First time buyers - how much home can we afford?

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Topic Author
Apoyo
Posts: 4
Joined: Sun Jun 30, 2019 4:58 am

First time buyers - how much home can we afford?

Post by Apoyo »

Hi all,

My wife and I are looking to buy a house in a relatively high cost of living area in the next six months. I am hoping for some advice on what we can afford. Here are some details:

Combined income of about $210k.
Both wife and I have very stable jobs (government, teaching) and will get steady but modest raises over the coming years.
Wife and I are both 41.
We'll both qualify for pensions.
Two elementary school-age kids.
We spent considerable time living overseas, so have never owned a home.
Know the area well. Envision being in this house for a long time.

Finances:
300k cash
530k in retirement accounts (73 percent Roth, 27 percent traditional)
115k in 529s
No debt

We're eyeing houses in the $700k range. My thinking is that we'll use our $300k savings as follows:
$140k - 20 percent down
$35k - 5 percent closing costs
$25k - Moving costs. As to be first-time homeowners, we're going to need to buy some stuff.
$100k - Emergency fund

My questions: Is a $700k house reasonable given our financial position? If no, what range should we target? If yes, would you be comfortable with us going up to a $750k or $800k house?

Thank you in advance for your help.
2Scoops
Posts: 238
Joined: Sun Jul 26, 2020 7:01 pm

Re: First time buyers - how much home can we afford?

Post by 2Scoops »

A lot of really smart people will chime in but wanted to give them a head start. I may have missed it but what are your annual expenses and, assuming you currently rent, how does your rental compare to what you want to purchase?

My situation may not be comparable because I'm in a MCOL area but here are our stats:

- Our average age is the same as yours
- 1 child in elementary school
- Portfolio size about double
- Very close to the same salaries
- Purchased a house in 2011 for 315K; current value 500K.

You will have pensions where I won't so you likely won't be impacting your retirement needs. What percentage of your estimated retirement expenses would the pensions cover?

I would worry about monthly cashflow. Understanding your expenses and current contributions will be important.
ShowMeTheER
Posts: 511
Joined: Mon May 24, 2010 9:12 am

Re: First time buyers - how much home can we afford?

Post by ShowMeTheER »

With stable jobs, cash saved, (presumably) nice pensions, 529s funded adequately… yes you are fine at 700K or 800K. Get what you want and enjoy it for a long time.
wilked
Posts: 2441
Joined: Thu Mar 24, 2011 1:50 pm

Re: First time buyers - how much home can we afford?

Post by wilked »

For those numbers I’d be comfortable carrying about $500k in mortgage debt. Your savings help a lot. I’d target 600-650k in home, and use savings as DP to get the note to 500
Topic Author
Apoyo
Posts: 4
Joined: Sun Jun 30, 2019 4:58 am

Re: First time buyers - how much home can we afford?

Post by Apoyo »

Thanks, all.

Regarding the questions on expenses, we're comfortable with the monthly payments at 700k or 800k. We're returning to the U.S. from overseas so are not currently renting in a comparable location, but we're currently able to max our retirement savings and save about $5k / month.
jack.bauer
Posts: 67
Joined: Wed Feb 02, 2011 2:17 pm

Re: First time buyers - how much home can we afford?

Post by jack.bauer »

mortgage will be way less than 4x salary in HCOL area -and- with pensions. Easily affordable. No need to think twice about this.
gougou
Posts: 1317
Joined: Thu Sep 28, 2017 7:42 pm

Re: First time buyers - how much home can we afford?

Post by gougou »

That’s a lot of closing costs.

But you should be able to afford even up to $800K.
The sillier the market’s behavior, the greater the opportunity for the business like investor.
Topic Author
Apoyo
Posts: 4
Joined: Sun Jun 30, 2019 4:58 am

Re: First time buyers - how much home can we afford?

Post by Apoyo »

Thanks very much!
jebmke
Posts: 25474
Joined: Thu Apr 05, 2007 2:44 pm
Location: Delmarva Peninsula

Re: First time buyers - how much home can we afford?

Post by jebmke »

I moved a lot during my career. I always budgeted around 10-15% or so on top of the cost of the house for various expenses during the first year or two; repairs/improvements, decorating, additional or different furniture ... there is always something.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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