House budget advice

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Topic Author
chiseller
Posts: 53
Joined: Mon Aug 25, 2014 7:55 pm

House budget advice

Post by chiseller » Sat May 23, 2020 9:53 am

Hey all

First off, thank you for all of the advice over the years. I recently started my first job as an attending and am nearing the end of my first year in practice. My wife has been in practice for 4 years. My wife and I are considering our first home purchase and i'm trying to figure out our budget for a home. I took the high paying job a plane ride away from family in a middle to low cost of living area. We planned on buying a house this spring, but our plans froze in March due to COVID and now we are trying to figure out what we want to do. Property taxes are high, about 1.5% here. 3000 sq foot 20 year old homes on 1/4 acre lots without trees can be purchased for about 350-450k depending on the location. McMansions run around 850k+ and we have no desire to live in one or pay for the upkeep. We will be looking at a 3500 sq foot home that is about 20 years old on a 1.5 acre lot in a beautiful neighborhood that backs up to trees and overlooks a river 2 miles from the hospital. This home hasn't been listed yet but they told us it will list for between 650-680k. We finished paying off student loans (440k) last fall and I'm wondering if I should even be considering it given the distaste I have for debt after a decade of carrying those student loans and watching the interest balloon. Jobs are stable although work volume for me has decreased approximately 20% and remained stable for the wife. I will make partner this summer and was expecting a big boost in income but it will be smaller or no boost now given decreased volumes if things don't pick back up. The biggest employers in our area are medical/university/government/agriculture.

Here's our stats:

M 36 Income: 440k
F 34 Income: 280k

Spending last year: 105k (including ~25k on travel which is our biggest splurge and cancelled for the forseeable future)
Rent: 1950/month, 3 br 1500 sq foot house close to the hospital, we'd like more space and a yard but its not absolutely necessary

Debt: 0, paid cash for both cars, newer small SUV for my wife, i'll be driving my 2008 accord for many more years

Retirement: 431k, 90k of which is in taxable which I started last winter after paying off student loans, 85/15 stocks/bond

Emergency fund/house downpayment: 178k.

If we have kids I would like my wife to be able to go part time or cut down as her job is more difficult and stressful than mine despite the lower pay. I would like to be financially independent and be able to cut down on weekends/evening call in my mid 40s if possible.

I know we can afford a monthly payment on an expensive home, but I want to be smart and not take on too much debt / property taxes / upkeep costs after just getting out of massive student loan debt. I'd like to put down a significant down payment and get a 15 year mortgage. I think we will be here for 5 years as we like our jobs, although traveling to see family just got a lot more difficult. After that who knows, but I don't see us being here in our 60s due to the weather.

If you were in my situation, how much would you spend on a home? Also, would you be willing to buy a home during this time or would you wait another year to see how things play out with COVID and the economy? Thanks for the advice.
Last edited by chiseller on Sat May 23, 2020 10:10 am, edited 1 time in total.

Lalamimi
Posts: 399
Joined: Mon Jun 24, 2019 4:22 pm
Location: Texas

Re: House budget advice

Post by Lalamimi » Sat May 23, 2020 10:07 am

Congrats! our first house was $35K 8% int. (1977) Second house was $79K 10% int (1989) Third we built on 10 acres (weekend house) 2004, 4th was $100K so I could work again in Houston. We owned and paid on 2 houses since 2004. Our last home (we hope) we bought Dec 2017. Built in 1996. Similar to what you describe, on an acre for $450K. No view though. We are retired, as I got laid off 2 months after our move. Our Property taxes are $10K. Insurance $1400. So far we have had to replace the roof $28K (thank you Allstate!) replace the single pane windows. Update the kitchen. Paint entire interior. Carpet 3 bedrooms. We are near our kids and grandkids. Our monthly note was $2400 until we sold our other 2 houses and paid this one off. Go for the 30 yr note, and make extra payments if you think you will stay there along time. Try to do all the important updates before you move in. We could not.
Our daughter and husband bought $1million dollar home last year in area they had to be in. Not near the salary you make, at least that I know. They have 2 young girls. Go for it now, even if it is not this house. Interest rates are amazing.
Enjoy!
Edit: I disagree it is too large. As doctors you will most likely find yourselves entertaining, and family will be coming to visit. We started with 1875 sq ft, raised 2 kids, entertained. Now have about 3,200 and though too large for 2 people, we do love it. Room for kids and grandkids, 2 dogs and 2 cats.
Last edited by Lalamimi on Sat May 23, 2020 10:13 am, edited 2 times in total.

