bit of a stretch at 7x annual salary and 35% of your pretax income.

Is the mortgage for a 30-year term? If so, you will be paying mortgage until age 72.

If you buy this house, will you be able to save 20-25% of gross income for retirement? If not, a lower priced house may make better financial sense.
10/1 ARM. Not 30 year. House is ugly and dilapidated, just like the Bay Area. Only reason to buy is for schools. As soon as kid is through school I plan to sell and ER. Definitely not paying mortgage till 72. Savings will most definitely take a hit. Right now saving $100K+ / year. Trying to minimize the hit, but doesn't seem like it will happen.

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Tue Sep 10, 2019 9:17 pm

ryman554 wrote:
Mon Sep 09, 2019 9:13 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What about kids and how do they play with your income assumptions?

Can you do the 2.6MM? Sure. But you also lock yourself in longer to the hamster wheel of silicon valley. The 1.7M house will spring you free much sooner.
Kids don't bring in any income so they have nothing to do with income assumptions. I agree that $1.7M is better.

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Tue Sep 10, 2019 9:18 pm

unclescrooge wrote:
Mon Sep 09, 2019 9:31 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What are the equivalent rents on both houses?
$6,000 for $1.7M home. No houses for rent in the $2.5M range.

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Tue Sep 10, 2019 9:33 pm

davidsorensen32 wrote:
Tue Sep 10, 2019 9:18 pm
unclescrooge wrote:
Mon Sep 09, 2019 9:31 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What are the equivalent rents on both houses?
$6,000 for $1.7M home. No houses for rent in the $2.5M range.
$6k is less than your cost of ownership on that house. Let someone else subsidize your housing and rent it.

Or buy a fixer upper for $1.5 million and renovate it into a $2.5 million house. Because of prop 13 you'll save money on taxes forever.

Topic Author
davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Tue Sep 10, 2019 9:39 pm

Fixer upper is an excellent suggestion thanks ! As it so happens there is one available and I am pondering whether to go after it. But I am a complete novice when it comes to building houses. And from what I understand general contractors in this area love to take gullible clients for a nice long hike coupled with very poor workmanship. Once they have you, they will squeeze the last drop out of you. How much will it cost to build a basic 3/2 SF Bay Area house (no marbles or fancy stuff) ? I have no idea. :confused . How long will it take ? How is the permitting process ? Will bank give me mortgage for house repairs ? I'm guessing repairs on the unit I'm eyeing will run into $500,000+ (there is very little of the fixer upper thats habitable - gotta wreck and start from scratch). I'm very afraid of biting off something I cannot chew, along with 2 very busy day jobs and kids to raise.
unclescrooge wrote:
Tue Sep 10, 2019 9:33 pm
davidsorensen32 wrote:
Tue Sep 10, 2019 9:18 pm
unclescrooge wrote:
Mon Sep 09, 2019 9:31 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What are the equivalent rents on both houses?
$6,000 for $1.7M home. No houses for rent in the $2.5M range.
$6k is less than your cost of ownership on that house. Let someone else subsidize your housing and rent it.

Or buy a fixer upper for $1.5 million and renovate it into a $2.5 million house. Because of prop 13 you'll save money on taxes forever.

softwaregeek
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Re: [Yet Another] How much house can I afford ?

Post by softwaregeek » Wed Sep 11, 2019 12:26 am

davidsorensen32 wrote:
Tue Sep 10, 2019 9:39 pm
Fixer upper is an excellent suggestion thanks ! As it so happens there is one available and I am pondering whether to go after it. But I am a complete novice when it comes to building houses. And from what I understand general contractors in this area love to take gullible clients for a nice long hike coupled with very poor workmanship. Once they have you, they will squeeze the last drop out of you. How much will it cost to build a basic 3/2 SF Bay Area house (no marbles or fancy stuff) ? I have no idea. :confused . How long will it take ? How is the permitting process ? Will bank give me mortgage for house repairs ? I'm guessing repairs on the unit I'm eyeing will run into $500,000+ (there is very little of the fixer upper thats habitable - gotta wreck and start from scratch). I'm very afraid of biting off something I cannot chew, along with 2 very busy day jobs and kids to raise.
unclescrooge wrote:
Tue Sep 10, 2019 9:33 pm
davidsorensen32 wrote:
Tue Sep 10, 2019 9:18 pm
unclescrooge wrote:
Mon Sep 09, 2019 9:31 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What are the equivalent rents on both houses?
$6,000 for $1.7M home. No houses for rent in the $2.5M range.
$6k is less than your cost of ownership on that house. Let someone else subsidize your housing and rent it.

