Afford 800K forever home w/ 600K mortgage?

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bigred3
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Afford 800K forever home w/ 600K mortgage?

Post by bigred3 »

My wife and I have been renters and are thinking about buying a house we plan on staying in for the long haul (looking for 2 level single family homes/2,400 sq feet+/small/medium yard). We have a 7 month old and thinking about possibly having another child. We live in a HCOL area, but our stable jobs have us here for the long term (Accountant and Teacher).

Ages 34 and 33
We make 208K combined (COLA for future planning)

Net Worth: 960K (down 15-20% this year)
Cash - 240K
Investments/Retirement (all low cost mutual funds) - 720K (92/8 stocks/bonds)
No debt and 2 low mileage cars paid off
My retired parents live in this area, watch our baby and live in the same house they bought in 1984.

Thoughts on buying and comfortably affording a 600K mortgage/800K house here in the next 12 months?
Jags4186
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Jags4186 »

I would not stretch to buy a house when there is such economic uncertainty.
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Nate79
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Nate79 »

Will you have 6-12 months of emergency fund in addition to the down payment?
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gr7070
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Re: Afford 800K forever home w/ 600K mortgage?

Post by gr7070 »

You're talking about buying potentially 1 year from now, so Covid-19 can be ignored for now. Obviously that needs to be a consideration prior to submitting a contract.

What's the PITI on a 600k loan? What's your take home pay?

Our HHI isn't that far from yours. While I'm a frugal Boglehead I commonly disagree with the ultra-conservative financial approach of many here. Having said that, I can't fathom getting an 800k house with that income.

Granted I live in a MCOL area, which certainly changes a mortgage outlook, as it should. You do have an excellent net worth at your age and a solid, if minimum for price down payment.
Last edited by gr7070 on Wed Apr 22, 2020 8:37 pm, edited 2 times in total.
cogito
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Re: Afford 800K forever home w/ 600K mortgage?

Post by cogito »

My wife and I have a similar age/income profile to yours, and six months ago bought an 800k home with a 700k mortgage at 4x HHI as well. No regrets. Our young children love it and shelter-in-place means me just smoking cigars and drinking beer while I work on my lawn. Not much else we would have wanted to spend our money on, and we still save 30%ish of our income each year. Slowed down our FI progress, but hey life is short and we're happy. If I lose my job tomorrow we will not be happy but we'll still be fine.

Disclaimer: I work in video games and my income is pretty secure.
frankandbeans
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Re: Afford 800K forever home w/ 600K mortgage?

Post by frankandbeans »

cogito wrote: Wed Apr 22, 2020 8:20 pm My wife and I have a similar age/income profile to yours, and six months ago bought an 800k home with a 700k mortgage at 4x HHI as well. No regrets. Our young children love it and shelter-in-place means me just smoking cigars and drinking beer while I work on my lawn. Not much else we would have wanted to spend our money on, and we still save 30%ish of our income each year. Slowed down our FI progress, but hey life is short and we're happy. If I lose my job tomorrow we will not be happy but we'll still be fine.

Disclaimer: I work in video games and my income is pretty secure.
We bought our $865k forever home (692k financed) as fed attys in a HCOL making about $250k combined with far far less in retirement assets than you. Given stable employment and continually appreciating real estate values, we decided the risk was manageable. 4.5 years later, the house is now worth about $1.1mm, our salaries have been stable/steadily increasing, and we and our two young kids are glad we made the move when we did. YMMV, of course, but if the neighborhood and your jobs are stable I think there can be a tendency to overstate the risk involved.
jk876
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Re: Afford 800K forever home w/ 600K mortgage?

Post by jk876 »

We bought a $800k (10% down) forever single family house in HCOL area 1.5 years ago. 2,000 sq feet. Similar income but with far less net worth. We are very happy with the house. We have two active kids and no more complains from other renters. We also have a humble home gym. Shelter in place is not too bad with the house. Similar houses are selling $900k - $1m. It was a very good decision. My family loves the house. That matters.
dukeblue219
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Re: Afford 800K forever home w/ 600K mortgage?

Post by dukeblue219 »

We have a similar house bought for a similar price and similar down payment in 2015. We now owe $510k-ish at 2.875% and our AGI is very close to yours. The payment with taxes and insurance is $2900/mo, and even with two youngins the house payment is not killing our budget.

Draw out a plan, figure out what will happen if the grandparents can't watch the kid any longer, and if the numbers work, go for it. You have the net worth and the home equity to survive a crisis without becoming homeless.

