How much house can we afford?

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Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 10:29 am

I'm back with another house affordability question. Out situation has changed a bit since my post last year so I wanted to reevaluate.
viewtopic.php?t=246204

Age: Me 38, Wife 37, 5 year old, new baby due in a few weeks
------------------------------------------------------------------------
Asset allocation: 75% stocks / 25% bonds , in 3 fund lost cost portfolio at Vanguard and Fidelity
International stock allocation: 10% of stocks

Total Portfolio: ~1.4M (I don't include home equity, cash for down payment, or emergency fund in this)
Our investments at a glance:
401k/IRA Type: ~800K
Roth Type: ~240K
Taxable: ~280K (Vanguard Total Stock Market)
HSA: ~30K (we don't use this for current medical expenses)
529: ~75K (at Vanguard)

Total Cash: 209K (not counted as part of total portfolio since we need the cash for next house, and emergency fund)
-------------
Cash: ~22K High Yield Savings 1.9% APY
Cash: 12K Checking (we have a lot of quick cash needs with the move so it's bit higher than normal)
Cash: 60K Vanguard Prime Money Market
Cash: ~115K (Just sold house. In contract and waiting for closing date. Amount after all fees and mortgage payoff)
-------------
Debt: None
----------------------------------------------------------------------
Contributions:
401k/403b: 19K +19K + ~12K employer match = 50K
HSA: ~7K/year
529: 10k/year
Roth: ~20K depending on commissions
Taxable: ~30K to 50K/year depending on commissions
----------------------------------------------------------------------
Income:
Me: ~155K + commissions up to 70K (we want to budget as if commissions are zero), my job security is also very low. This is also a very recent base pay increase from last year when it was 110K.
Wife: 56K with fairly good job security. Will be taking 6 months mostly unpaid leave for baby
Tax Filing Status: Married Filing Jointly
Tax Rate: ~22 to 24% Federal, 6% State
State:NY
------------------------------------------------------------------------------
Expenses: ~90K/year (this does not include income taxes) in Medium COL area outside of NYC

Major Expenses: About ~8K per month (high medical expenses this year)
Rent: Unknown right now, but will be anywhere from 2-3K/month
Daycare: ~1k/month
Food:600/month
Utilities (Water/Elec/Gas/Internet): 300/month
Misc: 3500/month travel/medical/gifts/gas/home repair/car insurance/kid stuff/restaurants/etc
------------------------------------------------------------------------------

Questions:
1.Can we comfortably afford a 450-500K new construction house with about 10K/year in property taxes? I have always been a saver and I am very averse to financial stress, so I don't want to be house poor.

2. Does my reasoning for higher priced new construction make sense given the background info below?
-----------------------------------------------------------------------------

Background: We were original looking in the ~$375K range but the market has gone up significantly in our area, especially with the low interest rates. We could purchase an older home (1980's to 2000s) for about $425-450 but the price is so close to new construction it may not make sense. In all the older homes we will have to replace the roof, siding, septic, driveway...etc over the next few years, but for the new construction those items will all be new.

barnaclebob
Posts: 3964
Joined: Thu Aug 09, 2012 10:54 am

Re: How much house can we afford?

Post by barnaclebob » Tue Sep 17, 2019 10:40 am

How does the potential mortgage PITI compare to your rent? Avoiding being house poor is all about cash flow.

Your thoughts on a new house are fairly reasonable assuming your builder doesn't do something terribly wrong like screw up the drainage or foundation construction. How are the prices of the older houses that have already had several major items replaced?
Last edited by barnaclebob on Tue Sep 17, 2019 10:45 am, edited 3 times in total.

Miguelito
Posts: 283
Joined: Thu Feb 27, 2014 1:21 pm

Re: How much house can we afford?

Post by Miguelito » Tue Sep 17, 2019 10:40 am

I won't get into the minutia, but it seems to me you have a robust retirement account and are diligent about contributing to them, so I would not worry about the long term too much. You also have enough to put down 20% on any house in the range you are considering.

To me it's about cash flow. You mention your recent pay increase. Our rule has always been to base our lifestyle on the income we would reasonably be able to replace if we needed to find new jobs. There are high-risk/high-reward jobs but to stake your spending on that level of income is risky. Maybe 155k+ is what your field pays and you were underpaid before. Maybe the norm is 100k but the good economy or shortage of talent has created a high demand for people like you with a corresponding increase in pay.

