Can I afford this house?

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Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Can I afford this house?

Post by DLAKE »

[Topic is now in Personal Finance (Not Investing) - mod mkc]

Hi All,

I live in a MCOL area w/ low inventory for sale. I am currently renting at 2k/month, however, I'd like to purchase a home as I've been sitting on quiet a bit of cash in a HYSA account for several years saving and waiting and its starting to feel like the right time is never going to come.

I'm 32 y/o, single, and have two children living with me. I have about 500K in retirement/taxable accounts combined and 100k in a HYSA savings for a down payment. I would put 20% down on whatever house. Credit score is at 800+

House 1: $445,900
House 2: $392,900

I work in sales with a 106k base + commission.

Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP

Both are new construction/new development. In my area, there is very little pre-owned homes and almost new build only in the price range I'm looking. I am hesitant because I'm assuming my mortgage will probably be around $2,600 - $3,000 and it just feels like "a lot"

I do not have any debt, however, my car is 10 years old with a 150k miles. It is in good shape but you never know.

What're your thoughts? Can I afford this or do I continue renting? Will cash flow be tight?
PowderDay9
Posts: 993
Joined: Fri Oct 12, 2018 12:29 pm

Re: Can I afford this house?

Post by PowderDay9 »

Based on your gross income, you should be able to afford either of those houses. How much is your monthly expenses excluding rent?
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

PowderDay9 wrote: Sun Dec 17, 2023 7:01 pm Based on your gross income, you should be able to afford either of those houses. How much is your monthly expenses excluding rent?
probably about $1,200 or so a month of reoccurring for gas, groceries, streaming, internet, cell phones + the kids sports registrations costs throughout the year, soccer, swimming, volleyball etc.

I don't want my potentially new mortgage to have a significant, if any, impact on my retirement investments and/or put a strain on our month to month spending/cash flow.

Edit: typo fix
bonesly
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Location: WA

Re: Can I afford this house?

Post by bonesly »

DLAKE wrote: Sun Dec 17, 2023 6:54 pm Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP
Your current net includes the $2K/month rent, so it's a little confusing determining what can you afford for a mortgage, which incudes principal, interest, property taxes, and hazard insurance to escrow (PITI). If we assume your salary is at least $170K/yr and use typical guidance that PITI should be no more than 30% of gross, then you can afford $3,750/mo. If you can't find $1,750 per month of discretionary spending to put to your mortgage, then the 30% guidance isn't a great fit for your personal situation. What are property tax rates and hazard insurance going at in your MCOL area? BankRate suggests 30-year fixed is between 6.25% and 7.25%, so you could plug that in to any mortgage calculator, along with the taxes and insurance to get a feel for the total monthly mortgage payment (there's a ton of online calculators... like this one from NFCU, which has principal & interest on the basic tab and adds taxes & ins on the advanced tab).

House 1 at 6.375%, property taxes of $3K and insurance of $1K is a total mortgage payment of $2,560/mo. Can you afford that? Are the taxes & insurance in the ballpark of what you'd actually pay in your state/county/city? In addition to the down-payment, you'll have to pay closing costs (attorneys, realtors, appraisal fee, lender fees, etc.). Talk to your potential lender (and/or realtor) and see if you can get a PDF or web-site link to all the steps they expect you to follow with all the estimated costs from start to finish.

You'll also want a separate pot of money in a new-car fund invested pretty conservatively to replace your existing car at some point in the next 3-5 years (unless you have a auto mechanic friend that can keep it going longer "at cost").
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

bonesly wrote: Sun Dec 17, 2023 7:35 pm
DLAKE wrote: Sun Dec 17, 2023 6:54 pm Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP
Your current net includes the $2K/month rent, so it's a little confusing determining what can you afford for a mortgage, which incudes principal, interest, property taxes, and hazard insurance to escrow (PITI). If we assume your salary is at least $170K/yr and use typical guidance that PITI should be no more than 30% of gross, then you can afford $3,750/mo. If you can't find $1,750 per month of discretionary spending to put to your mortgage, then the 30% guidance isn't a great fit for your personal situation. What are property tax rates and hazard insurance going at in your MCOL area? BankRate suggests 30-year fixed is between 6.25% and 7.25%, so you could plug that in to any mortgage calculator, along with the taxes and insurance to get a feel for the total monthly mortgage payment (there's a ton of online calculators... like this one from NFCU, which has principal & interest on the basic tab and adds taxes & ins on the advanced tab).

House 1 at 6.375%, property taxes of $3K and insurance of $1K is a total mortgage payment of $2,560/mo. Can you afford that? Are the taxes & insurance in the ballpark of what you'd actually pay in your state/county/city? In addition to the down-payment, you'll have to pay closing costs (attorneys, realtors, appraisal fee, lender fees, etc.). Talk to your potential lender (and/or realtor) and see if you can get a PDF or web-site link to all the steps they expect you to follow with all the estimated costs from start to finish.

You'll also want a separate pot of money in a new-car fund invested pretty conservatively to replace your existing car at some point in the next 3-5 years (unless you have a auto mechanic friend that can keep it going longer "at cost").

The local county website estimates that my property tax would be $5,385 based on the home value of $445,900. With interest rates, I'd likely be closer to $2,800 or $2,900/mo.

As far as a separate pot of money for a vehicle, is a HYSA, like Ally, appropriate or would you suggest something different?
User avatar
Watty
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Re: Can I afford this house?

Post by Watty »

DLAKE wrote: Sun Dec 17, 2023 6:54 pm Will cash flow be tight?
In looking at this one bigger concern would be how much other money you have for an emergency fund if you buy a house.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm I have about 500K in retirement/taxable accounts combined...
How is that split between the accounts? Money in taxable accounts is readily accessible and come Roth money may be available too depending on the details.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm I am hesitant because I'm assuming my mortgage will probably be around $2,600 - $3,000 and it just feels like "a lot"
Depending on your details you might have some savings with tax deductions for property taxes and mortgage interest so it would be good to do dummy tax returns to see what the after tax cost will be.

