Can I afford a 1.3 mil house?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
bar_mitzvah
Posts: 1
Joined: Sat Sep 05, 2020 9:36 pm

Can I afford a 1.3 mil house?

Post by bar_mitzvah »

I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?

Edit: Thanks a lot for all your responses. I'm so glad I seeked your advice before placing an offer because reading your responses gave me really good perspective on things. We ended up skipping our "dream" house just because the monthly mortgage payments would have added unnecessary burden to our lifestyles. We would have had no wiggle room at all. Hopefully we find a house that fits our budget and does not become a huge source of stress.
Last edited by bar_mitzvah on Sun Sep 06, 2020 3:47 pm, edited 1 time in total.
User avatar
3CT_Paddler
Posts: 3304
Joined: Wed Feb 04, 2009 5:28 pm
Location: Marietta, GA

Re: Can I afford a 1.3 mil house?

Post by 3CT_Paddler »

No children yet.
Are you planning on having children? What happens if your wife decides she wants to stay home?

I would continue to save and wait until you have clarity on children.
Kelrex
Posts: 239
Joined: Wed Aug 26, 2020 1:32 pm

Re: Can I afford a 1.3 mil house?

Post by Kelrex »

Is a 1.3M house compatible with your long term goals and your real life risk tolerance?
Gill
Posts: 6686
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Can I afford a 1.3 mil house?

Post by Gill »

My back of the envelope reaction is, no, you can't afford a house that expensive on your current earnings and savings.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Carguy85
Posts: 196
Joined: Thu Mar 19, 2020 6:26 pm

Re: Can I afford a 1.3 mil house?

Post by Carguy85 »

How much is the monthly payment including insurance and property tax??... I’m guessing way more than 25% of the household take home. Why not rent and invest unless if you have specific wants/needs that can’t be reasonably met renting... a home is a poor investment.
User avatar
Watty
Posts: 20678
Joined: Wed Oct 10, 2007 3:55 pm

Re: Can I afford a 1.3 mil house?

Post by Watty »

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.
How much in retirement accounts?

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm We've more stocks/RSUs vesting over the course of next 3 years worth $500k.
The market at near an all time high, especially tech stocks, so the stock could be down considerably by the time you could sell the RSUs.

You will also have to pay taxes on them.

Combined you could easily net less than $250K, or even much less.
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm No children yet.
You could need expensive fertility treatments or adoption costs so you need to be prepared for that. If your kids have even minor and temporary health issues then using daycare may not be a desirable or even possible option so you may need to go down to one income for a while.
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm Our jumbo loan has been pre-approved for the amount remnant after 20% down.
What would your mortgage payment be with taxes and insurance?
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm (stable tech jobs)
You are 30 years old so if you take out a 30 year mortgage it would not be paid off until you are 60 years old.

I retired out of tech and even if your job looks stable now a lot will change in 30 years and you will to reinvent your tech career several times before your mortgage is paid off.
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm Considering all this, can we afford a 1.3 million house?
I did not try to crunch the numbers but I don't see how you can afford it now. If you want a house that expensive I think it would be good to save up more for a few years and maybe have your your first baby and then reconsider buying a house like that when the kid is a year or two old. Or you could buy a much less expensive home now.
Last edited by Watty on Sun Sep 06, 2020 12:45 pm, edited 1 time in total.
wilked
Posts: 1774
Joined: Thu Mar 24, 2011 1:50 pm

Re: Can I afford a 1.3 mil house?

Post by wilked »

Two things

Why are you buying a $1.3MM house w only two of you?

And if the answer is you are planning to expand the family, I’d recommend you do that first and buy second. Expenses go way up with kids, life plans change (ie a spouse may want to stay home), and the other part is that something like 12% of children have special health needs. This is all good information to have before committing to a purchase thus large.
flaccidsteele
Posts: 1005
Joined: Sun Jul 28, 2019 9:42 pm
Location: Canada

Re: Can I afford a 1.3 mil house?

Post by flaccidsteele »

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm Can I afford a 1.3 mil house?
Only if you enjoy living in poverty
The US market always recovers. It’s never different this time. Retired in my 40s. Investing is a simple game of rinse and repeat
Xrayman69
Posts: 595
Joined: Fri Jun 01, 2018 8:52 pm

Re: Can I afford a 1.3 mil house?

