How much house can we afford?

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abat.rama
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How much house can we afford?

Post by abat.rama » Sat May 09, 2020 8:32 pm

We want to buy a house within a year and half. We narrow down our "search" interest to one neighborhood that meets most of our criteria but it is slightly on the expensive side. [The neighborhood is not negotiable for the sake of this discussion...]

Our combined income is 400k. Fairly stable but nothing is 100% recession proof (tenured prof and doc). We have school debt and other one time expenses. We plan to pay it off using some of our income and savings before we buy a house. Our savings after paying off debt will be about 800k (includes retirement savings). Down payment will be coming out of the 800k number. We are 31/38 no kids (yet! but plan to procreate two) if that matters.

So how much house can we afford with a 400k income and 800k savings? Please ask if you need additional info.

Planner01
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Re: How much house can we afford?

Post by Planner01 » Sat May 09, 2020 8:48 pm

How much of your savings is not part of the retirement funds?

Topic Author
abat.rama
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Joined: Sun Feb 16, 2020 2:07 pm

Re: How much house can we afford?

Post by abat.rama » Sat May 09, 2020 8:56 pm

Planner01 wrote:
Sat May 09, 2020 8:48 pm
How much of your savings is not part of the retirement funds?
about $250k-ish

mortfree
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Re: How much house can we afford?

Post by mortfree » Sat May 09, 2020 9:00 pm

What’s expensive to you?

What do the homes in this particular neighborhood cost?

My first house was 220k

Current house was 400k and that was expensive to me.

Don’t think that you have 800k if you said only 250k is not retirement savings.

Topic Author
abat.rama
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Re: How much house can we afford?

Post by abat.rama » Sat May 09, 2020 9:09 pm

mortfree wrote:
Sat May 09, 2020 9:00 pm
What’s expensive to you?

What do the homes in this particular neighborhood cost? They go anywhere from 500k to 1mil depending on the house

My first house was 220k

Current house was 400k and that was expensive to me.

Don’t think that you have 800k if you said only 250k is not retirement savings. Why not? Although it is true that I will not be able to use it for down payment, it should be viewed as part of a bigger picture net worth calculation. I would think the advise you will give to someone that has the same 250k in savings outside of retirement and no retirement savings will be different. no?

Findourway1
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Re: How much house can we afford?

Post by Findourway1 » Sat May 09, 2020 9:14 pm

I used https://www.mtgprofessor.com/calculators.htm to make a determination for my situation. It might help to use that to settle on a range first.

Our first home was 320k and that seemed too much to me. Now I am springing for even more due to needing better schools and kids. In both cases, used the https://www.mtgprofessor.com/calculators.htm to quantify what I could afford.

Good luck!

Planner01
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Re: How much house can we afford?

Post by Planner01 » Sat May 09, 2020 9:17 pm

I would say $600k with a good 20% down payment. That leaves you with plenty of money for vacations, furnishing and investment planning.

sp0704
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Re: How much house can we afford?

Post by sp0704 » Sat May 09, 2020 9:18 pm

I would consider the money you can work with for the down payment to be outside of retirement accounts. I'd recommend allocating no more than $150k of the $250k for a down payment, giving you some cushion. This would enable you to buy up to a $750k house with 20% down. P&I on a $600k mortgage at 3.0% (taking a guess at current 30 yr rates) is $2,530/mo. Insurance and taxes would likely add around $1k/mo, with a total payment around 10% of income. You could also take on a 20 yr loan, which would increase the percentage by around 5%. Hopefully that would buy a suitable home in your area within a good school district.

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Watty
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Re: How much house can we afford?

Post by Watty » Sat May 09, 2020 10:49 pm

abat.rama wrote:
Sat May 09, 2020 8:32 pm
We are 31/38 no kids (yet! but plan to procreate two) if that matters.
That matters a lot.

Ideally you would base your budget on just one income since if one of your kids has even moderate and temporary health issues daycare may not be a possible or desirable option. Many people may also change their minds and decide to have a stay at home parent for a few years once they have kids, especially with more than one kid. Every kid is different too, some kids will thrive in daycare but others need extra TLC.

You could also need to pay for expensive fertility treatments or adoption costs.

If you buy a house in 1.5 years then you will be around 33 and 40. If you get a 30 year mortgage then it will not be paid off until you are 64 an 70. It would be better to buy a house that you can afford with a 15 year mortgage.

Between budgeting for one income and a 15 year mortgage you may not be able to afford as much house as you might think with your high income.

Be careful about over extending yourself.
How much house can we afford?
........
We narrow down our "search" interest to one neighborhood that meets most of our criteria but it is slightly on the expensive side. [The neighborhood is not negotiable for the sake of this discussion...]
You are approaching this the wrong way. The first question you ask should be "How much house do you need?" Then you should figure out if you can afford it or not.