Just base your mortgage payment on an income that is replaceable, especially given that you mentioned the low job security.

stoptothink
Posts: 6499
Joined: Fri Dec 31, 2010 9:53 am

Re: How much house can we afford?

Post by stoptothink » Tue Sep 17, 2019 10:42 am

kevin99 wrote:
Tue Sep 17, 2019 10:29 am

Questions:
1.Can we comfortably afford a 450-500K new construction house with about 10K/year in property taxes? I have always been a saver and I am very averse to financial stress, so I don't want to be house poor.

2. Does my reasoning for higher priced new construction make sense given the background info below?
-----------------------------------------------------------------------------

Background: We were original looking in the ~$375K range but the market has gone up significantly in our area, especially with the low interest rates. We could purchase an older home (1980's to 2000s) for about $425-450 but the price is so close to new construction it may not make sense. In all the older homes we will have to replace the roof, siding, septic, driveway...etc over the next few years, but for the new construction those items will all be new.
1. Yes
2. IMO your reasoning doesn't make any sense, but you can afford to buy what you want

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 11:01 am

barnaclebob wrote:
Tue Sep 17, 2019 10:40 am
How does the potential mortgage PITI compare to your rent? Avoiding being house poor is all about cash flow.
Rent for a comparable house would be about $3500. PITI for a 500K house would run us about the same, maybe a little less, ~$3000 + we would have to pay for any maintenance that would likely be much less than $500/month.
barnaclebob wrote:
Tue Sep 17, 2019 10:40 am
Your thoughts on a new house are fairly reasonable assuming your builder doesn't do something terribly wrong like screw up the drainage or foundation construction. How are the prices of the older houses that have already had several major items replaced?
We looked into that a bit and it seems the houses with a lot of repairs/replacements needed are selling at almost the same price as the well maintained houses with new roofs, furnaces, driveways....The run down houses just take a bit longer to sell, and the others are sold within a week or two. The market is very hot in our area now and it feels very much like 2007, but with low interest rates.

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 11:04 am

Miguelito wrote:
Tue Sep 17, 2019 10:40 am
I won't get into the minutia, but it seems to me you have a robust retirement account and are diligent about contributing to them, so I would not worry about the long term too much. You also have enough to put down 20% on any house in the range you are considering.

To me it's about cash flow. You mention your recent pay increase. Our rule has always been to base our lifestyle on the income we would reasonably be able to replace if we needed to find new jobs. There are high-risk/high-reward jobs but to stake your spending on that level of income is risky. Maybe 155k+ is what your field pays and you were underpaid before. Maybe the norm is 100k but the good economy or shortage of talent has created a high demand for people like you with a corresponding increase in pay.

Just base your mortgage payment on an income that is replaceable, especially given that you mentioned the low job security.
Miguelito, replaceable income is a very insightful way to look at what we can afford. I'll run the numbers for that and see how it works out. Thank you!

User avatar
Watty
Posts: 17602
Joined: Wed Oct 10, 2007 3:55 pm

Re: How much house can we afford?

Post by Watty » Tue Sep 17, 2019 11:38 am

kevin99 wrote:
Tue Sep 17, 2019 10:29 am
5 year old, new baby due in a few weeks
I would wait to buy the next house until the baby is born and healthy and thing settle down. If the baby has even minor and temporary health issues that might mean that you need go down to one income for a while since daycare might not be practical or possible.
kevin99 wrote:
Tue Sep 17, 2019 10:29 am
2. Does my reasoning for higher priced new construction make sense given the background info below?
With a newly built house you will have a number of expenses for things like landscaping and drapes that will somewhat offset any savings for repairs in the near future for an older house.

One nice thing about new subdivisions are that often the "first owners" tend to make friends and bond more than when you move into an existing division. This if because they tend to be in the same stages of life and have kids that are about the same age, sociologists have written about this. When I was a kid my parents bought a house in a new subdivision and then moved to a different new subdivision about eight years later. In both subdivisions they made friends that they kept for the rest of their lives.

kevin99 wrote:
Tue Sep 17, 2019 10:29 am
1.Can we comfortably afford a 450-500K new construction house with about 10K/year in property taxes? I have always been a saver and I am very averse to financial stress, so I don't want to be house poor.
....
Taxable: ~280K (Vanguard Total Stock Market)
.....
Total Cash: 209K (not counted as part of total portfolio since we need the cash for next house, and emergency fund)
Between a the taxable account and the cash you have $489K in funds that you could use to buy the house.