Or buy a fixer upper for $1.5 million and renovate it into a $2.5 million house. Because of prop 13 you'll save money on taxes forever.
Did this. Don't recommend this. I bought a $2 million house, put $350k into it. Definitely bit off more than I can chew given that I have a day job. Went way over budget, partially due to bad engineering and an artiste architect, partially due to spousal demands (floorplan must do x, anything else unacceptable) and partially due to unforseen PGE costs. The various delays (engineering, permit, PGE) took so long that my lease ran out and I had to move into a construction site. Remember, you are paying for two houses when you have a fixer upper.

Unless renovations are your thing , avoid doing them in the Bay area.

Honestly, I should have avoided buying and just stayed in my $5500 rental. It was just about as nice as my current house and a lot cheaper. Plus, prices are going down and selection is going up.

And if you have one kid, it's cheaper to send them to private school than buy a house in a good school district. The Catholic schools in particular are excellent.

If you have to buy, $2M gets you into some nice places even in the South Bay. For example, Cherry Chase or Birdland in Sunnyvale, Laurelwood in Santa Clara, most of Cupertino, Los Gatos or possibly the bottom end of Saratoga. The only areas you couldn't get into would be Los Altos/LA Hills, Mountain View (with good schools), Palo Alto or Portola Valley.

ryman554
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Re: [Yet Another] How much house can I afford ?

Post by ryman554 » Wed Sep 11, 2019 5:42 am

davidsorensen32 wrote:
Tue Sep 10, 2019 9:17 pm
ryman554 wrote:
Mon Sep 09, 2019 9:13 am
davidsorensen32 wrote:
Mon Sep 09, 2019 12:34 am
What about kids and how do they play with your income assumptions?

Can you do the 2.6MM? Sure. But you also lock yourself in longer to the hamster wheel of silicon valley. The 1.7M house will spring you free much sooner.
Kids don't bring in any income so they have nothing to do with income assumptions. I agree that $1.7M is better.
The presence of kids can take you down to one earner, since you specify "jobs", or cost you a ton in daycare, or both. So they very much affect income.

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Wed Sep 11, 2019 9:52 am

softwaregeek wrote:
Wed Sep 11, 2019 12:26 am
davidsorensen32 wrote:
Tue Sep 10, 2019 9:39 pm
Fixer upper is an excellent suggestion thanks ! As it so happens there is one available and I am pondering whether to go after it. But I am a complete novice when it comes to building houses. And from what I understand general contractors in this area love to take gullible clients for a nice long hike coupled with very poor workmanship. Once they have you, they will squeeze the last drop out of you. How much will it cost to build a basic 3/2 SF Bay Area house (no marbles or fancy stuff) ? I have no idea. :confused . How long will it take ? How is the permitting process ? Will bank give me mortgage for house repairs ? I'm guessing repairs on the unit I'm eyeing will run into $500,000+ (there is very little of the fixer upper thats habitable - gotta wreck and start from scratch). I'm very afraid of biting off something I cannot chew, along with 2 very busy day jobs and kids to raise.
unclescrooge wrote:
Tue Sep 10, 2019 9:33 pm
davidsorensen32 wrote:
Tue Sep 10, 2019 9:18 pm
unclescrooge wrote:
Mon Sep 09, 2019 9:31 am

What are the equivalent rents on both houses?
$6,000 for $1.7M home. No houses for rent in the $2.5M range.
$6k is less than your cost of ownership on that house. Let someone else subsidize your housing and rent it.

Or buy a fixer upper for $1.5 million and renovate it into a $2.5 million house. Because of prop 13 you'll save money on taxes forever.
Did this. Don't recommend this. I bought a $2 million house, put $350k into it. Definitely bit off more than I can chew given that I have a day job. Went way over budget, partially due to bad engineering and an artiste architect, partially due to spousal demands (floorplan must do x, anything else unacceptable) and partially due to unforseen PGE costs. The various delays (engineering, permit, PGE) took so long that my lease ran out and I had to move into a construction site. Remember, you are paying for two houses when you have a fixer upper.

