Home Buying Advice

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Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 12:14 am

Hello Bogleheads,

I am 39 year old working in a rural community college in the state of Wyoming. I am the sole earner, my wife is homemaker and I have a 4 year old child.

Income: 55500/year

Savings:
403-b: 45000
457 (Pre-Tax)- 20000
457 (Roth) - 10000
Traditional IRA - 8000
Roth - 7000
HSA - 16000 (using hsa as retirement vehicle)
529 for child: 10000
No Debt

Savings for Home Down Payment: 40000
Emergency Savings: 20000

Future Retirement Savings planned at the rate of:
403-b: 10400/year (Including employer contribution)
HSA: max out
Roth IRA: max out
529: 4800/year
Planning to retire at 65.

Investments are in 100% stock [85% US (total stock market), 15% international], plan to maintain that allocation until the age of 45. Beyond that planning to switch to moderate asset allocation.

Expect to have 2% raise every year. We are considering to buy a home at the max of $200000 which I plan to live for next 20 years. Will I be able to afford a mortgage of $1300 (30 year mortgage including taxes,utilities and maintenance) without compromising my savings. My monthly expenses are expected to be $800 (food, car, insurance etc).The savings rate above mentioned was a best ball park estimate based on several retirement calculators (Fidelity, T Rowe Price, Vanguard) to fund that will replace my 100% earnings during retirement. The retirement calculator accounted for social security income too. Am I overlooking anything? Appreciate your thoughtful insights. I don't want to jeopardize my retirement at the expense of home purchase. Happy to provide any additional information you may need.

Chy
Posts: 2
Joined: Sun Oct 13, 2019 12:06 am

Re: Home Buying Advice

Post by Chy » Sun Oct 13, 2019 12:26 am

1. You can’t save your proposed 25k or so into investments annually with a $1300 monthly mortgage. You’re going to live on $30k per year?

2. You’re going to live there for just 20 years? Not in retirement?

3. I would buy the house you propose and sacrifice the 529 and some retirement savings as neccessary. You’re going to need a paid off home for retirement.

4. You really need to get your income up.

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AerialWombat
Posts: 888
Joined: Tue May 29, 2018 1:07 pm

Re: Home Buying Advice

Post by AerialWombat » Sun Oct 13, 2019 4:16 am

Small world — I was recently in your town looking at houses right across the street from where you work. I really like that neighborhood, and you sure get more house for your dollar than in Cheyenne.

Kudos for your high savings rate.

You shouldn’t have any problems qualifying for the mortgage, assuming your credit score is good. You’ll be at 29% debt to income ratio, and your savings plan will be able to continue. I’m making a couple assumptions about your federal tax return based on the information you provided, and it looks like your finances will be tight every month — not much wiggle room in the budget if you maintain the savings rate — but you have a healthy emergency fund, so you should be fine.

Again, congrats on the successful planning, and enjoy the home!
“Life doesn’t come with a warranty.” -Michael LeBoeuf

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AerialWombat
Posts: 888
Joined: Tue May 29, 2018 1:07 pm

Re: Home Buying Advice

Post by AerialWombat » Sun Oct 13, 2019 10:01 am

Chy wrote:
Sun Oct 13, 2019 12:26 am
You’re going to live on $30k per year?
He’s already doing exactly that.
“Life doesn’t come with a warranty.” -Michael LeBoeuf

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Home Buying Advice

Post by HomeStretch » Sun Oct 13, 2019 10:35 am

You haven’t said what how much your housing expenses will increase by buying a home over your current housing expenses. Your incremental housing expenses will have to come from additional income or reduced savings.

It is possible your “expected family contribution” toward college costs per the FAFSA process will be low. Retirement account assets are generally not included as assets available for college but a 529 account is included. At your current income level, you may want to save in your retirement accounts and skip the 529 account. Balance that against any state tax credit or deduction you receive for the 529 contributions.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 4:10 pm

Chy wrote:
Sun Oct 13, 2019 12:26 am
1. You can’t save your proposed 25k or so into investments annually with a $1300 monthly mortgage. You’re going to live on $30k per year?