Im a little bit of an outsider on BH I think, but I believe strongly that your house is where you spend most of your life and raise a family, so why not spend on it if you can? You can't take the money with you when you die after all. Don't be extravagant or reckless, and don't sign up for dangerous mortgages, but there's no shame in smartly planning for and then buying your dream house.
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Watty
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Watty »

bigred3 wrote: Wed Apr 22, 2020 7:45 pm Thoughts on buying and comfortably affording a 600K mortgage/800K house here in the next 12 months?
One thing you can do is to live on your new budget for a year to see if you are comfortable with it. Be sure to include everything including utilities, commuting costs, lawn care, and for home maintenance(people often use 1% which is reasonable even though it will be lumpy).
bigred3 wrote: Wed Apr 22, 2020 7:45 pm We have a 7 month old and thinking about possibly having another child.


You might want to wait until you have a healthy second baby at home. If the second kid has even minor and temporary health problems you may want to have a stay at home parent for a while. You may also have expensive fertility treatments or adoption costs for your next kid.

There may also be a limit as to how much help your parents can provide. Taking care of two toddlers is a lot more work than one infant. We are only in our 60s and when we take care of our grandkids(1.5 and 3.5) for the day we are bushed. There is no way we could do that every day unless it was a dire situation and we also have our own activities.

Be sure to budget for daycare even if you don't think you will need to pay for it.
Last edited by Watty on Wed Apr 22, 2020 11:50 pm, edited 1 time in total.
jsapiandante
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Re: Afford 800K forever home w/ 600K mortgage?

Post by jsapiandante »

We were around your age when we bought our forever home in 2015 making the same amount in income but nowhere near your net worth. The house was 750k and we put down 10% so we have a healthy emergency fund (1 year) and enough cash to purchase furniture. We went against most conservative advice on this forum and it has worked out great for us. Granted, we save 40% of our income so we were comfortable going against the grain. If you’re confident in your jobs and you continue to keep increasing your net worth, I’d say you’re fine. We are 5 years away from financial independence and have recently refinanced to an even lower rate of 2.875%. If we can do it, then so can you...especially with what you’ve already accumulated at your age. Good luck!
Ron Ronnerson
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Ron Ronnerson »

You seem to be in a great position to afford a house in that price range. I think it’s a good idea to stay put for a while as you can minimize transaction costs that way (which won’t be negligible for a house in a HCOL area). Hopefully, you’ll be able to lock in a good rate when you’re ready to buy. Low rates definitely help with affordability.
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bigred3
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Re: Afford 800K forever home w/ 600K mortgage?

Post by bigred3 »

Watty wrote: Wed Apr 22, 2020 9:48 pm
bigred3 wrote: Wed Apr 22, 2020 7:45 pm Thoughts on buying and comfortably affording a 600K mortgage/800K house here in the next 12 months?
One thing you can do is to live on your new budget for a year to see if you are comfortable with it. Be sure to include everything including utilities, commuting costs, lawn care, and for home maintenance(people often use 1% which is reasonable even though it will be lumpy).
bigred3 wrote: Wed Apr 22, 2020 7:45 pm We have a 7 month old and thinking about possibly having another child.


You might want to wait until you have a healthy second baby at home. If the second kid has even minor and temporary health problems you may want to have a stay at home parent for a while. You may also have expensive fertility treatments or adoption costs for your next kid.

There may also be a limit as to how much help your parents can provide. Taking care of two toddlers is a lot more work than one infant. We are only in our 60s and when we take care of our grandkids(1.5 and 3.5) for the day we are bushed. There is no way we could do that every day unless it was a dire situation and we also have our own activities.

Be sure to budget for daycare even if you don't think you will need to pay for it.
This is something we have thought about as these are uncertain things that have as thinking about possibly waiting a little longer to buy. I appreciate the advice and how it has worked with others in similar situations.
Shael_AT
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Shael_AT »

Similar income, home price, down payment and HCOL situation.

Totally worth it.

We have a very naturally outdoorsy, garden oriented and home oriented lifestyle and therefore still stack away a lot of dollars per month. My wife is going back to work soon and that will be an extra ~2000-2300 per month that we don't budget for. The space, location, neighborhood, views and silence 95% of the time when we're on the deck or porch is priceless. Never thought that buying new appliances would be so satisfying, we're minimalists but what we do own is usually luxury to ultra high end. Having good financials and cash flow means that a $1500 dollar dishwasher still leaves room to completely go nuts on gardening around the house.