I am not sure how much capital gains tax you would need to pay to liquidate the taxable account but you could dang near pay cash for a $450K house.

You will likely pay the capital gains taxes sooner or later and if the tax rates could be higher later. The Capital gains taxes are a consideration but they are not as big a factor as you might assume since it is often just a question of when you will pay them, not if you will pay them.

With your low job security I would want to keep plenty of cash but not have too big a mortage. Doing something like making a $350K down payment could leave you with over $100K in liquid investments so you would not be house poor. You would need a small mortage you could more or less cover with just your wife's income if you really needed to. You could also easily have that mortage paid off by the time your oldest kid starts college in about 13 years.

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 12:12 pm

Watty, thank you for all the detailed insights you gave here.
Watty wrote:
Tue Sep 17, 2019 11:38 am
kevin99 wrote:
Tue Sep 17, 2019 10:29 am
5 year old, new baby due in a few weeks
I would wait to buy the next house until the baby is born and healthy and thing settle down. If the baby has even minor and temporary health issues that might mean that you need go down to one income for a while since daycare might not be practical or possible.
Thanks, this is a very important consideration. We were thinking of that as well. Our current plan is to rent for the next 6 months to a year until we can find a house or have one built.
Watty wrote:
Tue Sep 17, 2019 11:38 am
kevin99 wrote:
Tue Sep 17, 2019 10:29 am
2. Does my reasoning for higher priced new construction make sense given the background info below?

With a newly built house you will have a number of expenses for things like landscaping and drapes that will somewhat offset any savings for repairs in the near future for an older house.

One nice thing about new subdivisions are that often the "first owners" tend to make friends and bond more than when you move into an existing division. This if because they tend to be in the same stages of life and have kids that are about the same age, sociologists have written about this. When I was a kid my parents bought a house in a new subdivision and then moved to a different new subdivision about eight years later. In both subdivisions they made friends that they kept for the rest of their lives.
This is something we haven't considered. I'll have to work out some of the numbers around what it would take to add landscaping,appliances, blinds, garage door opener..etc to a new house.

The friends aspect is another good point I didn't think about. This is really important to us and our kid(s) love having neighbors to hang out with. You are definitely helping to solidify my decision to buy in a new development. My wife will be very happy about that.
Watty wrote:
Tue Sep 17, 2019 11:38 am
kevin99 wrote:
Tue Sep 17, 2019 10:29 am
1.Can we comfortably afford a 450-500K new construction house with about 10K/year in property taxes? I have always been a saver and I am very averse to financial stress, so I don't want to be house poor.
....
Taxable: ~280K (Vanguard Total Stock Market)
.....
Total Cash: 209K (not counted as part of total portfolio since we need the cash for next house, and emergency fund)
Between a the taxable account and the cash you have $489K in funds that you could use to buy the house.

I am not sure how much capital gains tax you would need to pay to liquidate the taxable account but you could dang near pay cash for a $450K house.

You will likely pay the capital gains taxes sooner or later and if the tax rates could be higher later. The Capital gains taxes are a consideration but they are not as big a factor as you might assume since it is often just a question of when you will pay them, not if you will pay them.

With your low job security I would want to keep plenty of cash but not have too big a mortage. Doing something like making a $350K down payment could leave you with over $100K in liquid investments so you would not be house poor. You would need a small mortage you could more or less cover with just your wife's income if you really needed to. You could also easily have that mortage paid off by the time your oldest kid starts college in about 13 years.
I've been going back and forth on this but I really like having the additional cash on hand since it gives us quite a bit of flexibility to invest or ride out a job loss. And with interest rates as low as they are it seems like a good opportunity for a cheap loan. I know some people like the feeling of not having a mortgage, but personally I am indifferent towards it. I am more interested in lowering job loss risk, and having flexibility in my investments. I would definitely like to have the mortgage paid off before I retire (or am financially independent at least in the next 10-15 years) for income and tax purposes.

am
Posts: 3067
Joined: Sun Sep 30, 2007 9:55 am

Re: How much house can we afford?