A couple of hundred dollars a month of each months mortgage payment would go towards paying down the loan balance so that is sort of enforced payments.

On the downside there will also be lots of other expenses even with a new house since it will need things drapes, furniture, landscaping, etc.

I didn't follow all your numbers but if it costs you $4,000 all in then that is $48K a year but you are already paying $2,000 a month or $24K a year.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm Maxed out all retirement and backdoor + 18k in ESPP
How much is that, $45K(?????) Different people have access to different retirement accounts.

That is fantastic but it is likely a lot more than you need unless you are planning to retire very early.

I would hope that you are selling your ESPP stock as soon as you can. If not that would be a good to start another post to ask about that since that could be a big mistake.

If you have a lot in your taxable account then one option would be to sell enough of your taxable investments each year to fund the backdoor Roth.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm What're your thoughts?
There are several variations on an saying, "You can do anything you want, but not everything you want."

You can buy the house but you will need to make some tradeoffs somewhere else in your budget most likely by saving less.

The real key is that with a lot of you pay being you need a lot of emergency funds for when you have a bad year.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm In my area, there is very little pre-owned homes and almost new build only in the price range I'm looking.

Even if you are buying a new house that might have some sort of warranty you really need to have it inspected just like you are buying a used house. New houses can have lots of problems. If possible it would be good to have a house inspected several times during the construction phase to catch problems while they are visible like before the drywall is put up.
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Metsfan91
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Location: Rust Belt

Re: Can I afford this house?

Post by Metsfan91 »

DLAKE wrote: Sun Dec 17, 2023 6:54 pm
House 1: $445,900
House 2: $392,900

I work in sales with a 106k base + commission.

Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP
...

What're your thoughts? Can I afford this or do I continue renting? Will cash flow be tight?
You can afford any of these 2 houses. Go for the one you like the most...With your income, cash flow shouldn't be an issue.

Congratulations in advance on your new house!
"Know what you own, and know why you own it." — Peter Lynch
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mrmass
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Location: MA

Re: Can I afford this house?

Post by mrmass »

DLAKE wrote: Sun Dec 17, 2023 6:54 pm Hi All,

I live in a MCOL area w/ low inventory for sale. I am currently renting at 2k/month, however, I'd like to purchase a home as I've been sitting on quiet a bit of cash in a HYSA account for several years saving and waiting and its starting to feel like the right time is never going to come.

I'm 32 y/o, single, and have two children living with me. I have about 500K in retirement/taxable accounts combined and 100k in a HYSA savings for a down payment. I would put 20% down on whatever house. Credit score is at 800+

House 1: $445,900
House 2: $392,900

I work in sales with a 106k base + commission.

Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP

Both are new construction/new development. In my area, there is very little pre-owned homes and almost new build only in the price range I'm looking. I am hesitant because I'm assuming my mortgage will probably be around $2,600 - $3,000 and it just feels like "a lot"

I do not have any debt, however, my car is 10 years old with a 150k miles. It is in good shape but you never know.

What're your thoughts? Can I afford this or do I continue renting? Will cash flow be tight?
Your income shows a slight decrease yoy. What does your pipeline look like for Q1 2024 or further?
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

Watty wrote: Sun Dec 17, 2023 10:07 pm
DLAKE wrote: Sun Dec 17, 2023 6:54 pm Will cash flow be tight?
In looking at this one bigger concern would be how much other money you have for an emergency fund if you buy a house.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm I have about 500K in retirement/taxable accounts combined...
How is that split between the accounts? Money in taxable accounts is readily accessible and come Roth money may be available too depending on the details.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm I am hesitant because I'm assuming my mortgage will probably be around $2,600 - $3,000 and it just feels like "a lot"
Depending on your details you might have some savings with tax deductions for property taxes and mortgage interest so it would be good to do dummy tax returns to see what the after tax cost will be.

A couple of hundred dollars a month of each months mortgage payment would go towards paying down the loan balance so that is sort of enforced payments.

On the downside there will also be lots of other expenses even with a new house since it will need things drapes, furniture, landscaping, etc.

I didn't follow all your numbers but if it costs you $4,000 all in then that is $48K a year but you are already paying $2,000 a month or $24K a year.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm Maxed out all retirement and backdoor + 18k in ESPP
How much is that, $45K(?????) Different people have access to different retirement accounts.

That is fantastic but it is likely a lot more than you need unless you are planning to retire very early.

I would hope that you are selling your ESPP stock as soon as you can. If not that would be a good to start another post to ask about that since that could be a big mistake.

If you have a lot in your taxable account then one option would be to sell enough of your taxable investments each year to fund the backdoor Roth.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm What're your thoughts?
There are several variations on an saying, "You can do anything you want, but not everything you want."

You can buy the house but you will need to make some tradeoffs somewhere else in your budget most likely by saving less.

The real key is that with a lot of you pay being you need a lot of emergency funds for when you have a bad year.
DLAKE wrote: Sun Dec 17, 2023 6:54 pm In my area, there is very little pre-owned homes and almost new build only in the price range I'm looking.

Even if you are buying a new house that might have some sort of warranty you really need to have it inspected just like you are buying a used house. New houses can have lots of problems. If possible it would be good to have a house inspected several times during the construction phase to catch problems while they are visible like before the drywall is put up.

1) I will need to rebuilt my cash emergency.
2) I have about 100k in taxable, and the remainder (about 400k) in 401k, Roth 401k (mega backdoor) and Roth IRA (backdoor)
3) My savings is $22,500 for 401k, $10,000 Roth 401K (mega backdoor), $6,500 Roth IRA (backdoor Roth), and $18,000 to ESPP. About $57,000 in savings for 2023.
4) Yes, I am seeing my ESPP as soon as the mandatory holding period is done (366 days) and reinvesting in VTI.
5) Thanks for the advice - the house is already construction and it was the model home. They are willing to negotiate a bit on price, but again, hesitate w/ a $2,500+ mortgage, especially if something were to happen with my single income.
stoptothink
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Re: Can I afford this house?