sailaway
Posts: 1392
Joined: Fri May 12, 2017 1:11 pm

Re: House budget advice

Post by sailaway » Sat May 23, 2020 10:08 am

First, 3500sq ft is already McMansion level. I guess even those have been growing over the last couple of decades?

To answer your explicit question, I wouldn't have even chosen your current home because it is too big. So, moving on to a more realistic answer:

A home price roughly equal to one year's income is very reasonable. Well below general rules of thumb. It should still allow for a high savings rate.

In budgeting, be sure to take cleaning and yardwork into consideration: will you be using your time or your money to accomplish those? 3500 sq ft is a lot to clean and depending on the landscaping, 1.5 acres can be a lot to maintain. Same with house maintenance. Will you need a new roof soon? HVAC? Water heater? 20 years is a funny age for homes, if those things haven't been replaced/updated recently.

DiMAn0684
Posts: 147
Joined: Fri Oct 28, 2011 10:27 am

Re: House budget advice

Post by DiMAn0684 » Sat May 23, 2020 10:11 am

If you think you'll be there for 5 yrs it might make sense to just keep renting. It might cost less if you were to buy something and sold in 5 yrs, but the difference will be a drop in a bucket in comparison to your income. That way you don't have to worry about maintenance and just focus on work and family.

Topic Author
chiseller
Posts: 53
Joined: Mon Aug 25, 2014 7:55 pm

Re: House budget advice

Post by chiseller » Sat May 23, 2020 10:29 am

DiMAn0684 wrote:
Sat May 23, 2020 10:11 am
If you think you'll be there for 5 yrs it might make sense to just keep renting. It might cost less if you were to buy something and sold in 5 yrs, but the difference will be a drop in a bucket in comparison to your income. That way you don't have to worry about maintenance and just focus on work and family.
We may be here for 5 years or 15, don't have a set plan. It's not home though or the beach/mountains and I don't really see us being here forever. Not having to worry about maintenance is a great benefit of renting our current home. The downside is that almost everyone that can afford it buys single family homes here so the options for renting are more limited and geared towards college students. It would be tough to find a rental better than what we currently have. We could stay here but it would be nice to have a basement and a little more space if we have a kid or for when family visits. It would also be nice to be in a better neighborhood.

stoptothink
Posts: 7646
Joined: Fri Dec 31, 2010 9:53 am

Re: House budget advice

Post by stoptothink » Sat May 23, 2020 11:23 am

DiMAn0684 wrote:
Sat May 23, 2020 10:11 am
If you think you'll be there for 5 yrs it might make sense to just keep renting. It might cost less if you were to buy something and sold in 5 yrs, but the difference will be a drop in a bucket in comparison to your income. That way you don't have to worry about maintenance and just focus on work and family.
Budget isn't an issue, but considering OP doesn't see staying in the area forever and may or may not have kids, probably should think long and hard about why they want a ~3500sq. ft. home and why they are considering buying at all.

BernardShakey
Posts: 56
Joined: Tue Jun 25, 2019 10:52 pm

Re: House budget advice

Post by BernardShakey » Sat May 23, 2020 11:40 am

Given what you have shared, I think buying a place in this area where you will be working for at least several years makes sense. With interest rates exceptionally low and your solid incomes, there doesn't appear to be much downside. 3500 sf is a lot of house, so I'd probably look for something large enough for the two of you and then maybe an extra bedroom or two but keeping the maintenance to a minimum. Maybe 2500 sf.