Post by am » Tue Sep 17, 2019 12:15 pm

I don’t get how a couple in late 30s has 1.4 mil in retirement making 200k income? There’s gotta be an inheritance in there.

But to answer your question, you can comfortably afford a 500k house.

User avatar
Watty
Posts: 17602
Joined: Wed Oct 10, 2007 3:55 pm

Re: How much house can we afford?

Post by Watty » Tue Sep 17, 2019 12:24 pm

kevin99 wrote:
Tue Sep 17, 2019 12:12 pm
I've been going back and forth on this but I really like having the additional cash on hand since it gives us quite a bit of flexibility to invest or ride out a job loss.
The problem is that if there is a recession and you lose your job then if your money is invested in 100% stocks the stock market could be way down at the same time.

With 2 kids and not a lot of job security having a large emergency fund makes a lot of sense but that emergency fund money should be invested in something a lot more conservative than 100% stock.

One way to look at the total amount of risk you are taking is to also include your job insecurity risk and maybe cut back on your investing risk to somewhat counterbalance that.

cherijoh
Posts: 6357
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: How much house can we afford?

Post by cherijoh » Tue Sep 17, 2019 12:28 pm

kevin99 wrote:
Tue Sep 17, 2019 10:29 am
I'm back with another house affordability question. Out situation has changed a bit since my post last year so I wanted to reevaluate.
viewtopic.php?t=246204

Age: Me 38, Wife 37, 5 year old, new baby due in a few weeks
------------------------------------------------------------------------
Asset allocation: 75% stocks / 25% bonds , in 3 fund lost cost portfolio at Vanguard and Fidelity
International stock allocation: 10% of stocks

Total Portfolio: ~1.4M (I don't include home equity, cash for down payment, or emergency fund in this)
Our investments at a glance:
401k/IRA Type: ~800K
Roth Type: ~240K
Taxable: ~280K (Vanguard Total Stock Market)
HSA: ~30K (we don't use this for current medical expenses)
529: ~75K (at Vanguard)

Total Cash: 209K (not counted as part of total portfolio since we need the cash for next house, and emergency fund)
-------------
Cash: ~22K High Yield Savings 1.9% APY
Cash: 12K Checking (we have a lot of quick cash needs with the move so it's bit higher than normal)
Cash: 60K Vanguard Prime Money Market
Cash: ~115K (Just sold house. In contract and waiting for closing date. Amount after all fees and mortgage payoff)
-------------
Debt: None
----------------------------------------------------------------------
Contributions:
401k/403b: 19K +19K + ~12K employer match = 50K
HSA: ~7K/year
529: 10k/year
Roth: ~20K depending on commissions <-- Please explain how you are contributing $20K to Roth; is some of it alredy included in 401k/403b
Taxable: ~30K to 50K/year depending on commissions
----------------------------------------------------------------------
Income:
Me: ~155K + commissions up to 70K (we want to budget as if commissions are zero), my job security is also very low. This is also a very recent base pay increase from last year when it was 110K.
Wife: 56K with fairly good job security. Will be taking 6 months mostly unpaid leave for baby
Tax Filing Status: Married Filing Jointly
Tax Rate: ~22 to 24% Federal, 6% State
State:NY
------------------------------------------------------------------------------
Expenses: ~90K/year (this does not include income taxes) in Medium COL area outside of NYC

Major Expenses: About ~8K per month (high medical expenses this year)
Rent: Unknown right now, but will be anywhere from 2-3K/month <-- so did you sell your other house? I'm confused - where are you living right now?
Daycare: ~1k/month <-- Is this based on one child or two? Infant care is $$$
Food:600/month
Utilities (Water/Elec/Gas/Internet): 300/month
Misc: 3500/month travel/medical/gifts/gas/home repair/car insurance/kid stuff/restaurants/etc
------------------------------------------------------------------------------

Questions:
1.Can we comfortably afford a 450-500K new construction house with about 10K/year in property taxes? I have always been a saver and I am very averse to financial stress, so I don't want to be house poor.