Post by stoptothink »

I'm ultra frugal and personally freaking out at the idea that we'll likely have to pay $650k+ to get into the most basic 2000sq. ft SFH home in our "MCOL" area in the next year or so (with an income ~$300k/yr and $2M+ NW), but yes, OP you can afford either place.
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

mrmass wrote: Mon Dec 18, 2023 6:17 am
DLAKE wrote: Sun Dec 17, 2023 6:54 pm Hi All,

I live in a MCOL area w/ low inventory for sale. I am currently renting at 2k/month, however, I'd like to purchase a home as I've been sitting on quiet a bit of cash in a HYSA account for several years saving and waiting and its starting to feel like the right time is never going to come.

I'm 32 y/o, single, and have two children living with me. I have about 500K in retirement/taxable accounts combined and 100k in a HYSA savings for a down payment. I would put 20% down on whatever house. Credit score is at 800+

House 1: $445,900
House 2: $392,900

I work in sales with a 106k base + commission.

Income:
2023 - 180k gross, $70k net (so far). Maxed out all retirement and backdoor + 18k in ESPP
2022 - 189k gross, $75k net. Maxed out all retirement and backdoor + 18k in ESPP
2021 - 200k gross, $84k net. Maxed out all retirement and backdoor + 11k in ESPP

Both are new construction/new development. In my area, there is very little pre-owned homes and almost new build only in the price range I'm looking. I am hesitant because I'm assuming my mortgage will probably be around $2,600 - $3,000 and it just feels like "a lot"

I do not have any debt, however, my car is 10 years old with a 150k miles. It is in good shape but you never know.

What're your thoughts? Can I afford this or do I continue renting? Will cash flow be tight?
Your income shows a slight decrease yoy. What does your pipeline look like for Q1 2024 or further?
I lead a sales team and the decrease was a result of recent promotions of high performing reps and a very strong 2021 following COVID. Being in sales leadership, I do always have inherent concern about consistent income.

I'd like to plan and have a buffer in if I were to have a significant reduction in income (say to 100k or 120k, etc.) or even loss of job and not be able to return to 180k+. Could I afford these houses at 100K?
bonesly
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Location: WA

Re: Can I afford this house?

Post by bonesly »

DLAKE wrote: Mon Dec 18, 2023 4:54 pm Could I afford these houses at 100K [annual income]?
You already have an idea of the cost of the house over your $2K/mo rent. Hopefully you have a household budget with expected income and expenses and net income. If you can adjust your expenses (if net income is low it's probably allocated to savings?) to still have enough of a comfortable cushion for net income, you can afford the house. If it's too tight, you probably can't afford the house. If you list your monthly expenses (including a monthly allotment for once a year or once a quarter bills), someone can do the math for you; but it's simple addition and subtraction so you can do it too.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm The local county website estimates that my property tax would be $5,385 based on the home value of $445,900. With interest rates, I'd likely be closer to $2,800 or $2,900/mo.
So let's say $1,000/mo more than what you're currently paying.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm $2,600 - $3,000 and it just feels like "a lot"
Does it "feel" like a lot or is it actually resulting in a negative net monthly income? Make an unemotional decision based on simple math.

You can likely make a chart similar to this one (made for another poster with a different rent and PITI, but the idea is the same). Owning almost always beats renting because if you own on a 30y fixed mortgage the principal and interest payments are flat, while rent is likely to keep increasing exponentially year after year based on the rate of inflation. The only time renting would be a better choice is if you expect to be moving to different regions of the country every 3-5 years for work; if you're in the same area for 30 years, owning is a clear winner over renting.

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Topic Author
DLAKE
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Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

Thank you for all for all of the responses. I've continued to struggle with whether or not purchasing makes sense for me and is within a comfortable monthly amount. I think it's primarily because I'm a single earner, work in sales/tech, and strive for financial independence. I plan to live in the house for up to 10 years. I unfortunately do not have a strict household budget/tracker, but instead, just contribute the max to my accounts and either save the remainder in HYSA/taxable or spend.

I did a rough estimate of my expenses and what I could find (some rounded numbers):

2023 CC statement = $41,000
401k: $22,500/year
Mega backdoor Roth 401k: $10,000/year
Roth IRA: 7,000/year
ESPP: $19,000/year

Retirement total = $58,500 (about 30% of gross income)

Taxes last year from last pay stub = 58,995.51

Rent: $1,995 ($23,940/year)

Total$ $182,435

Can someone help me visualize -- If I were to increase my monthly payment from $1,995 renting to $2,700 owning, what impact would that have on my savings rate? Additionally, if were to change jobs, or lose my job, what minimum income would be needed to be able to comfortably save for retirement and expenses while maintaining the $2,700 mortgage without feeling stretched or "house poor"?

I'm interested in the home priced at $445, but think they would go down to $425k or so as its' been on the market for some time. Should I look for a less expensive home?
KlangFool
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Re: Can I afford this house?

Post by KlangFool »

OP,

1) How old are your kids?

2) Do you plan to pay for their college education?

3) If it is between the house and paying for their college education, what would you choose?

4) I am not sure that you can afford both.

KlangFool
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Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

KlangFool wrote: Tue Jan 30, 2024 1:33 pm OP,

1) How old are your kids?

10, almost 11 and 8.5
KlangFool wrote: Tue Jan 30, 2024 1:33 pm 2) Do you plan to pay for their college education?

That is TBD. It's a unique situation. They only moved in with me last year and as part of a transfer of custody

KlangFool wrote: Tue Jan 30, 2024 1:33 pm
3) If it is between the house and paying for their college education, what would you choose?

I am unsure on this at this point, but they may be eligible for special grants, etc. based on their circumstance. Of course, I'd like to help where I can
KlangFool wrote: Tue Jan 30, 2024 1:33 pm 4) I am not sure that you can afford both.

So what would you recommend? Continuing to rent? I could find other homes around $370k, but monthly payment is still $2,300+.

KlangFool
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this house?

Post by KlangFool »

DLAKE wrote: Tue Jan 30, 2024 1:46 pm
KlangFool wrote: Tue Jan 30, 2024 1:33 pm OP,

1) How old are your kids?