Unless renovations are your thing , avoid doing them in the Bay area.

Honestly, I should have avoided buying and just stayed in my $5500 rental. It was just about as nice as my current house and a lot cheaper. Plus, prices are going down and selection is going up.

And if you have one kid, it's cheaper to send them to private school than buy a house in a good school district. The Catholic schools in particular are excellent.

If you have to buy, $2M gets you into some nice places even in the South Bay. For example, Cherry Chase or Birdland in Sunnyvale, Laurelwood in Santa Clara, most of Cupertino, Los Gatos or possibly the bottom end of Saratoga. The only areas you couldn't get into would be Los Altos/LA Hills, Mountain View (with good schools), Palo Alto or Portola Valley.
I hear this is not an uncommon situation.

I had a different experience. I paid $1.3 million, spent under $500k to rebuild and it was worth $2.2+ million on completion (2 years ago).

The mistake most people make is paying too much for the fixer, trusting their architect/ GC to deliver the vision, and changing their minds during the build process.

If you go this route, use a reputed design and build firm. They will tell you what's reasonable within your budget.

Also check out Blu homes.

rich126
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Re: [Yet Another] How much house can I afford ?

Post by rich126 » Wed Sep 11, 2019 10:02 am

Without knowing the future you just don't know. And yeah, too many people end up house poor, living paycheck to paycheck and if they lose their job they are in trouble. However, a number of people do it, and things work out fine with no job loss, incomes increasing and the house value going up. Sometimes it is hard not to be house poor when you start out. Once you get into the later 40s/50s you should avoid that since you have less time.

CA is a whole different world and sometimes if you don't just bite the bullet and buy, the opportunity just seems to get further and further from your reach. I honestly don't know what I'd do in your situation. It is easier IMO to push the limits when you have little to lose, once I started getting more assets then I want to preserve them.

Good luck.

Wannaretireearly
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Re: [Yet Another] How much house can I afford ?

Post by Wannaretireearly » Wed Sep 11, 2019 10:15 am

unclescrooge wrote:
Wed Sep 11, 2019 9:52 am

I hear this is not an uncommon situation.

I had a different experience. I paid $1.3 million, spent under $500k to rebuild and it was worth $2.2+ million on completion (2 years ago).

The mistake most people make is paying too much for the fixer, trusting their architect/ GC to deliver the vision, and changing their minds during the build process.

If you go this route, use a reputed design and build firm. They will tell you what's reasonable within your budget.

Also check out Blu homes.
You did well! Can i ask was that $500K for construction only? OR All in (finishing, flooring etc).

We completed a second story last year, along with a major revamp downstairs too (so whole house reno).
Happy with the results good contractor etc.
However:
- we had a place to stay locally (rent free)
- project did take almost a year to complete (city delays as well as some scope changes from us)
- construction cost alone was just over $300K. All in incl finishing, cabinets, architect cost etc - were prob at between 400 and 450k.
- bought house a long time ago (2004).
- prop 13 seems to have worked out. prop tax only gone up marginally. (Be careful, understand how this works etc)
- estimated value before to reno at $1M. Post reno at ~$1.5M, Original purchase price $630K.

Advice (edit: maybe more bay area specific - where buying the ideal big house with land from the get-go is very costly...):
- buy a small house on a large lot where you can 'live' for a few years. Take time planning reno - its very stressful, time consuming & costly. But, can be worth it if you have the right mindset.
- Try to avoid HOA's
- take your time to find a great contractor
Buy Low, Sell High

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Wed Sep 11, 2019 10:36 am

Wannaretireearly wrote:
Wed Sep 11, 2019 10:15 am
unclescrooge wrote:
Wed Sep 11, 2019 9:52 am

I hear this is not an uncommon situation.

I had a different experience. I paid $1.3 million, spent under $500k to rebuild and it was worth $2.2+ million on completion (2 years ago).

The mistake most people make is paying too much for the fixer, trusting their architect/ GC to deliver the vision, and changing their minds during the build process.

If you go this route, use a reputed design and build firm. They will tell you what's reasonable within your budget.

Also check out Blu homes.
You did well! Can i ask was that $500K for construction only? OR All in (finishing, flooring etc).