Post by Xrayman69 »

1.3M.

20% down leaves 1.04M mortgage. A verr very very good loan at 3.25% approx 4.5K month. Property taxes about 1k month in Seattle area for this Property, home insurance and PMI etc probably puts OP around 6k month conservatively with all the risk and burden of home ownership for upkeep of home and having to keep dual income family.

Not a good idea in your current situation.

You can probably rent a very nice place for half that of above in any part of the city or surrounding area for the two of you with a guest room and office for WFH needs.
bltn
Posts: 881
Joined: Mon Feb 20, 2017 9:32 pm

Re: Can I afford a 1.3 mil house?

Post by bltn »

I agree with the others. !.3 million is a bit expensive at your stage of savings and your income in a notoriously unstable employment field, long term.
workingovertime
Posts: 289
Joined: Sun Dec 27, 2015 8:06 pm

Re: Can I afford a 1.3 mil house?

Post by workingovertime »

Each to their own I guess, but I personally wouldn't unless I was a multi-multi-multi-multi millionaire... like money to burn and not make much difference. $1.3 mil on a house is whole a lot money to sink into and if you're asking if you can afford it, I don't know if you should. It's a huge dent on your financials and I'm not sure if you're wealthy enough to just go through money like that. Is it really worth it? Even if numbers end up saying you can by a little margin, I still wouldn't but that'd be a personal choice. After all, I'm not wealthy like you to even consider a $1.3 mil house but I hope when and if I do get there one day, I can catch myself if I'm wanting more and more material in life. Not judging at all because I love nice houses too but just my opinion.
Last edited by workingovertime on Sun Sep 06, 2020 10:05 am, edited 1 time in total.
zlandar
Posts: 312
Joined: Wed Apr 10, 2019 8:51 am

Re: Can I afford a 1.3 mil house?

Post by zlandar »

You are both careful with spending having amassed $400k for a down payment. If you both continue working for >10 years and live the lifestyle that allowed you to accumulate $400k then yes you can afford the home. The drawback is that a lot of your future savings will be tied into the home for better or worse.

If you both really want the home and it would dramatically improve how you live I think it's fine. Don't buy it because it's an "investment".
arf30
Posts: 738
Joined: Sat Dec 28, 2013 11:55 am

Re: Can I afford a 1.3 mil house?

Post by arf30 »

The general rule is do not exceed 3x income, so 270k income = 810k house upper limit.
User avatar
Sandtrap
Posts: 11744
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Can I afford a 1.3 mil house?

Post by Sandtrap »

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
Considerations:

1. Are you planning on moving in the future?
2. Is relocation due to jobs a possibility?
3. Have you considered adding to your "non tax advantaged invesments" and renting a nicer place?
4. Would you be buying a home in a good school district in an area where children can grow up healthy, wealthy, and wise?
5. Without seeing the "entire financial picture IE: forum portfolio review format", would your retirement savings and/or FIRE still be on track after purchasing this home?
6. Are local R/E valuations where you are shopping in a "bubble", "over valued", "an area of high appreciation historically", or "on paws"?
7. There are a lot of area and regional variations to R/E home pricing. IE: in areas of UHCOL (Hawaii), a 1.3 million home might be a teardown or a 900 s.f. "cottage" with street parking. So, purchase price and the nature of a home are relative.

Without a full portfolio review (format info) it's not really possible to suggest except generally if something is affordable.
j :happy
Wiki Bogleheads Wiki: Everything You Need to Know
Tingting1013
Posts: 412
Joined: Mon Aug 24, 2020 5:44 pm

Re: Can I afford a 1.3 mil house?

Post by Tingting1013 »

Can you afford it? It depends.

Are you maxing out your retirement accounts?

How much do you spend on expenses?

My math says you’re taking home $210k after taxes. Take out another $40k for retirement savings and you’re down to $170k. Take out $70k for annual housing cost.

So you’re down to $100k for annual spending and other savings. How do you feel about that?
av111
Posts: 104
Joined: Mon Jan 26, 2015 1:27 pm

Re: Can I afford a 1.3 mil house?