10, almost 11 and 8.5
KlangFool wrote: Tue Jan 30, 2024 1:33 pm 2) Do you plan to pay for their college education?

That is TBD. It's a unique situation. They only moved in with me last year and as part of a transfer of custody

KlangFool wrote: Tue Jan 30, 2024 1:33 pm
3) If it is between the house and paying for their college education, what would you choose?

I am unsure on this at this point, but they may be eligible for special grants, etc. based on their circumstance. Of course, I'd like to help where I can
KlangFool wrote: Tue Jan 30, 2024 1:33 pm 4) I am not sure that you can afford both.

So what would you recommend? Continuing to rent? I could find other homes around $370k, but monthly payment is still $2,300+.

KlangFool
My philosophy which you do not have to agree with me is

A) Do not buy unless it is substantially cheaper than renting.

B) So, I will only buy if the monthly mortgage payment (PITI) is less than $1,600 per month with 20% down payment and 30 years fixed rate mortgage.

C) The price of the house has to drop substantially before it is worthwhile to buy.

KlangFool
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Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

KlangFool wrote: Tue Jan 30, 2024 1:50 pm
My philosophy which you do not have to agree with me is

A) Do not buy unless it is substantially cheaper than renting.

B) So, I will only buy if the monthly mortgage payment (PITI) is less than $1,600 per month with 20% down payment and 30 years fixed rate mortgage.

C) The price of the house has to drop substantially before it is worthwhile to buy.

KlangFool
Thanks for response, I really appreciate it. I don't agree or disagree -- I'm just wanting to learn and absorb as much advice as the great Boglehead community is willing to offer :happy

I would be interested to hear the "why" behind your philosophy. I understand it's likely a mathematical numbers perspective, but isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
KlangFool
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Re: Can I afford this house?

Post by KlangFool »

DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
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Nottingham
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Re: Can I afford this house?

Post by Nottingham »

DLAKE wrote: Sun Dec 17, 2023 7:33 pm I don't want my potentially new mortgage to have a significant, if any, impact on my retirement investments and/or put a strain on our month to month spending/cash flow.

Edit: typo fix
Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.
Nottingham
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Re: Can I afford this house?

Post by Nottingham »

DLAKE wrote: Tue Jan 30, 2024 2:23 pm
KlangFool wrote: Tue Jan 30, 2024 1:50 pm
My philosophy which you do not have to agree with me is

A) Do not buy unless it is substantially cheaper than renting.

B) So, I will only buy if the monthly mortgage payment (PITI) is less than $1,600 per month with 20% down payment and 30 years fixed rate mortgage.

C) The price of the house has to drop substantially before it is worthwhile to buy.

KlangFool
Thanks for response, I really appreciate it. I don't agree or disagree -- I'm just wanting to learn and absorb as much advice as the great Boglehead community is willing to offer :happy

I would be interested to hear the "why" behind your philosophy. I understand it's likely a mathematical numbers perspective, but isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.
LittleMaggieMae
Posts: 2522
Joined: Mon Aug 12, 2019 9:06 pm

Re: Can I afford this house?

Post by LittleMaggieMae »

Yes, you can afford the house.

But what does that really mean - affording a house? Just the Mortgage (PI) and Property Tax (T) and Insurance (I)?

Seriously, you need to run the numbers and then look forward 5 years.
Beyond the mortgage:
Estimate the utilities (gas, electric, water, sewerage, trash removal (along with any tags or special containers you will need to buy).
Estimate the cost of your commute (increase gas consumption? more fast food? something else?)
Estimate the cost of furnishings. Pay attention to window treatments.

If you've never owned a home with a yard (and there is no HOA to take care of these things):
a lawn mower (or pay for a landscape service)
Snow shovel (or snow blower if you have to do your drive way and sidewalks)
you may want some tools and extension cords too.

You may want to buy patio furniture or a grill.

I'd also start thinking about how much of a loan payment you can handle if you don't pay cash for a vehicle (sometimes it doesn't make sense to pay cash if interest rates are low and if you'd loose too much liquidity paying cash.) Add that car payment into your current "bills" and start saving for the next vehicle (it's probably 24 to 36 months away).

Think about the future 1 to 5 years from now - what expenses are coming up for you and your kids? How will you pay for them if you are living more or less "pay check to pay check" even if you are saving for retirement, etc....

You can afford a house if you can also afford all the other things you want to accomplish with your money the day you buy the house AND the guestimates for 5 years later.... :)
Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.

Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.

I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
Topic Author
DLAKE
Posts: 63
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Re: Can I afford this house?

Post by DLAKE »

Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.
Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.
I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
Nottingham
Posts: 280
Joined: Thu Sep 28, 2023 12:41 pm

Re: Can I afford this house?

Post by Nottingham »

DLAKE wrote: Tue Jan 30, 2024 2:56 pm
Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.

Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.

I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
That $700 or so is just the beginning. Chances are your place will be bigger so more utilities cost, then you might have OCD about home improvements which will add additional expenses and so on. But then interest is deductible, property might continue appreciation etc.

Most likely if you stay long term you will come out ahead but don't expect any cash flow improvements in the short term.
KlangFool
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Re: Can I afford this house?

Post by KlangFool »

DLAKE wrote: Tue Jan 30, 2024 2:58 pm
I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
DLAKE,

How much the house price has to drop before the mortgage payment is $1,600 per month or lower?

That is the calculation that you have to make. Then, when the house is cheap enough, you buy.

The market rent for the same house was $2,300 per month. The PITI was less than $1,800 per month. Hence, I bought the house in less than 24 hours.

KlangFool
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ETK517
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Re: Can I afford this house?

Post by ETK517 »

If the rent vs buy debate is centered on "what ifs" about a potential economic cataclysm ("the coming recession"), learn a bit about foreclosure vs eviction in your state. In mine, you can expect to live in a house that's being foreclosed on for 4-8 years while making minimal, if any, payments. Probably a decade if you're really persistent. By contrast, you can easily be evicted from a rental within 3 months.