One observation is that most people in our area buy 1.1 - 1.6 (compared to us at low 800k, with 20% down, just 2-3 blocks away in a more "charming, classic, but very nicely kept and maintained" area) million dollar brand new homes with similar incomes. Some of those are people I've talked to and worked with, and as a result of buying so high at 200-300k income, they either had significant equity carry over from tech stocks or previous homes and enjoy the 2-5k free cash flow like we planned for and carry out presently a month to invest or build their life, or are trapped with 50%-60% of expenses going straight into home with very little room to cash flow unless its debt.

My home may be 2x my age, but it's mine and I am going nuts over DIY'ing.

Did you know you could rip apart a room and re-insulate and drywall it, paint it up, re-carpet and make it look BRAND NEW?

Getting dangerous with time on my hands. :P
quantAndHold
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Re: Afford 800K forever home w/ 600K mortgage?

Post by quantAndHold »

It seems perfectly reasonable to me.

Since you’re waiting a year, figure out how much mortgage + tax + insurance + maintenance would be, and stuff the difference between that and what you’re paying now into savings for the next year. When the year rolls around, you’ll a) know whether or not you can afford it and want to afford it, and b) have more money saved up for down payment, renovations, furniture, etc.
Yes, I’m really that pedantic.
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Bogle7
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forever home?

Post by Bogle7 »

There is no such thing as a forever home unless it is the room in the nursing home just before your death.
You change.
Life brings changes.
You change your house.
SeaToTheBay
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Re: Afford 800K forever home w/ 600K mortgage?

Post by SeaToTheBay »

One thing I haven't seen mentioned is the condition of the house, and any HOA fees. When we bought our townhouse in 2016 with similar mortgage but somewhat higher income, what helped us get comfortable with the purchase is the fact we were buying new construction with a warranty. Sure, things can still go wrong, but we're not likely to need a new roof, mold repair, etc. Those things can add up quickly and make a major dent in your savings/budget, even if it's not an "old" home.
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Sandtrap
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Re: Afford 800K forever home w/ 600K mortgage?

Post by Sandtrap »

It sounds like a good time in life and financial position for you to get a beautiful forever home.
But.
A lot depends on the unique R/E prices and climate in your area. Some areas may be flattening out or pausing, and good well located homes in high demand with no alternatives. So that would be a good time to buy. If the R/E market trends and rental/purchase/sales history was more volatile, then maybe not. Do your research. Only you can be the judge of that.

Sound R/E purchasing, selling, and investing, is part good research, knowledge, luck, and instinct.

Taking care of grandchildren can be exhausting, especially as folks get older.
But. . . . . wonderful.

Be careful of "stairs" on a "forever home".

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know
janezoey
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Re: Afford 800K forever home w/ 600K mortgage?

Post by janezoey »

My husband and I have the same household income as you and we have grandparents taking care of our two young kids. But we most definitely did not put most of our cash into a down payment for a house. Once it's in the walls of the house, it's tricky to get it out quickly for emergencies. I read the Two-Income Trap by Elizabeth Warren over a decade ago before she entered politics. Her expertise was family bankruptcy law. I grew up very poor, and this was the first time I was getting my slice of the American dream--my first home. So I wanted to avoid the scenario she described where families bid up homes in top school districts and used most of their take-home pay for living expenses. So they end up not having a cushion in an emergency and spiral out of control. I took her findings about why American families go bankrupt (e.g. job loss, illness) very seriously.

My husband and I decided that we would maintain a budget so that even if my husband, with the higher income, loses his job, we would survive on my much lower income almost indefinitely. So our housing costs are $2600 (insurance, property taxes, mortgage started at $430k). We live in a city with low property taxes ($400 a month). (You should know that property taxes and insurance do rise over time.) We don't worry about school districts. There's a New Yorker cartoon of a family with a realtor in front of a house. It was published before Covid-19, but the caption read: "I know the schools are great, but do I want to ride out the apocalypse in this house?"

So you look through your budget carefully and think of the very worst-case scenario and ask yourself, can I survive? Houses are expensive to maintain. If you have a sewer pipe or roof problem, it can be very expensive to fix and insurance doesn't necessarily cover it. Also, assume you can't have free child care through grandparents--maybe one gets sick with cancer? Assume one person will lose the job (e.g. what if your child has special needs and one of you has to stay home; what if one of you is injured and can't work anymore). What if both of you lose a job because of the aftershocks of COVID-19?

For how many months can you survive every worst-case scenario? Do you have other family members you can lean on? I personally, never, ever had "global pandemic" on my list of apocalyptic scenarios, but it happened and I don't know how this will end. But I'm just so, so, so grateful I have a roof over my head and food in my pantry. I can't say other Americans are so lucky and I'm very worried about our collective future. A lot of people are having all their worse case scenarios happening right now.
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