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Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
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jnk715
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Nate79
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by Nate79 »

My general rule of thumb is a mortgage of no more than 3x income. The higher you push this the less you can save and meet long term goals. What is your current rent? And why do you want to own?
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stoptothink
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by stoptothink »

Unless you were planning to drop a significant percentage of your cash on a down payment, that is quite the stretch on that income. Of course you can technically "afford" it, but that will result in having a way higher percentage of wealth in a primary residence than I am comfortable with.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by jnk715 »

stoptothink wrote: Sun Jun 13, 2021 6:34 pm Unless you were planning to drop a significant percentage of your cash on a down payment, that is quite the stretch on that income. Of course you can technically "afford" it, but that will result in having a way higher percentage of wealth in a primary residence than I am comfortable with.
Well, I was going to drop 280k but I appreciate your hesitation. I think it's right on the cusp of feeling comfortable and not house poor.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by runner540 »

jnk715 wrote: Sun Jun 13, 2021 6:37 pm
Nate79 wrote: Sun Jun 13, 2021 6:29 pm My general rule of thumb is a mortgage of no more than 3x income. The high you push this the less you can save and meet long term goals. What is your current rent? And why do you want to own?
Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
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jnk715
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by jnk715 »

jnk715 wrote: Sun Jun 13, 2021 6:44 pm
runner540 wrote: Sun Jun 13, 2021 6:41 pm
jnk715 wrote: Sun Jun 13, 2021 6:37 pm
Nate79 wrote: Sun Jun 13, 2021 6:29 pm My general rule of thumb is a mortgage of no more than 3x income. The high you push this the less you can save and meet long term goals. What is your current rent? And why do you want to own?
Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
Well, I wouldn't have to cut really anything from my budget. I mostly cook at home and don't have any streaming services, spotify, car payments, etc.
I am wondering Nate with how much liquidity I have how much can I afford for rent? Up to $2,000 a month?
runner540
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by runner540 »

jnk715 wrote: Sun Jun 13, 2021 6:44 pm
runner540 wrote: Sun Jun 13, 2021 6:41 pm
jnk715 wrote: Sun Jun 13, 2021 6:37 pm
Nate79 wrote: Sun Jun 13, 2021 6:29 pm My general rule of thumb is a mortgage of no more than 3x income. The high you push this the less you can save and meet long term goals. What is your current rent? And why do you want to own?
Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
Well, I wouldn't have to cut really anything from my budget. I mostly cook at home and don't have any streaming services, spotify, car payments, etc.
Will you be cutting savings? The point is that you will have $x,000 of new mandatory expenses every month that you have not had before. It has to come from somewhere…
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by jnk715 »

jnk715 wrote: Sun Jun 13, 2021 6:49 pm
runner540 wrote: Sun Jun 13, 2021 6:47 pm
jnk715 wrote: Sun Jun 13, 2021 6:44 pm
runner540 wrote: Sun Jun 13, 2021 6:41 pm
jnk715 wrote: Sun Jun 13, 2021 6:37 pm

Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
Well, I wouldn't have to cut really anything from my budget. I mostly cook at home and don't have any streaming services, spotify, car payments, etc.
Will you be cutting savings? The point is that you will have $x,000 of new mandatory expenses every month that you have not had before. It has to come from somewhere…

Yes, I will cut savings. I save anywhere from 2.3k to 2.6k a month.
I also have a large dog which a lot of rental properties shy away from.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by Nate79 »

jnk715 wrote: Sun Jun 13, 2021 6:46 pm
jnk715 wrote: Sun Jun 13, 2021 6:44 pm
runner540 wrote: Sun Jun 13, 2021 6:41 pm
jnk715 wrote: Sun Jun 13, 2021 6:37 pm
Nate79 wrote: Sun Jun 13, 2021 6:29 pm My general rule of thumb is a mortgage of no more than 3x income. The high you push this the less you can save and meet long term goals. What is your current rent? And why do you want to own?
Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
Well, I wouldn't have to cut really anything from my budget. I mostly cook at home and don't have any streaming services, spotify, car payments, etc.
I am wondering Nate with how much liquidity I have how much can I afford for rent? Up to $2,000 a month?
I would spend no more than about 25% of after tax income (but pre savings) on all in housing costs.
Kaizen Soze
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by Kaizen Soze »

An HOA fee of $300/mo is a large chunk if you're clearing $3.4k/mo. Does the HOA provide any additional amenities or benefits?
PowderDay9
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by PowderDay9 »

If you live in another state now, is your job permanently remote or will you be getting a new job in FL?
BadgerInBerkeley
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by BadgerInBerkeley »

It sounds like you are responsible with your money and have an interest in owning your own home. It seems like you’re on the edge of affording the property you describe, depending on how much you want to contribute retirement each year. With that said, if you have a strong desire to have your own place and be a homeowner, this might be the time. Rather than asking whether you can afford that much house, I’d consider asking yourself why you want to own and how important it is to you. It will always feel uncomfortable to make a purchase like this—there’s no getting around it. However, it may be that your current circumstances are also no longer ideal or even acceptable, and you are ready for a change. Money is there to solve problems in your life. Is purchasing this home solving a large problem for you or creating one without much benefit? Only you can answer that.

With that said, if you decide to buy, I would keep more in cash (or investments) rather than putting it towards the house. The cost of keeping that money in cash is low, and the added security it provides is high. This, of course, assumes that you file that away as money that is 100% dedicated towards the mortgage unless you are desperate (I.e. out of chase reserves with bills coming in). The likelihood that you need the money I’ll be low; but should that need arise, you probably won’t be able to pull it out of the house easily since you are probably out of work in that scenario, unless you draw on a HELOC.