With those incomes, you can afford a lot more but you'd be better off buying something modest and then adding to your already significant retirement savings. I don't think you have to buy it outright, but maybe get a 15 year fixed loan and then pay it off early. A far as Covid-19, if it were me I would probably wait a little but that's just me. The area sounds semi-rural so maybe not as much of an issue as in my area. Best of luck :beer
A key to investing is having a well-calibrated sense of your future regret.

smitcat
Posts: 5613
Joined: Mon Nov 07, 2016 10:51 am

Re: House budget advice

Post by smitcat » Sat May 23, 2020 11:45 am

"If you were in my situation, how much would you spend on a home?"
$650-700
"Also, would you be willing to buy a home during this time or would you wait another year to see how things play out with COVID and the economy?"
Yes - we would buy now.

bearwithbear
Posts: 52
Joined: Thu Jun 28, 2018 5:55 pm

Re: House budget advice

Post by bearwithbear » Sat May 23, 2020 12:34 pm

OP,

Hear your angst, but if you and your spouse like the house and property then buy it.
Paying off the student loans, building a down payment fund, retirement accounts and taxable - all this looks like a million bucks in a short amount of time. You are doing fine. Haven't done the math but expect you can afford the house on your spouses salary. Your salary makes for a lot of cushion.
Also get a newer car. Please. Safer. Are your air bags still good? Seat belts?? Doesn't have to be brand new.
Buy something 5 years old and keep it for 5. Or buy something new and keep it for 10.
But when somebody hits you with their SUV what you buy should protect you more than your 12 year old (and aging) accord.

Stay well,
Bear

somekevinguy
Posts: 154
Joined: Mon Jan 16, 2017 9:23 pm

Re: House budget advice

Post by somekevinguy » Sat May 23, 2020 12:45 pm

My perspective: Similar circumstances in terms of dual physicians, similar ages, similar income, similar spending habits (I even drive a 2006 Honda and have been an attending 6 years) except: about 3x retirement savings, + 3 kids, +VVHCOL (Bay area) with houses ~6x the price you're looking at.

I think given your income, job stability, obvious ability to save etc, the general message is that you can probably spend more than you would naturally be inclined. That being said, if you're only going to be there ~ 5 years, whether you want to buy or not is another question- probably doesn't matter too much financially speaking but weighing the typical non-financial benefits of owning vs. renting you can make your own decision.

If you decide to have kids and once you've figured out where you want to be for the long term, I think getting something that meets your needs with a little room to grow makes a lot of sense. If that's in a similar area to where you are now, basically you could buy anything you really wanted and it probably wouldn't make a significant difference financially - ie yes 450K vs 1M is a lot, but relative to your income and general tendency not to overspend, I suspect the house would be paid off rather quickly (I'm sure a 15 yr mortgage would be more than doable).

Anyhow, from one generally frugal guy in a similar position (but with way higher housing costs) to another, I think you could loosen the pursestrings a little when it comes to something like a (permanent/semi-permanent) home for your family.

Golf maniac
Posts: 426
Joined: Wed Dec 27, 2017 2:02 pm
Location: Florida

Re: House budget advice

Post by Golf maniac » Sat May 23, 2020 3:15 pm

As long as you see this as a lifestyle and not an investment then obviously you can afford it. Home ownership is expensive and possibly being there only 5 years is a risk. The best advice I can give is max out all retirement accounts and develop a budget from that point. You and your wife obviously don’t have an extravagant lifestyle and being debt free should be applauded. Just be careful of the slippery slope of lifestyle creep. You will see colleagues spending extravagantly (homes, cars, trips, etc) and it is easy to fall into the trap. Keeping lifestyle simple with a few rules will serve you well. Good luck and congratulations on your success so far.

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