I am an example of the benefits of locking in a housing payment through buying. I bought my house at the end of 2019/beginning of 2020. Since then, the cost of rentals in my area has gone up 30-50%. The value of my house has notionally increased about 60%. So I pay ~$2875/mo PITI to live in a house that would rent for $6,500-8500 or sell for $1.1 million. I might be able to afford that, but it's a vast difference to what I'm paying now. Yes, the housing market will go down eventually, but even if that happened tomorrow, I'd have already saved tens of thousands of dollars or more just in the last couple of years.

On the flip side, MCOL housing markets where most inventory is new tend to be the most volatile pricewise.
muffins14
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Location: New York

Re: Can I afford this house?

Post by muffins14 »

bonesly wrote: Mon Dec 18, 2023 8:31 pm
DLAKE wrote: Mon Dec 18, 2023 4:54 pm Could I afford these houses at 100K [annual income]?
You already have an idea of the cost of the house over your $2K/mo rent. Hopefully you have a household budget with expected income and expenses and net income. If you can adjust your expenses (if net income is low it's probably allocated to savings?) to still have enough of a comfortable cushion for net income, you can afford the house. If it's too tight, you probably can't afford the house. If you list your monthly expenses (including a monthly allotment for once a year or once a quarter bills), someone can do the math for you; but it's simple addition and subtraction so you can do it too.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm The local county website estimates that my property tax would be $5,385 based on the home value of $445,900. With interest rates, I'd likely be closer to $2,800 or $2,900/mo.
So let's say $1,000/mo more than what you're currently paying.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm $2,600 - $3,000 and it just feels like "a lot"
Does it "feel" like a lot or is it actually resulting in a negative net monthly income? Make an unemotional decision based on simple math.

You can likely make a chart similar to this one (made for another poster with a different rent and PITI, but the idea is the same). Owning almost always beats renting because if you own on a 30y fixed mortgage the principal and interest payments are flat, while rent is likely to keep increasing exponentially year after year based on the rate of inflation. The only time renting would be a better choice is if you expect to be moving to different regions of the country every 3-5 years for work; if you're in the same area for 30 years, owning is a clear winner over renting.

Image
I strongly disagree that renting is always worse than buying.

In several markets, the high cost of a down payment means you have a big opportunity cost compared to keeping your money invested in the stock market. It may be the case that even after 30 years, renting and paying increasing rents is better than buying
Crom laughs at your Four Winds
jungle1074
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Re: Can I afford this house?

Post by jungle1074 »

DLAKE wrote: Tue Jan 30, 2024 1:17 pm I did a rough estimate of my expenses and what I could find (some rounded numbers):

2023 CC statement = $41,000

Retirement total = $58,500 (about 30% of gross income)

Taxes last year from last pay stub = 58,995.51

Rent: $1,995 ($23,940/year)

Total$ $182,435

Can someone help me visualize -- If I were to increase my monthly payment from $1,995 renting to $2,700 owning, what impact would that have on my savings rate? Additionally, if were to change jobs, or lose my job, what minimum income would be needed to be able to comfortably save for retirement and expenses while maintaining the $2,700 mortgage without feeling stretched or "house poor"?
I think you can afford either house and there are intangible benefits to being a homeowner beyond just the math.

Let's assume that in addition to the $2,700 mortgage you would have an additional $300/month increase over renting for furnishing the house, higher utilities, etc. So, cash flow would be another $1,000/month or $12,000 per year. You could fund that by reducing your retirement savings to $46,500 (still would be almost 25% of income which is really great). Or, since you aren't really tracking other spend today, you could probably find some things to cut in that $41K or CC expenses. Probably would be a little of both in reality. Plus you are going to be paying down $200-$300/month on the mortgage balance which is liked forced savings.

For the second question, my (very) rough math below would show that you could afford this house and about a 15% retirement savings rate if you made $150K gross per year. I don't think you can afford this house on a $100K salary long term - but if you had a bad year you could just pause retirement savings for that year and I think you would be fine.

150,000 gross income
50,500 taxes
22,500 retirement savings (15%)
41,000 current cc spending
24,000 current rent
12,000 extra for mortgage + other housing increases

Good luck with the decision!
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cchrissyy
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Location: SF bay area

Re: Can I afford this house?

Post by cchrissyy »

What I'm hearing is you haven't bought a house before, you have these new kids, and you're saying you might live in this house for the next 10 years.
So basically you only need a house because the kids need the space and stability?
If that's right, then I think that should be reassuring because it means eventually, you'll sell and downsize your housing.
so really what you have here is sort of a consumption decision to increase your monthly housing expense, and perhaps that means contributing less toward retirement savings for a few years but you're not really inflating your lifestyle in a permanent sense. It's more of a temporary need.
Yes kids are expensive so you have more of a housing need right now just like you probably have larger grocery bills than you are used to. But you know why and you know it will end. So I would find that reassuring. And I think given how much you have for the down payment and given your salary, either of these houses is ok. Buy the one that suits you best.
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Oddball
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Re: Can I afford this house?

Post by Oddball »

muffins14 wrote: Tue Jan 30, 2024 3:23 pm
bonesly wrote: Mon Dec 18, 2023 8:31 pm
DLAKE wrote: Mon Dec 18, 2023 4:54 pm Could I afford these houses at 100K [annual income]?
You already have an idea of the cost of the house over your $2K/mo rent. Hopefully you have a household budget with expected income and expenses and net income. If you can adjust your expenses (if net income is low it's probably allocated to savings?) to still have enough of a comfortable cushion for net income, you can afford the house. If it's too tight, you probably can't afford the house. If you list your monthly expenses (including a monthly allotment for once a year or once a quarter bills), someone can do the math for you; but it's simple addition and subtraction so you can do it too.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm The local county website estimates that my property tax would be $5,385 based on the home value of $445,900. With interest rates, I'd likely be closer to $2,800 or $2,900/mo.
So let's say $1,000/mo more than what you're currently paying.
DLAKE wrote: Mon Dec 18, 2023 4:54 pm $2,600 - $3,000 and it just feels like "a lot"
Does it "feel" like a lot or is it actually resulting in a negative net monthly income? Make an unemotional decision based on simple math.