If the first thing you do is decide you can afford a two million dollar house then it is likely you will buy one even if you do not really need one that expensive.

You were vague about how much the actually costs since you could have just asked "Can I afford a house that costs $X ?" Once you are a parent it will often be somewhat comical how often that vagueness perks up your parent radar since it can be a sign that the person answering the question knows that the answer is "no". :D

Anyway I would be real cautious about buying a house where the mortgage is more than roughly $800K(a million dollar house with 20% down) since may be all you could probably handle with one income if you needed to. If you want a house that is more expensive then it would be good to save up and have a larger down payment.
abat.rama wrote:
Sat May 09, 2020 8:32 pm
tenured prof and doc
The white coat investing site is run by a doctor who is a regular poster here and it has a lot of good investing information for doctors.

https://www.whitecoatinvestor.com/

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geerhardusvos
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Re: How much house can we afford?

Post by geerhardusvos » Sat May 09, 2020 11:26 pm

Buy as little house as you can comfortably live in located in a nice area. Try to keep it under 500K. Otherwise rent.
VTSAX and chill

mega317
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Re: How much house can we afford?

Post by mega317 » Sat May 09, 2020 11:42 pm

Well I like to use 3x income as a base for discussion, that's 1.2M. But it doesn't sound like you're going to be able to put 20% down on that since that's your whole taxable portfolio now and you still have debt to pay off, need an emergency fund, new house expenses. So another way to approach is how much can you save before you want to buy, subtract debt, e fund, New house expenses, and there's your down payment. It seems that will be very little in a year and a half. You should give us more numbers if you want more help. I'd wait until e know what your family is going to need.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

mortfree
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Re: How much house can we afford?

Post by mortfree » Sun May 10, 2020 12:16 am

abat.rama wrote:
Sat May 09, 2020 9:09 pm
mortfree wrote:
Sat May 09, 2020 9:00 pm
What’s expensive to you?

What do the homes in this particular neighborhood cost? They go anywhere from 500k to 1mil depending on the house

My first house was 220k

Current house was 400k and that was expensive to me.

Don’t think that you have 800k if you said only 250k is not retirement savings. Why not? Although it is true that I will not be able to use it for down payment, it should be viewed as part of a bigger picture net worth calculation. I would think the advise you will give to someone that has the same 250k in savings outside of retirement and no retirement savings will be different. no?
Incomes being equal:

To the person with 550k in retirement: awesome job And I assume you are maxing those accounts and still will after your home purchase.

To the person with 0 in retirement: better start saving and maxing those accounts.

orhkaf
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Re: How much house can we afford?

Post by orhkaf » Sun May 10, 2020 12:32 am

Save up a little more for the down payment and emergency fund. You can probably comfortably afford 1.5mn assuming no other debt and both maintain employment. Good job on retirement accounts. You’ll have a good 25 years to keep accumulating. Life’s too short to keep worrying about what ifs.

Jags4186
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Re: How much house can we afford?

Post by Jags4186 » Sun May 10, 2020 5:43 am

Watty wrote:
Sat May 09, 2020 10:49 pm


If you buy a house in 1.5 years then you will be around 33 and 40. If you get a 30 year mortgage then it will not be paid off until you are 64 an 70. It would be better to buy a house that you can afford with a 15 year mortgage.

Between budgeting for one income and a 15 year mortgage you may not be able to afford as much house as you might think with your high income.
I disagree with this. There are probably very very few people who get a 30 year mortgage and pay it faithfully for 360 months. Odds are the person either pays off early, refinances, or moves. Perhaps a refi isn’t in the future based on today’s rates, but it is very like that when someone really starts gearing up for retirement the mortgage will be addressed either by accelerated payoff, downsizing, or conscious choosing of carrying the loan.

Planner01
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Re: How much house can we afford?

Post by Planner01 » Sun May 10, 2020 8:56 am

Watty wrote:
Sat May 09, 2020 10:49 pm
abat.rama wrote:
Sat May 09, 2020 8:32 pm
We are 31/38 no kids (yet! but plan to procreate two) if that matters.
If you buy a house in 1.5 years then you will be around 33 and 40. If you get a 30 year mortgage then it will not be paid off until you are 64 an 70. It would be better to buy a house that you can afford with a 15 year mortgage.
I like this approach! Get a $600k house with 20% down and out it on a 15 year loan. You will be good to go for when the kids come and retirement.

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ram
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Re: How much house can we afford?

Post by ram » Sun May 10, 2020 11:46 am

Max House price = 1.2 million.

Lower of :
400K/yr income x 3
and 250K down payment x 5
Ram

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