Post by av111 »

OP

Look at the
1. AGI and total amount paid in taxes on 2019 returns
2. Total non housing costs today

Buying a 1.3m house with 400k down requires 900k loan. Your PI is likely to be 50k per year. Add taxes and insurance. That is your housing expense

Income - income taxes - housing expenses - non housing expenses = disposable income.

What number do you get for disposable income?

I expect 270k income is going to be quite enough to afford your house. In a different thread OP was trying to buy a 2m house with similar income

You are also young and early in your career. Most people have made more in their 40s than in the 20s unless they stop working.

Just plan on creating a 2 year emergency fund to protect against unexpected job losses
AV111
User avatar
CardinalRule
Posts: 475
Joined: Sun Jan 15, 2017 11:01 am
Location: United States

Re: Can I afford a 1.3 mil house?

Post by CardinalRule »

https://www.seattletimes.com/business/r ... n-seattle/

Seattle is an expensive (and possibly bubbly?) housing market. This article from a while back talks about how Seattle-area RSUs from the likes of Amazon and Microsoft are now being considered by some lenders. But getting a loan and comfortably paying it are two different things. Answers to some of the questions asked above would be needed, to provide a more complete, informed opinion, but yes, I think you can afford it from a cash flow perspective. A lot does depend, however, on your other spending and future ability (reserves) to weather something bad, like a layoff or collapse in your company’s stock before the RSUs vest.
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

3CT_Paddler wrote: Sun Sep 06, 2020 6:48 am
No children yet.
Are you planning on having children? What happens if your wife decides she wants to stay home?

I would continue to save and wait until you have clarity on children.
That’s pretty assumptive that is wife would want to stay home with the kids— but I would factor in childcare in with 2 FT working parents if kids are planned, plus college savings.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
novemberrain
Posts: 491
Joined: Wed May 09, 2018 12:26 pm

Re: Can I afford a 1.3 mil house?

Post by novemberrain »

Yes. You can afford to
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
User avatar
wander
Posts: 3257
Joined: Sat Oct 04, 2008 9:10 am

Re: Can I afford a 1.3 mil house?

Post by wander »

I think you can afford it. But beside the point, it's a personal choice. Really.
I do not want to do it if I were you thinking about mortgage every month and watching our money gets deposited into bank account and gone. Our situation is different with the paid for house and almost all the money get deposited and stays or be invested (so our goal was to want the house that we love with the price that was easy to afford and pay it off quickly). Each person has different priority.
ymmt
Posts: 35
Joined: Fri Jul 10, 2020 10:59 am

Re: Can I afford a 1.3 mil house?

Post by ymmt »

hereverycentcounts wrote: Sun Sep 06, 2020 10:52 am
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
I saw your other thread and didn’t want to go through 4 pages of replies, but I suspect lots of people said it was a bad idea. As an anecdote, We have 1.5x your savings and more than 2x income and we felt that we stretched for our 1.5M house. If you are assuming constant home price appreciation (A la early 2000s???) then you should be buying as large can you can pay, but in my neck of the woods we have had basically zero appreciation so better to be more conservative.

I think for the OPs situation with a bigger down payment and the large vested balance in the pipeline, I think it’s reasonable to purchase.
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

Yes, makes sense. I question a larger down payment though in OP situation and my own. Isn’t it better to keep anything over 20% down in index funds? Maybe keep 12-24 months of mortgage payments out of stock market but why have that sit in a house?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

ymmt wrote: Sun Sep 06, 2020 11:22 am
hereverycentcounts wrote: Sun Sep 06, 2020 10:52 am
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
I saw your other thread and didn’t want to go through 4 pages of replies, but I suspect lots of people said it was a bad idea. As an anecdote, We have 1.5x your savings and more than 2x income and we felt that we stretched for our 1.5M house. If you are assuming constant home price appreciation (A la early 2000s???) then you should be buying as large can you can pay, but in my neck of the woods we have had basically zero appreciation so better to be more conservative.