You can likely make a chart similar to this one (made for another poster with a different rent and PITI, but the idea is the same). Owning almost always beats renting because if you own on a 30y fixed mortgage the principal and interest payments are flat, while rent is likely to keep increasing exponentially year after year based on the rate of inflation. The only time renting would be a better choice is if you expect to be moving to different regions of the country every 3-5 years for work; if you're in the same area for 30 years, owning is a clear winner over renting.

Image
I strongly disagree that renting is always worse than buying.

In several markets, the high cost of a down payment means you have a big opportunity cost compared to keeping your money invested in the stock market. It may be the case that even after 30 years, renting and paying increasing rents is better than buying
Well, putting 20% down does mean the mortgage is leveraged 5x. So if the house appreciates at say 2% a year, that is 10% increase in the down payment funds. And after 30 years, your house costs would drop to just taxes and insurance.

Over the long term (10+ year) buying is almost always better. After 30 years, it would be very unlikely the renter comes out ahead.
Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

KlangFool wrote: Tue Jan 30, 2024 3:07 pm
DLAKE wrote: Tue Jan 30, 2024 2:58 pm
I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
DLAKE,

How much the house price has to drop before the mortgage payment is $1,600 per month or lower?

That is the calculation that you have to make. Then, when the house is cheap enough, you buy.

The market rent for the same house was $2,300 per month. The PITI was less than $1,800 per month. Hence, I bought the house in less than 24 hours.

KlangFool
The house would have to drop to 250k to have a $1,600 PITI with 20% down on a 30yr mortgage. Over 40% of it's value. Why $1,600? Does this number ever change with the cost of living and wages increasing?
Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

KlangFool wrote: Tue Jan 30, 2024 2:29 pm
DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Yes, MCOL. Most of the houses near me are new builds. The house I'm looking at is $425k for 1,665 Finished Square Feet and 1,435 Unfinished Square Feet.
Topic Author
DLAKE
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Re: Can I afford this house?

Post by DLAKE »

LittleMaggieMae wrote: Tue Jan 30, 2024 2:54 pm Yes, you can afford the house.

But what does that really mean - affording a house? Just the Mortgage (PI) and Property Tax (T) and Insurance (I)?

Seriously, you need to run the numbers and then look forward 5 years.
Beyond the mortgage:
Estimate the utilities (gas, electric, water, sewerage, trash removal (along with any tags or special containers you will need to buy).
Estimate the cost of your commute (increase gas consumption? more fast food? something else?)
Estimate the cost of furnishings. Pay attention to window treatments.

If you've never owned a home with a yard (and there is no HOA to take care of these things):
a lawn mower (or pay for a landscape service)
Snow shovel (or snow blower if you have to do your drive way and sidewalks)
you may want some tools and extension cords too.

You may want to buy patio furniture or a grill.

I'd also start thinking about how much of a loan payment you can handle if you don't pay cash for a vehicle (sometimes it doesn't make sense to pay cash if interest rates are low and if you'd loose too much liquidity paying cash.) Add that car payment into your current "bills" and start saving for the next vehicle (it's probably 24 to 36 months away).

Think about the future 1 to 5 years from now - what expenses are coming up for you and your kids? How will you pay for them if you are living more or less "pay check to pay check" even if you are saving for retirement, etc....

You can afford a house if you can also afford all the other things you want to accomplish with your money the day you buy the house AND the guestimates for 5 years later.... :)
Thank you. Yes, I've thought about some of those things. Very important. I rent a house today that is a little bit smaller, but not much and has pretty significant window and draft issues (extra heating in winter) so I think the utilities would be similar.

The cost of gas/commuting would be the same as this is just on the other side of a small town. Windows would be brand new, but I'd need to likely buy blinds, etc. The basement is unfinished, so that is something I'd want to finish, along with some new furniture.

Because I rent a home, and I'm responsible for all the snow removal and lawn care, I've got those expenses taken care of with my own equipment I own, however, it's a new build so I'd want to invest in finishing the basement, maybe a new deck one day, etc.

You make great points about living paycheck to paycheck even with investing, upcoming car purchase, etc. and that is what concerns me as I don't want be in a position where it's paycheck to paycheck and/or not able to do meaningful retirement savings.

Thanks for your thoughts -- certainly gives me somethings to think about
Topic Author
DLAKE
Posts: 63
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Re: Can I afford this house?

Post by DLAKE »

Nottingham wrote: Tue Jan 30, 2024 3:00 pm
DLAKE wrote: Tue Jan 30, 2024 2:56 pm
Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.

Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.

I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
That $700 or so is just the beginning. Chances are your place will be bigger so more utilities cost, then you might have OCD about home improvements which will add additional expenses and so on. But then interest is deductible, property might continue appreciation etc.

Most likely if you stay long term you will come out ahead but don't expect any cash flow improvements in the short term.
Yes, it would be a little bit bigger but probably not as drafty of windows/doors :wink: Yes -- there is an unfinished basement that I'd like to get done asap. The costs add up quick, and that's why I'm considering all options (purchase the house, continue renting (for how long?), move, etc.)
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

jungle1074 wrote: Tue Jan 30, 2024 3:31 pm
DLAKE wrote: Tue Jan 30, 2024 1:17 pm I did a rough estimate of my expenses and what I could find (some rounded numbers):

2023 CC statement = $41,000

Retirement total = $58,500 (about 30% of gross income)

Taxes last year from last pay stub = 58,995.51

Rent: $1,995 ($23,940/year)

Total$ $182,435

Can someone help me visualize -- If I were to increase my monthly payment from $1,995 renting to $2,700 owning, what impact would that have on my savings rate? Additionally, if were to change jobs, or lose my job, what minimum income would be needed to be able to comfortably save for retirement and expenses while maintaining the $2,700 mortgage without feeling stretched or "house poor"?
I think you can afford either house and there are intangible benefits to being a homeowner beyond just the math.