I recently faced a scenario wherein my wife and I really wanted to move out of our previous home. It was going to be financially uncomfortable for a while if we moved into our desired neighborhood, but we made the leap because the emotional and lifestyle cost of staying in our previous home started to become too great. We took a calculated risk that finances would work out—they did, I had a large exit event at my company that I hoped was coming but had no knowledge of—and we moved in the fall of 2019, just before news of a strange virus from China was emerging. The home we bought would be unobtainable today, just 1.5 years (and a crazy surge in a the market) after we bought it.

Hope that helps.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by Onlineid3089 »

jnk715 wrote: Sun Jun 13, 2021 6:49 pm
runner540 wrote: Sun Jun 13, 2021 6:47 pm
jnk715 wrote: Sun Jun 13, 2021 6:44 pm
runner540 wrote: Sun Jun 13, 2021 6:41 pm
jnk715 wrote: Sun Jun 13, 2021 6:37 pm

Fortunately, my rent is only $250 with a family member in another state. I like the idea of personal freedom and stability. Rent is also high in this locality.
Ok, so your current rent is less than your HOA fees. What are you going to cut in your current budget to cover the mortgage, plus utilities, insurance, prop taxes and maintenance?
Well, I wouldn't have to cut really anything from my budget. I mostly cook at home and don't have any streaming services, spotify, car payments, etc.
Will you be cutting savings? The point is that you will have $x,000 of new mandatory expenses every month that you have not had before. It has to come from somewhere…

Yes, I will cut savings. I save anywhere from 2.3k to 2.6k a month.
It seems like you'll end up with close to half of your current savings going towards just property taxes, insurance, and HOA fees. Then you'd still have to cover the principal and interest payments for how ever much you borrow plus all other expenses like utilities, upkeep, furnishing, etc.

I think you'd end up looking at saving little to nothing moving forward at your income. Purchasing a property that is almost 8x income seems crazy to me, but I also live in LCOL midwest. I personally wouldn't do it, especially since you said you basically have nothing to cut from your budget if anything comes up.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by mikejuss »

Don't take a mortgage that's more than 3 times your salary (ie, $180,000). If you're willing to part with a large chunk of cash up front, I'd say that you can afford this house. I have no idea, though, whether parting with that large chunk of cash is going to do long-term damage to your ability to retire; you may wish to run that numbers on that aspect of things.
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mikejuss
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by mikejuss »

Nate79 wrote: Sun Jun 13, 2021 7:31 pmI would spend no more than about 25% of after tax income (but pre savings) on all in housing costs.
That's brutally conservative--but perhaps, in the long term, wise.
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VoiceOfReason
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by VoiceOfReason »

jnk715 wrote: Sun Jun 13, 2021 6:25 pm Age: 38
Single
No Kids
Assets: 375k in No Penalty CD, High Yield Savings. Roth IRA: 50k Traditional 401k: 176k
Location: Florida
Specifics: Villa 2br 2ba plus den. 1,600 square feet. New construction
Price: Around $465K including lot, upgrades, and pool
HOA: $300s per month
Mortgage: 30 years, Around 2.7%
Salary: 60,000 before taxes. I clear $3,400 a month. Stable job. 2-3% cola increase yearly.
Debt: NONE

This would be my first home purchase. I was considering putting 280k towards a down payment which would leave me about 90-100k in cash. I would still have to furnish the villa. My question is can I afford it? Should I wait for this hot market to cool and save more cash?
Your income is low. However, you have been diligently saving on that income over the years. (~10x income). Was any of that inheritance? If not, you clearly have the discipline with your personal finances.

As a first time buyer with the above income/asset details, I would not recommend a new construction. You don't know what you don't know. There are countless things that are not included that will come up. Each house is different, but there will be lots, especially with a pool. Not to mention the costs of owning a pool and the complexities of owning a home in Florida (roofs, insurance, etc).

Could you do it? Probably, but you'd really eat into that savings beyond what I would be comfortable with. If you are set on buying a place, I would suggest an existing home and much closer to ~$200-$300k, lower HOA, and put down 30%.

Separately, I'd suggest reassessing why you are now looking to buy a place. Is this a distraction? Is this because you have to move? Is this because you feel pressure to buy a house by a certain age? Give that some thought.

From a personal finance perspective, I'd suggest spending your efforts on increasing your income, not buying a house.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by BolderBoy »

jnk715 wrote: Sun Jun 13, 2021 6:38 pm
stoptothink wrote: Sun Jun 13, 2021 6:34 pm Unless you were planning to drop a significant percentage of your cash on a down payment, that is quite the stretch on that income. Of course you can technically "afford" it, but that will result in having a way higher percentage of wealth in a primary residence than I am comfortable with.
Well, I was going to drop 280k but I appreciate your hesitation. I think it's right on the cusp of feeling comfortable and not house poor.
This is my feeling, too. That you'll be right on the edge for a while. I'd be too nervous to try it.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by rascott »

$475k condo on a $60k income is way, way too much of a stretch, IMHO.

Too much of your financial world is now buried in a Florida new construction condo.... not a place I'd be comfortable with.
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Re: First Time Homebuyer: How Much House Can I Afford?

Post by mikejuss »

jnk715 wrote: Sun Jun 13, 2021 6:38 pm
stoptothink wrote: Sun Jun 13, 2021 6:34 pm Unless you were planning to drop a significant percentage of your cash on a down payment, that is quite the stretch on that income. Of course you can technically "afford" it, but that will result in having a way higher percentage of wealth in a primary residence than I am comfortable with.
Well, I was going to drop 280k but I appreciate your hesitation. I think it's right on the cusp of feeling comfortable and not house poor.
How much money are you trying to save for retirement, OP?
50% VTSAX | 25% VTIAX | 25% VBTLX (retirement), 25% VTEAX (taxable)
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