I think for the OPs situation with a bigger down payment and the large vested balance in the pipeline, I think it’s reasonable to purchase.
Also my stocks vesting over next 15 months are worth about $1M pre tax. I conservatively estimate I’ll see about $500k after tax and any drops in value. But everyone said not to consider that since it’s not real yet...
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

hereverycentcounts wrote: Sun Sep 06, 2020 11:40 am
ymmt wrote: Sun Sep 06, 2020 11:22 am
hereverycentcounts wrote: Sun Sep 06, 2020 10:52 am
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
I saw your other thread and didn’t want to go through 4 pages of replies, but I suspect lots of people said it was a bad idea. As an anecdote, We have 1.5x your savings and more than 2x income and we felt that we stretched for our 1.5M house. If you are assuming constant home price appreciation (A la early 2000s???) then you should be buying as large can you can pay, but in my neck of the woods we have had basically zero appreciation so better to be more conservative.

I think for the OPs situation with a bigger down payment and the large vested balance in the pipeline, I think it’s reasonable to purchase.
Also my stocks vesting over next 15 months are worth about $1M pre tax. I conservatively estimate I’ll see about $500k after tax and any drops in value. But everyone said not to consider that since it’s not real yet...
What in your budget makes you feel stretched for that mortgage? I am separately trying to figure out how much to pay in rent. We toured a cute house in a good location for $6000 a month yesterday.
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
ymmt
Posts: 35
Joined: Fri Jul 10, 2020 10:59 am

Re: Can I afford a 1.3 mil house?

Post by ymmt »

hereverycentcounts wrote: Sun Sep 06, 2020 11:40 am
ymmt wrote: Sun Sep 06, 2020 11:22 am
hereverycentcounts wrote: Sun Sep 06, 2020 10:52 am
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
I saw your other thread and didn’t want to go through 4 pages of replies, but I suspect lots of people said it was a bad idea. As an anecdote, We have 1.5x your savings and more than 2x income and we felt that we stretched for our 1.5M house. If you are assuming constant home price appreciation (A la early 2000s???) then you should be buying as large can you can pay, but in my neck of the woods we have had basically zero appreciation so better to be more conservative.

I think for the OPs situation with a bigger down payment and the large vested balance in the pipeline, I think it’s reasonable to purchase.
Also my stocks vesting over next 15 months are worth about $1M pre tax. I conservatively estimate I’ll see about $500k after tax and any drops in value. But everyone said not to consider that since it’s not real yet...
I see where you are coming from but you also have kids (and so do we), but OP does not. With our income we felt like a 1M mortgage was a comfortable spot (we paid more than 20pct down). You seem to prefer to keep more in the markets (for good reason) but with a larger mortgage you might feel stretched in terms of cash flow; I know we would if we were carrying a 1.6m mortgage on top of daycare, maintenance, etc.
hereverycentcounts
Posts: 99
Joined: Wed Sep 02, 2020 8:09 pm
Location: Somewhere Very HCOL

Re: Can I afford a 1.3 mil house?

Post by hereverycentcounts »

ymmt wrote: Sun Sep 06, 2020 12:03 pm
hereverycentcounts wrote: Sun Sep 06, 2020 11:40 am
ymmt wrote: Sun Sep 06, 2020 11:22 am
hereverycentcounts wrote: Sun Sep 06, 2020 10:52 am
bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?
My recent thread is similar but about Bay Area and affording a 1.8-2M house on $250k a year. The general answer I got (despite $1.7M in savings) is no, but I’ve been running calculations which say otherwise.

Instead of asking want you can afford, consider your value after a certain period of time:

What would your monthly rent be for a similar home? You can run numbers based on this. Put down payment and any additional annual savings renting into a pot and increase its value 3%-7% each year. Figure out how much gain or loss you have after X years. I used 10 years. This is your true cost of ownership renting.

For ownership it’s a bit more complicated but you can do a similar calculation. Interest is basically rent so figure out how much interest, taxes, insurance, and upkeep. Your home will likely appreciate so decide 3-7% annual appreciation and determine how much your home appreciates vs what you put in over the years. Make sure to tax any gains beyond 500k as LTC gains (not as bad in WA) and make sure to include a loss of 6% on the value of the property at time of sale. Include tax deductions on first 750k of interest. Then you have a reasonable estimate of cost of ownership of a house in the same period.