2. You’re going to live there for just 20 years? Not in retirement?

3. I would buy the house you propose and sacrifice the 529 and some retirement savings as neccessary. You’re going to need a paid off home for retirement.

4. You really need to get your income up.
Thanks for your comments.
1)I have been living under $20000 so far, so I added up another $10000 due to increased housing expenses. Hoping I should be able to live under $30000. 2) I plan to move somewhere closer to where my daughter lives when she is done with her education and marriage. That's why I listed as 20 years. Though, this plan is tentative, things may change as the days progress.
3)Certainly I will consider my strategy towards 529 and retirement savings.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 4:20 pm

AerialWombat wrote:
Sun Oct 13, 2019 4:16 am
Small world — I was recently in your town looking at houses right across the street from where you work. I really like that neighborhood, and you sure get more house for your dollar than in Cheyenne.

Kudos for your high savings rate.

You shouldn’t have any problems qualifying for the mortgage, assuming your credit score is good. You’ll be at 29% debt to income ratio, and your savings plan will be able to continue. I’m making a couple assumptions about your federal tax return based on the information you provided, and it looks like your finances will be tight every month — not much wiggle room in the budget if you maintain the savings rate — but you have a healthy emergency fund, so you should be fine.

Again, congrats on the successful planning, and enjoy the home!
AerialWombat: Small world indeed. Never I thought I will come across someone who has been in my town. I am glad to know that. You are right, my credit score is around 800 +/- 2 points, I am in 12% federal tax rate now. I did not have problems so far for financing, all the lenders I spoke is confident of securing the finance when I make an offer to home. I have budgeted everything slightly more than I spend, so I might save few $$ that may give me some wiggle room for very unforeseen expenses before I dip into emergency fund. I understood the trade off between home ownership and freedom. Thanks for your wishes.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 4:26 pm

HomeStretch wrote:
Sun Oct 13, 2019 10:35 am
You haven’t said what how much your housing expenses will increase by buying a home over your current housing expenses. Your incremental housing expenses will have to come from additional income or reduced savings.

It is possible your “expected family contribution” toward college costs per the FAFSA process will be low. Retirement account assets are generally not included as assets available for college but a 529 account is included. At your current income level, you may want to save in your retirement accounts and skip the 529 account. Balance that against any state tax credit or deduction you receive for the 529 contributions.
HomeStretch: Thanks for your suggestions on strategies to employ for 529 and retirement savings. I will consider prioritizing my retirement before 529.

Charon
Posts: 137
Joined: Thu May 03, 2018 12:08 pm

Re: Home Buying Advice

Post by Charon » Sun Oct 13, 2019 6:49 pm

Chy wrote:
Sun Oct 13, 2019 12:26 am
4. You really need to get your income up.
No, he really doesn't. The income isn't too far off the national median and the Wyoming median, and the OP is saving >30% of the income for retirement. I know you're new here, Chy, but the only other thread you've commented on has a rare household income ($1M/year) even by Boglehead standards.

OP, yes, you can afford this house. Make sure you're budgeting enough for maintenance, though. Pay a lot of attention to the home inspection, and get some ballpark prices for things that need work. Some of it can be unexpectedly expensive.

stoptothink
Posts: 6542
Joined: Fri Dec 31, 2010 9:53 am

Re: Home Buying Advice

Post by stoptothink » Sun Oct 13, 2019 6:55 pm

Charon wrote:
Sun Oct 13, 2019 6:49 pm
Chy wrote:
Sun Oct 13, 2019 12:26 am
4. You really need to get your income up.
No, he really doesn't. The income isn't too far off the national median and the Wyoming median, and the OP is saving >30% of the income for retirement. I know you're new here, Chy, but the only other thread you've commented on has a rare household income ($1M/year) even by Boglehead standards.