Let's assume that in addition to the $2,700 mortgage you would have an additional $300/month increase over renting for furnishing the house, higher utilities, etc. So, cash flow would be another $1,000/month or $12,000 per year. You could fund that by reducing your retirement savings to $46,500 (still would be almost 25% of income which is really great). Or, since you aren't really tracking other spend today, you could probably find some things to cut in that $41K or CC expenses. Probably would be a little of both in reality. Plus you are going to be paying down $200-$300/month on the mortgage balance which is liked forced savings.

For the second question, my (very) rough math below would show that you could afford this house and about a 15% retirement savings rate if you made $150K gross per year. I don't think you can afford this house on a $100K salary long term - but if you had a bad year you could just pause retirement savings for that year and I think you would be fine.

150,000 gross income
50,500 taxes
22,500 retirement savings (15%)
41,000 current cc spending
24,000 current rent
12,000 extra for mortgage + other housing increases

Good luck with the decision!
Thank you for laying it out this way and helping me visualize my scenario. I've been with the same company 10 years so I don't know what is there in the job market should I lose my job, etc. and perhaps that is part of the concern -- not knowing if I could find another similar paying job.
Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

cchrissyy wrote: Tue Jan 30, 2024 3:41 pm What I'm hearing is you haven't bought a house before, you have these new kids, and you're saying you might live in this house for the next 10 years.
So basically you only need a house because the kids need the space and stability?
If that's right, then I think that should be reassuring because it means eventually, you'll sell and downsize your housing.
so really what you have here is sort of a consumption decision to increase your monthly housing expense, and perhaps that means contributing less toward retirement savings for a few years but you're not really inflating your lifestyle in a permanent sense. It's more of a temporary need.
Yes kids are expensive so you have more of a housing need right now just like you probably have larger grocery bills than you are used to. But you know why and you know it will end. So I would find that reassuring. And I think given how much you have for the down payment and given your salary, either of these houses is ok. Buy the one that suits you best.
Yes precisely, however, the house we are renting now 'works' for our needs. It's not a house I'd buy, but it's making do. I'd like to purchase a house for primarily the comfort of owning it, yes it'll be a little bigger and "nicer" and I can invest in my own house for upgrades, etc. which I'm not willing to do for a rental. Additionally, the monthly payments would start going towards equity vs someone else' mortgage. Yes, I could definitely look at it as temporary, but I do enjoy the area I live and it's a 3bd/2bath rambler (when the basement is finished, it could go to 4bd or 5bd and 3bath) but you are right, I could always downsize. Thanks for your advice!
KlangFool
Posts: 31226
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this house?

Post by KlangFool »

DLAKE wrote: Tue Jan 30, 2024 5:05 pm
KlangFool wrote: Tue Jan 30, 2024 3:07 pm
DLAKE wrote: Tue Jan 30, 2024 2:58 pm
I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
DLAKE,

How much the house price has to drop before the mortgage payment is $1,600 per month or lower?

That is the calculation that you have to make. Then, when the house is cheap enough, you buy.

The market rent for the same house was $2,300 per month. The PITI was less than $1,800 per month. Hence, I bought the house in less than 24 hours.

KlangFool
The house would have to drop to 250k to have a $1,600 PITI with 20% down on a 30yr mortgage. Over 40% of it's value. Why $1,600? Does this number ever change with the cost of living and wages increasing?
DLAKE,

$1,600 per month is 20% cheaper than your current $2,000 per month rent.

It is strictly based on market rent.

"Does this number ever change with the cost of living and wages increasing?"

No. It is based on market rent. And, that has nothing to do with cost of living and

"The house would have to drop to 250k to have a $1,600 PITI with 20% down on a 30yr mortgage. Over 40% of it's value."

A) Over 40% of it's price. There is no intrinsic value of the house. You can find plenty of abandoned houses in places like Detroit.

B) Why should the house priced the same at 2+% interest rate versus 6+% interest rate?

KlangFool
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Topic Author
DLAKE
Posts: 63
Joined: Mon May 10, 2021 1:48 pm

Re: Can I afford this house?

Post by DLAKE »

Oddball wrote: Tue Jan 30, 2024 4:11 pm
Well, putting 20% down does mean the mortgage is leveraged 5x. So if the house appreciates at say 2% a year, that is 10% increase in the down payment funds. And after 30 years, your house costs would drop to just taxes and insurance.

Over the long term (10+ year) buying is almost always better. After 30 years, it would be very unlikely the renter comes out ahead.
Yes, I agree almost always the buyer comes out better at the end. I'm more concerned about the cash flow and as a single earner, if I were to ever lose my income, can I find a similar income elsewhere. $2,700 PITI mortgage 'feels' like a lot to commit to and I don't want to live paycheck to paycheck and/or not be able to save for retirement. I'm also concerned about just 'throwing away' $1,995/month in rent. I know it's all not rational lol
Nottingham
Posts: 280
Joined: Thu Sep 28, 2023 12:41 pm

Re: Can I afford this house?

Post by Nottingham »

DLAKE wrote: Tue Jan 30, 2024 5:19 pm
Nottingham wrote: Tue Jan 30, 2024 3:00 pm
DLAKE wrote: Tue Jan 30, 2024 2:56 pm
Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.

Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.

I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
That $700 or so is just the beginning. Chances are your place will be bigger so more utilities cost, then you might have OCD about home improvements which will add additional expenses and so on. But then interest is deductible, property might continue appreciation etc.

Most likely if you stay long term you will come out ahead but don't expect any cash flow improvements in the short term.
Yes, it would be a little bit bigger but probably not as drafty of windows/doors :wink: Yes -- there is an unfinished basement that I'd like to get done asap. The costs add up quick, and that's why I'm considering all options (purchase the house, continue renting (for how long?), move, etc.)
I'm finishing my basement now and after hearing a few quotes I'm doing it on my own. :mrgreen: 20 days 3 hours per day and counting. 8 hours per day in tech, 3 hours per day as a contractor. :mrgreen: I make the same amount finishing my basement as I do in tech (MHCOL). I like working with my hands and I have most of the tools so it's just a nice bonus for me. But be ready for quotes in the ballpark of $50 000 to finish the basement depending on its size/finish and your location.