The way I see it both home ownership and renting ARE renting. As long as you have to pay property tax you are renting. But one is a lot more expensive now gets keeper in the long run and the other gets more expensive. Obviously there are plenty of reasons to own, but let the numbers tell you what to do.
I saw your other thread and didn’t want to go through 4 pages of replies, but I suspect lots of people said it was a bad idea. As an anecdote, We have 1.5x your savings and more than 2x income and we felt that we stretched for our 1.5M house. If you are assuming constant home price appreciation (A la early 2000s???) then you should be buying as large can you can pay, but in my neck of the woods we have had basically zero appreciation so better to be more conservative.

I think for the OPs situation with a bigger down payment and the large vested balance in the pipeline, I think it’s reasonable to purchase.
Also my stocks vesting over next 15 months are worth about $1M pre tax. I conservatively estimate I’ll see about $500k after tax and any drops in value. But everyone said not to consider that since it’s not real yet...
I see where you are coming from but you also have kids (and so do we), but OP does not. With our income we felt like a 1M mortgage was a comfortable spot (we paid more than 20pct down). You seem to prefer to keep more in the markets (for good reason) but with a larger mortgage you might feel stretched in terms of cash flow; I know we would if we were carrying a 1.6m mortgage on top of daycare, maintenance, etc.
I'm not sure what I'm comfortable with. My general finance philosophy to date has been live way below your means and try to make as much money as you can and put all the savings into the stock market. But that was my pre-kid philosophy. Now that I'll have 2 kids as of 2021 and hope for 1 more, I know I need to shift that -- spend a bit more on the next 20-ish years of life, and invest a little less. But then if we end up renting, we'd prob be told by folks here to put that savings into the market... so I'm not sure what the difference is between doing that with a house and lower DP (at least 20%) and renting and putting the rest into the markets?
36 year old mom of 2 in a VHCOL area trying to figure out how to afford it all. Non techie in tech.
HenrySouthernCal
Posts: 55
Joined: Thu Dec 21, 2017 11:33 pm

Re: Can I afford a 1.3 mil house?

Post by HenrySouthernCal »

I don't understand why there are so many negative posts. The income is sufficient for 1.3 m home at current low interest rate and you have large down payment, so PMI can be avoided. The 2 jobs are also stable and ages are also in your favor - there are more income upside potential going forward. Washington state has no state income tax, that would give you $15-18K annually extra after-tax money compared with someone living in California with the same income.
Dennisl
Posts: 122
Joined: Sun Jun 09, 2019 1:46 pm

Re: Can I afford a 1.3 mil house?

Post by Dennisl »

No. You can’t afford it. You should be looking realistically closer to 600k. Once you have kids, you’ll struggle with childcare, 529, esp if your wife decides she wants to stay home with the kids. That’s not an option with the numbers that you’re running. It’s hard to get out if you have your mind. Lose 5-10% if u sell your house to fees and your broker. Expect maintenance fees to run 10-20k, possibly more for the house. Just my 2 cents. That was my experience on a higher income and cheaper house than what you’re listing.
rich126
Posts: 1985
Joined: Thu Mar 01, 2018 4:56 pm

Re: Can I afford a 1.3 mil house?

Post by rich126 »

With the current rates and assuming the jobs remain stable you probably can. The 3X income rule was also from times when rates were much high. Some rules of thumb go out the window now. At one point it was a house should always rent for 1% of its value, then doesn't happen in most markets. Who is paying $5K monthly rent on a $500K house? Not anyone I know.

20% down, 30 yrs at 3% with tax&ins I see around $4200. That is a chunk of money but if you think it fits in your budget that is your decision. I'd be more concerned with lofty house values but maybe that is localized to my area (not in WA).

The issues that could come up later is if you want to sell and the house's value doesn't go up, or the value is ok but rates start going up, or a loss of an income would be rough. Make sure to keep a hefty emergency fund.

Never an easy decision.
User avatar
JonnyDVM
Posts: 2268
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: Can I afford a 1.3 mil house?

Post by JonnyDVM »

I’ve come to realize this is the wrong place to ask people if you can afford something. Regardless of the object or your assets, posters will always find a way to tell you no.