We completed a second story last year, along with a major revamp downstairs too (so whole house reno).
Happy with the results good contractor etc.
However:
- we had a place to stay locally (rent free)
- project did take almost a year to complete (city delays as well as some scope changes from us)
- construction cost alone was just over $300K. All in incl finishing, cabinets, architect cost etc - were prob at between 400 and 450k.
- bought house a long time ago (2004).
- prop 13 seems to have worked out. prop tax only gone up marginally. (Be careful, understand how this works etc)
- estimated value before to reno at $1M. Post reno at ~$1.5M, Original purchase price $630K.

Advice (edit: maybe more bay area specific - where buying the ideal big house with land from the get-go is very costly...):
- buy a small house on a large lot where you can 'live' for a few years. Take time planning reno - its very stressful, time consuming & costly. But, can be worth it if you have the right mindset.
- Try to avoid HOA's
- take your time to find a great contractor
It seems the renovation worked out well for you too.

I spent $430k all in, and another $70k on extra holding costs that could've been avoided if I had gotten a construction loan.

It's not the bay area, but Los Angeles, which may be comparable in terms of construction costs.

But I bought right, which is the crucial step most buyers miss. If you overpay for the house, you can't overcome that mistake.

knowledge
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Re: [Yet Another] How much house can I afford ?

Post by knowledge » Wed Sep 11, 2019 10:59 am

I don't know. You're talking about buying homes that are 65-100% of your net worth and 4.5-7x your current income. That's too much for me. I'm in a similar financial situation and when I was house shopping this past year, I set $1.2M as the price that I wouldn't cross, and even there I felt that a normal boglehead would think that too aggressive.

I know it's the Bay Area, and I can distinctly recall giving the same advice to friends of mine 6 years back. They've since seen $1M of home appreciation, so what do I know.

softwaregeek
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Re: [Yet Another] How much house can I afford ?

Post by softwaregeek » Wed Sep 11, 2019 1:27 pm

knowledge wrote:
Wed Sep 11, 2019 10:59 am
I don't know. You're talking about buying homes that are 65-100% of your net worth and 4.5-7x your current income. That's too much for me. I'm in a similar financial situation and when I was house shopping this past year, I set $1.2M as the price that I wouldn't cross, and even there I felt that a normal boglehead would think that too aggressive.

I know it's the Bay Area, and I can distinctly recall giving the same advice to friends of mine 6 years back. They've since seen $1M of home appreciation, so what do I know.

Here is how I recommend thinking about it: Like a corporate purchase.

Let's say after tax cost or mortgage is 2%. (partially deductible).

You are putting in $600k of capital at, say, 4% after tax return.

Tax is 1.2% of purchase price.

2M*2%=40k.
600k*4%=24k
2.6M*1.2%=31k

Total real economic cost = 95k/year plus insurance.

Of course, you can customize the rates to your liking.

bloom2708
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Re: [Yet Another] How much house can I afford ?

Post by bloom2708 » Wed Sep 11, 2019 1:36 pm

I would rent if those are the 2 best options. 7x salary. No thank you.

Rent and go do something fun. Between work-work and house-work, that leaves you just time to sleep a bit and brush your teeth. Nothing else.
Last edited by bloom2708 on Wed Sep 11, 2019 1:52 pm, edited 1 time in total.
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cherijoh
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Re: [Yet Another] How much house can I afford ?

Post by cherijoh » Wed Sep 11, 2019 1:50 pm

davidsorensen32 wrote:
Tue Sep 10, 2019 9:15 pm
HomeStretch wrote:
Mon Sep 09, 2019 4:00 am
The $2.6 million house seems a bit of a stretch at 7x annual salary and 35% of your pretax income.

Is the mortgage for a 30-year term? If so, you will be paying mortgage until age 72.

If you buy this house, will you be able to save 20-25% of gross income for retirement? If not, a lower priced house may make better financial sense.
10/1 ARM. Not 30 year. House is ugly and dilapidated, just like the Bay Area. Only reason to buy is for schools. As soon as kid is through school I plan to sell and ER. Definitely not paying mortgage till 72. Savings will most definitely take a hit. Right now saving $100K+ / year. Trying to minimize the hit, but doesn't seem like it will happen.
Um, you do know a 10/1 arm is a 30-yr loan, right? Just not a 30-yr fixed interest rate.