2. Does my reasoning for higher priced new construction make sense given the background info below?
-----------------------------------------------------------------------------

Background: We were original looking in the ~$375K range but the market has gone up significantly in our area, especially with the low interest rates. We could purchase an older home (1980's to 2000s) for about $425-450 but the price is so close to new construction it may not make sense. In all the older homes we will have to replace the roof, siding, septic, driveway...etc over the next few years, but for the new construction those items will all be new.
Does this price tag for new construction include any of the "normal" upgrades? Carpet, tile, or wood flooring? What about countertops? Does it include light fixtures or is there a skimpy lighting aloowance? My new construction home ended up costing ~10% more than the list price and I didn't do any "major" upgrades. I upgraded padding and carpet and went with better quality linoleum; upgraded paint vs. builder white; had house wired for ceiling fans but bought & installed later; had house wired for alarm system (easier while walls were open); added extra outlets). Before you sign a contract on new construction understand what is and isn't included. And beware of the tendency to think "it's only an extra $X to get what I really want...."

With new construction you will also likely need to spend extra on landscaping vs. an established neighborhood. It is quite common for home sellers to leave some of the window treatments or at least leave blinds covering the windows. With new construction, that is another immediate expense that adds up. Also keep in mind that if you needed to sell for any reason during the period the builder was finishing up the neighborhood, you will most likely take a loss - even if the builder increases prices.

My advice to you is to not buy more house than you need. Where I live, I would be hard pressed to now find new construction that wasn't too much house for me. (My house is now 27 yo).

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 12:37 pm

am wrote:
Tue Sep 17, 2019 12:15 pm
I don’t get how a couple in late 30s has 1.4 mil in retirement making 200k income? There’s gotta be an inheritance in there.

But to answer your question, you can comfortably afford a 500k house.
Ha, sometimes I wonder the same thing. I've actually back tested the numbers multiple times in portfolio visualizer to figure out how I saved/invested so much, especially since I only very recently started making more than 100K and my wife has always made about 50K.

If you look at my previous posts my parents have modest retirement savings and they will be comfortable. We've had no financial help from them, nor do I want it. They sacrificed a lot for my brother and I growing up and I want them to enjoy their retirement. My in-laws are a financial disaster and we have had to help them manage their personal finances closely, so we are not expecting a dime from them either with the amount of debt they currently have. I would love for them to listen to Dave Ramsey but they are very set in their ways.

I was very lucky to have decent scholarships for undergrad, and worked full time during my masters degree. So I had minimal student debt (about 30k) which I paid off my first year out of school. I believe I also got lucky with when I started working and investing. A majority of my investments started a few years before 2009 when I was too young and ignorant to be scared about a down market, so I didn't sell anything and just kept investing. So you could say I've been riding the wave for the last 10 years. I'm not expecting it to last, that is why I am a bit nervous about making such a big house purchase.
Last edited by kevin99 on Tue Sep 17, 2019 1:22 pm, edited 3 times in total.

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 12:50 pm

cherijoh wrote:
Tue Sep 17, 2019 12:28 pm
Roth: ~20K depending on commissions <-- Please explain how you are contributing $20K to Roth; is some of it alredy included in 401k/403b
Sorry, this is actually through a mega-backdoor roth through my employer and also through a regular backdoor roth. We contribute somewhere between 20-25K here.
cherijoh wrote:
Tue Sep 17, 2019 12:28 pm
Rent: Unknown right now, but will be anywhere from 2-3K/month <-- so did you sell your other house? I'm confused - where are you living right now?
Daycare: ~1k/month <-- Is this based on one child or two? Infant care is $$$

We've sold our current house and are still living in it for a few more weeks until closing. We've already signed contracts and have the deposit in escrow from an all cash buyer. We are hoping to rent back the same house from the buyer while we look for a new house. We're negotiating the rent terms right now. So we are in somewhat of a state of limbo right now. But our rent will eventually be between 2-3.5K depending on where we end up.
cherijoh wrote:
Tue Sep 17, 2019 12:28 pm
Does this price tag for new construction include any of the "normal" upgrades? Carpet, tile, or wood flooring? What about countertops? Does it include light fixtures or is there a skimpy lighting aloowance? My new construction home ended up costing ~10% more than the list price and I didn't do any "major" upgrades. I upgraded padding and carpet and went with better quality linoleum; upgraded paint vs. builder white; had house wired for ceiling fans but bought & installed later; had house wired for alarm system (easier while walls were open); added extra outlets). Before you sign a contract on new construction understand what is and isn't included. And beware of the tendency to think "it's only an extra $X to get what I really want...."