With that being said, I think you might want to consider dialing back just a bit unless you expect your income to climb over the next several years. You have a very nice savings built up to make that down payment, and rates are deliciously low. Regardless, you’re looking at close to 5X gross income and about $6000 per month for mortgage, tax, and insurance assuming your tax rates out there are similar to mine. That monthly payment is going to limit your ability to spend on other things. Now if you are confident in income growth and this is your dream house, given Seattle is a high cost of living area I can nod and understand, otherwise I would be looking in the 900-1 million range.
I’d trade it all for a little more | -C Montgomery Burns
jarjarM
Posts: 276
Joined: Mon Jul 16, 2018 1:21 pm

Re: Can I afford a 1.3 mil house?

Post by jarjarM »

I agree with above, $1m is probably the target house for you right now. While your income trajectory is good, you won’t get the whole picture of your expense til you have kids. If you strive to be DINK then go for the $1.3-$1.5M. :sharebeer
Bobby206
Posts: 478
Joined: Fri Oct 05, 2018 4:01 pm

Re: Can I afford a 1.3 mil house?

Post by Bobby206 »

I think you can afford but will feel house poor. I'd wait and/or go a bit cheaper as others have indicated.
Porfirio
Posts: 11
Joined: Fri Aug 17, 2018 2:07 pm

Re: Can I afford a 1.3 mil house?

Post by Porfirio »

I suggest a more affordable home and then re-evaluate as your family expands and (presumably) your income increases. By then you'd have more money saved/invested and a better idea of what your family needs will be.

It's a hard decision either way. Best of luck to you and your wife.
Golf maniac
Posts: 559
Joined: Wed Dec 27, 2017 2:02 pm
Location: Florida

Re: Can I afford a 1.3 mil house?

Post by Golf maniac »

None of us know your lifestyle or future plans (job, move, kids). Only you can answer your question by having a detailed budget. Get a budget for where you are right now on expenses. Then figure out what the budget will be for the new home. Don’t forget taxes, insurance, and maintenance. Yes, you need to call and research these items. I would only buy any home (no matter the price) after I have figured out the numbers. Best of luck!
stochastic
Posts: 55
Joined: Sun Sep 06, 2015 5:09 pm

Re: Can I afford a 1.3 mil house?

Post by stochastic »

We bought a house at a similar age in a VHCOL area with a worse income to value ratio. I had a very stable job, we didn't spend much so had a lot of savings and living in that location was important to us and we expected to live there for a long time. Our forever home lasted about 3 years before we moved across the country for a job opportunity - but it turned out fine financially speaking. It would have been fine too if we'd stayed.

As expected you won't find a lot of support here on bogleheads for an expensive house. I think it could be ok if you otherwise have low spending. It definitely means losing a substantial amount of flexibility and you really wouldn't have a lot left over income wise if you had to live just on your income for an extended period of time if you have kids. So it should be a really major priority for you.

You might also want to see to what extent things revert to normal once the pandemic is over - if many people continue to work from home that could be a big change in real estate markets and open up other options.
User avatar
geerhardusvos
Posts: 1135
Joined: Wed Oct 23, 2019 10:20 pm
Location: heavenlies

Re: Can I afford a 1.3 mil house?

Post by geerhardusvos »

bar_mitzvah wrote: Sat Sep 05, 2020 9:48 pm I earn $150k annually and my wife earns $120k. We're both 30 year olds in Seattle area (stable tech jobs). No children yet.

We've $400k cash stored in a savings account. Mostly for the purpose of down payment. We've another $150k invested in a taxable account.

We max out our 401ks. We've more stocks/RSUs vesting over the course of next 3 years worth $500k. We would ideally like to invest this money in the stock market. So not really looking at it from paying down the mortgage point of view.

Our jumbo loan has been pre-approved for the amount remnant after 20% down.

Considering all this, can we afford a 1.3 million house?

Edit: Thanks a lot for all your responses. I'm so glad I seeked your advice before placing an offer because reading your responses gave me really good perspective on things. We ended up skipping our "dream" house just because the monthly mortgage payments would have added unnecessary burden to our lifestyles. We would have had no wiggle room at all. Hopefully we find a house that fits our budget and does not become a huge source of stress.
Hope this helps: viewtopic.php?p=5480265#p5480265
VTSAX and chill
Post Reply