How old is your kid? In other words, would you be moving within the 10-yr lock or after it starts annual adjustments?

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Wed Sep 11, 2019 11:30 pm

unclescrooge wrote:
Wed Sep 11, 2019 9:52 am

If you go this route, use a reputed design and build firm. They will tell you what's reasonable within your budget.

Also check out Blu homes.
What are some of the reputed design and build firms in the Bay Area ?

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Wed Sep 11, 2019 11:34 pm

rich126 wrote:
Wed Sep 11, 2019 10:02 am
CA is a whole different world and sometimes if you don't just bite the bullet and buy, the opportunity just seems to get further and further from your reach.
I've been chasing it for 20 years now. Some years ago, when my networth was $600K, Palo Alto houses were going for $1.2M. Now the same Palo Alto houses have gone to $3.0M . Maybe a couple more good years and networth will finally catchup with the house price. It's been a fun and interesting race for sure.

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davidsorensen32
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Re: [Yet Another] How much house can I afford ?

Post by davidsorensen32 » Wed Sep 11, 2019 11:36 pm

Wannaretireearly wrote:
Wed Sep 11, 2019 10:15 am
- take your time to find a great contractor
How do you find a great contractor ?

Wannaretireearly
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Re: [Yet Another] How much house can I afford ?

Post by Wannaretireearly » Wed Sep 11, 2019 11:57 pm

davidsorensen32 wrote:
Wed Sep 11, 2019 11:36 pm
Wannaretireearly wrote:
Wed Sep 11, 2019 10:15 am
- take your time to find a great contractor
How do you find a great contractor ?
Find someone local who has done lots of great work. Interview. Understand after 3 meetings your 'dating'. If it doesn't feel right...move on.
Get personal references. Talk to people who have recently completed work.
Try not to be in a hurry...i.e. start dating early...
Buy Low, Sell High

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Thu Sep 12, 2019 5:13 am

davidsorensen32 wrote:
Wed Sep 11, 2019 11:30 pm
unclescrooge wrote:
Wed Sep 11, 2019 9:52 am

If you go this route, use a reputed design and build firm. They will tell you what's reasonable within your budget.

Also check out Blu homes.
What are some of the reputed design and build firms in the Bay Area ?
I don't know, I live in Los Angeles. But a reputable firm here would be https://www.hartmanbaldwin.com/.

You want to like their site of homes, and understand how they work. The best firms will want to create a 3d model of the inside and out. It's expensive, but it gives you an idea of what you'll get avoiding costly changes later. And it's easier to price out because the builder knows what finishes you're expecting. Finishes are expensive.

For example, carpet can costs $3/sqft, hardwood $12. Multiply this $9 difference by 2,000 sq ft and you have an $18,000 difference. Now multiply this by the paint, kitchen cabinets, walls, ceilings, bathroom fixtures, exterior cladding materials, roofing materials, HVAC system, doors and windows and you will be amazed how quickly this can spiral out of control.

What your wife thinks is suitable will not match what the builder thinks she will like. :mrgreen:

Ask for referrals. Definitely ask the referrals if they came in at budget and on time. If not, understand what went wrong.

rich126
Posts: 871
Joined: Thu Mar 01, 2018 4:56 pm

Re: [Yet Another] How much house can I afford ?

Post by rich126 » Thu Sep 12, 2019 12:54 pm

davidsorensen32 wrote:
Wed Sep 11, 2019 11:34 pm
rich126 wrote:
Wed Sep 11, 2019 10:02 am
CA is a whole different world and sometimes if you don't just bite the bullet and buy, the opportunity just seems to get further and further from your reach.
I've been chasing it for 20 years now. Some years ago, when my networth was $600K, Palo Alto houses were going for $1.2M. Now the same Palo Alto houses have gone to $3.0M . Maybe a couple more good years and networth will finally catchup with the house price. It's been a fun and interesting race for sure.
Digging way back to the late 80s I could only afford a townhouse just outside of Baltimore (and not in a good area). If I recall my salary was in the upper 20s and the townhouse was around $90K. Something like 3X my income or a bit more. At that time I had no emergency fund and very little savings. And the savings I did have was mostly 401K stuff. I recall worrying if something happened to the roof, finding a few thousand would be tough. My parents would have helped me although I'm not the type that would want to go that route.