OP, yes, you can afford this house. Make sure you're budgeting enough for maintenance, though. Pay a lot of attention to the home inspection, and get some ballpark prices for things that need work. Some of it can be unexpectedly expensive.
+1, besides "getting their income up" would likely require a move and a change in industry seeing as OP lives in rural Wyoming and works for a CC. Of course more would be better, but OP is doing a fantastic job of making the best of their income.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 8:18 pm

stoptothink wrote:
Sun Oct 13, 2019 6:55 pm
Charon wrote:
Sun Oct 13, 2019 6:49 pm
Chy wrote:
Sun Oct 13, 2019 12:26 am
4. You really need to get your income up.
No, he really doesn't. The income isn't too far off the national median and the Wyoming median, and the OP is saving >30% of the income for retirement. I know you're new here, Chy, but the only other thread you've commented on has a rare household income ($1M/year) even by Boglehead standards.

OP, yes, you can afford this house. Make sure you're budgeting enough for maintenance, though. Pay a lot of attention to the home inspection, and get some ballpark prices for things that need work. Some of it can be unexpectedly expensive.
+1, besides "getting their income up" would likely require a move and a change in industry seeing as OP lives in rural Wyoming and works for a CC. Of course more would be better, but OP is doing a fantastic job of making the best of their income.
Stoptothink: Thanks for your suggestion to improve my financial situation. I love teaching, which I cherish everyday. Unfortunately, teaching is not a well paid job in our country. Despite that, I take pride in what I do for my students and gives me more satisfaction knowing that I can make meaningful impact in my student lives. Hence I may not consider something that is not related to teaching. Further, pay for similar teaching jobs in big cities cannot afford me to save at the rate I am saving now. Thus my best bet is the current place where I work.

student
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Joined: Fri Apr 03, 2015 6:58 am

Re: Home Buying Advice

Post by student » Sun Oct 13, 2019 8:37 pm

Normally, I think it is tight with the given set of numbers but since you are living way below your means, it should be ok. Does your college give tuition-free education to your kid? If so, you may want to take advantage of this.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 10:09 pm

student wrote:
Sun Oct 13, 2019 8:37 pm
Normally, I think it is tight with the given set of numbers but since you are living way below your means, it should be ok. Does your college give tuition-free education to your kid? If so, you may want to take advantage of this.
Student: Yes my college offers tuition free education for family members. I do have plans to take advantage of it when we are at that point of life. Thanks for the feedback.

student
Posts: 4142
Joined: Fri Apr 03, 2015 6:58 am

Re: Home Buying Advice

Post by student » Sun Oct 13, 2019 10:16 pm

wyoming82240 wrote:
Sun Oct 13, 2019 10:09 pm
student wrote:
Sun Oct 13, 2019 8:37 pm
Normally, I think it is tight with the given set of numbers but since you are living way below your means, it should be ok. Does your college give tuition-free education to your kid? If so, you may want to take advantage of this.
Student: Yes my college offers tuition free education for family members. I do have plans to take advantage of it when we are at that point of life. Thanks for the feedback.
Our school offers the same but the vast majority of my colleagues in the department do not send their kids to our R2 school, as they send them to bigger R1 schools.

Topic Author
wyoming82240
Posts: 41
Joined: Mon Jun 17, 2019 9:35 pm

Re: Home Buying Advice

Post by wyoming82240 » Sun Oct 13, 2019 10:24 pm

Our school offers the same but the vast majority of my colleagues in the department do not send their kids to our R2 school, as they send them to bigger R1 schools.


I will try to give my child some college experience while in school, regardless of whether the classes be transferred or not.

Prettyfrtnt
Posts: 137
Joined: Fri Aug 23, 2019 6:28 pm

Re: Home Buying Advice

Post by Prettyfrtnt » Sun Oct 13, 2019 11:24 pm

Great job OP you don’t need any advice because you have a great plan in many ways.

This home won’t hurt your retirement. Enjoy it and let your kids and family enjoy it. Very reasonable. Thanks for teaching. Keep low from a FAFSA perspective. Better than any 529.

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