With new construction you will also likely need to spend extra on landscaping vs. an established neighborhood. It is quite common for home sellers to leave some of the window treatments or at least leave blinds covering the windows. With new construction, that is another immediate expense that adds up. Also keep in mind that if you needed to sell for any reason during the period the builder was finishing up the neighborhood, you will most likely take a loss - even if the builder increases prices.

My advice to you is to not buy more house than you need. Where I live, I would be hard pressed to now find new construction that wasn't too much house for me. (My house is now 27 yo).
I completely agree with what you've said here. We are a bit naive on how the new construction process works and what the total cost will be. Thanks for highlighting some of the things we need to look out for. I've heard new construction can have it's share of problems as well so we are very open to buying in an established neighborhood if we find something that fits our needs.

User avatar
G12
Posts: 1526
Joined: Mon Apr 16, 2007 2:35 pm

Re: How much house can we afford?

Post by G12 » Tue Sep 17, 2019 1:11 pm

My thoughts are similar to Watty's. You can swing it. Might want to consider selling some of your taxable total stock market this year, and some next year to hopefully minimize tax impact when your wife is off work. If you put more cash down upfront you can always get a home equity line and have a safety net in the event you may be off work, or other. You are in a similar situation to my wife and I regarding selling/buying, we are selling our long time home in ATL and moving west next spring. Having looked at multiple locations in different states we will likely be spending $100k more than anticipated, plus I know my wife and her "remodeling" agendas. It's not like it will be unaffordable or a stretch, it's just more than I like to have tied up in a residence going into retirement. If your sale goes through and you continue renting you may end up getting a better price in the off season early next year. Good luck.

Topic Author
kevin99
Posts: 22
Joined: Sun Feb 04, 2018 11:42 pm

Re: How much house can we afford?

Post by kevin99 » Tue Sep 17, 2019 1:36 pm

G12 wrote:
Tue Sep 17, 2019 1:11 pm
My thoughts are similar to Watty's. You can swing it. Might want to consider selling some of your taxable total stock market this year, and some next year to hopefully minimize tax impact when your wife is off work. If you put more cash down upfront you can always get a home equity line and have a safety net in the event you may be off work, or other. You are in a similar situation to my wife and I regarding selling/buying, we are selling our long time home in ATL and moving west next spring. Having looked at multiple locations in different states we will likely be spending $100k more than anticipated, plus I know my wife and her "remodeling" agendas. It's not like it will be unaffordable or a stretch, it's just more than I like to have tied up in a residence going into retirement. If your sale goes through and you continue renting you may end up getting a better price in the off season early next year. Good luck.
Thanks G12. It's nice to know others have similar situations and questions as us. I know exactly what you mean about stretching to buy a house when your ultimate goal is to just be comfortable for retirement.

Good point about the home equity line. I hadn't thought of that as an option. I am actually a bit unfamiliar with it. Is it basically the same thing as the option to take out a mortgage but with lower/no closing costs but higher interest rates?

User avatar
G12
Posts: 1526
Joined: Mon Apr 16, 2007 2:35 pm

Re: How much house can we afford?

Post by G12 » Tue Sep 17, 2019 3:16 pm

kevin99 wrote:
Tue Sep 17, 2019 1:36 pm
Good point about the home equity line. I hadn't thought of that as an option. I am actually a bit unfamiliar with it. Is it basically the same thing as the option to take out a mortgage but with lower/no closing costs but higher interest rates?
It would be an open credit line up to "X" % of the equity and/or dollar amount you would have after your down payment at purchase. You would want the line of credit which allows draws for a number of years giving you flexibility in the future if you use it, ie you could make a draw on it and just pay interest if that is what you wanted or you could pay it off and then draw/pay as needed through "X" years. There are home equity loans, too, but that is not what you want as those may be one draw only and then P&I payment would begin. The equity lines would be in second position to your primary mortgage. Provides a lot of flexibility, especially if putting down a large sum as a down payment at purchase. You would have a 1st mortgage to acquire the house, then a 2nd mortgage/line of credit. That's what I would do as a back stop with all the change, new baby, spouse off work, etc just as a back stop, most have a minimal fee or could possibly waive the fee if you have a balance.

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