Anyhow it worked out. Although that house was the only house I didn't make money on (location, location, location). I think starting out you often have to stretch things in order to get into housing otherwise housing prices rise faster than incomes, especially considering leverage. I realize that may not be true in many areas of the US, but in the desirable areas (jobs, schools) I believe it is nearly 100% true. And you can't afford to live in undesirable areas long term because those homes just don't rise to keep up with your next house you want to buy.

Its kind of like its great if you move to a LCOL from a M/HCOL but if you have to go back to the M/HCOL location you have been left behind. That 10%, 20%, whatever increase on the $200K house is insignificant to that appreciation on a $500K home.

I'm still pondering how housing in Scottsdale, AZ is greater than in Ellicott City, MD in what I consider comparable locations. Seems like a huge bubble here (not supported by the tech jobs that exist in CA, or government/contracting jobs in MD).

Good luck.

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unclescrooge
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Re: [Yet Another] How much house can I afford ?

Post by unclescrooge » Sat Sep 14, 2019 9:06 am

rich126 wrote:
Thu Sep 12, 2019 12:54 pm
davidsorensen32 wrote:
Wed Sep 11, 2019 11:34 pm
rich126 wrote:
Wed Sep 11, 2019 10:02 am
CA is a whole different world and sometimes if you don't just bite the bullet and buy, the opportunity just seems to get further and further from your reach.
I've been chasing it for 20 years now. Some years ago, when my networth was $600K, Palo Alto houses were going for $1.2M. Now the same Palo Alto houses have gone to $3.0M . Maybe a couple more good years and networth will finally catchup with the house price. It's been a fun and interesting race for sure.
Digging way back to the late 80s I could only afford a townhouse just outside of Baltimore (and not in a good area). If I recall my salary was in the upper 20s and the townhouse was around $90K. Something like 3X my income or a bit more. At that time I had no emergency fund and very little savings. And the savings I did have was mostly 401K stuff. I recall worrying if something happened to the roof, finding a few thousand would be tough. My parents would have helped me although I'm not the type that would want to go that route.

Anyhow it worked out. Although that house was the only house I didn't make money on (location, location, location). I think starting out you often have to stretch things in order to get into housing otherwise housing prices rise faster than incomes, especially considering leverage. I realize that may not be true in many areas of the US, but in the desirable areas (jobs, schools) I believe it is nearly 100% true. And you can't afford to live in undesirable areas long term because those homes just don't rise to keep up with your next house you want to buy.
I bought my first condo in 2001 in San Diego for$176,000. At the time I was making $50-60,000.

I got an FHA loan so I had to put down 3%. Somehow I only had $1,500 on me so I borrowed the rest from my neighbor for a couple of months until my tax refund came in.

It was a stretch even then.

cherijoh
Posts: 6346
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Location: Charlotte NC

Re: [Yet Another] How much house can I afford ?

Post by cherijoh » Sat Sep 14, 2019 9:26 am

rich126 wrote:
Wed Sep 11, 2019 10:02 am
Without knowing the future you just don't know. And yeah, too many people end up house poor, living paycheck to paycheck and if they lose their job they are in trouble. However, a number of people do it, and things work out fine with no job loss, incomes increasing and the house value going up. Sometimes it is hard not to be house poor when you start out. Once you get into the later 40s/50s you should avoid that since you have less time.

CA is a whole different world and sometimes if you don't just bite the bullet and buy, the opportunity just seems to get further and further from your reach. I honestly don't know what I'd do in your situation. It is easier IMO to push the limits when you have little to lose, once I started getting more assets then I want to preserve them.

Good luck.
OP is over 40, so the trajectory of salary increases has probably slowed.

Also, at least where I live, the housing market is slowing down. While prices are still increasing, YoY home sales have been negative for 14 months in a row the last I checked. There is still brisk demand for "starter homes", but high-end houses are not doing nearly as well.

I have to believe that with the change in tax law - specifically SALT cap and maximum mortgage interest deduction now covering only first $750K of mortgage (vs. $1M previously), that the appetite for the more expensive houses is slowing - especially in CA - and putting pressure on the prices.

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