Most likely it's cheaper in the long run to buy a house with finished basement unless you DIY/or a flipper. Current contractor labor rates are insane.
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Watty
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Re: Can I afford this house?

Post by Watty »

DLAKE wrote: Tue Jan 30, 2024 2:23 pm I would be interested to hear the "why" behind your philosophy. I understand it's likely a mathematical numbers perspective, but isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else?
If I remember correctly KlangFool has posted about being a well paid tech worker who has been laid off multiple times and sometimes it took over a year to find another a similar job.

This causes a very risk averse point of view especially when it comes to housing.

That is perfectly valid point of view and perspective to share even if is just to be a devil's advocate to make you reconsider your choice.

In "can I buy this house?" threads KlangFool rarely says "yes" so you have lots of company.
DLAKE wrote: Tue Jan 30, 2024 1:17 pm 401k: $22,500/year
Mega backdoor Roth 401k: $10,000/year
Roth IRA: 7,000/year
ESPP: $19,000/year

Retirement total = $58,500 (about 30% of gross income)

Can someone help me visualize -- If I were to increase my monthly payment from $1,995 renting to $2,700 owning, what impact would that have on my savings rate?
You are saving an extreme amount of your income now which is good since a lot of it is commission but if you might need to reduce your savings to be more like 15% of your gross which is still very good especially if you also get a 401k match.

One nice thing about a fixed mortgage rate is that your housing payments will stay fairly constant. With rent even modest rent increases the difference between renting will become less over the years. For example if your $1,995 goes up 3% a year for 5 years it would be over $2,300.

Be careful about looking at just one years owning vs renting costs, consider the relative costs over 5 or 10+ years.
DLAKE wrote: Tue Jan 30, 2024 1:17 pm almost 11 and 8.5
......
Additionally, if were to change jobs, or lose my job, what minimum income would be needed to be able to comfortably save for retirement and expenses while maintaining the $2,700 mortgage without feeling stretched or "house poor"?
You only have 9 or 10 years until the 8.5 year old will be through high school and you will only be about 42 years old then. If it makes sense you can sell the house then and ramp up your retirement saving again if you cut back on your retirement savings for a while.

There are lots of scenarios where you might have to dip into your savings or even the Roth accounts but you mainly need to muddle through the until the youngest graduates from high school.

Reading way way way in between the lines I would suspect that these kids could use some stability since they ended up with you. (no need to go into details) If at all possible it might make sense to buy a house just so that they could live in through high school without needing to worry if they will need to move to a different rental and change school and leave their friends.

Not all decisions are financial decisions.

The lower end of your price range would likely be fine if the schools are good since it would be more about having a place to call "home" than a the actual house itself.
thedaybeforetoday
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Re: Can I afford this house?

Post by thedaybeforetoday »

KlangFool wrote: Tue Jan 30, 2024 2:29 pm
DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
stoptothink
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Re: Can I afford this house?

Post by stoptothink »

Nottingham wrote: Tue Jan 30, 2024 7:35 pm
DLAKE wrote: Tue Jan 30, 2024 5:19 pm
Nottingham wrote: Tue Jan 30, 2024 3:00 pm
DLAKE wrote: Tue Jan 30, 2024 2:56 pm
Nottingham wrote: Tue Jan 30, 2024 2:37 pm Renting is much easier than buying (outside of when you get evicted by a landlord who decides to sell of course) so I wouldn't expect no impact at all.

Agreed, and I understand there would be some impact. Just trying to see how much with my current income, and if I were to lose/change jobs, what my income minimum would need to be to sustain my lifestyle while maintaining a decent retirement saving percentage
Nottingham wrote: Tue Jan 30, 2024 2:37 pm
Klangfool has his own philosophy. He kept stating that I can never come out ahead by buying a house vs investing in 401k and ghosted me when I mentioned that my mortgage is $1000 lower than rent. :mrgreen: Take his advice with a grain of salt.

I wish the mortgage I'm considering was $1,000 less than what I'm paying in rent or if the interest rate was 2.49, etc. :happy The challenge is it's increasing by $700/mo or so.
That $700 or so is just the beginning. Chances are your place will be bigger so more utilities cost, then you might have OCD about home improvements which will add additional expenses and so on. But then interest is deductible, property might continue appreciation etc.

Most likely if you stay long term you will come out ahead but don't expect any cash flow improvements in the short term.
Yes, it would be a little bit bigger but probably not as drafty of windows/doors :wink: Yes -- there is an unfinished basement that I'd like to get done asap. The costs add up quick, and that's why I'm considering all options (purchase the house, continue renting (for how long?), move, etc.)
I'm finishing my basement now and after hearing a few quotes I'm doing it on my own. :mrgreen: 20 days 3 hours per day and counting. 8 hours per day in tech, 3 hours per day as a contractor. :mrgreen: I make the same amount finishing my basement as I do in tech (MHCOL). I like working with my hands and I have most of the tools so it's just a nice bonus for me. But be ready for quotes in the ballpark of $50 000 to finish the basement depending on its size/finish and your location.

Most likely it's cheaper in the long run to buy a house with finished basement unless you DIY/or a flipper. Current contractor labor rates are insane.
$50,000 :confused My best friend finished their basement (~1200sq. ft, added 2 bedrooms, a bathroom, vinyl flooring, bargain basement finishes) this last year and it was $70k+. It's insane right now trying to find a contractor. We're also in a MCOL area (Salt Lake City, Utah suburbs), but the $425k house OP is looking at it is easily $650k+ here.

We're going to be buying a home in the next year, probably similar size as home OP is looking at (and with a basement that we'd want to finish almost immediately, we'll have 3 kids and my in-laws living with us). We're in a much better financial position, but it's still insane. I'm projecting closer to $100k for the basement.
KlangFool
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Re: Can I afford this house?

Post by KlangFool »

thedaybeforetoday wrote: Wed Jan 31, 2024 4:56 am
KlangFool wrote: Tue Jan 30, 2024 2:29 pm
DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
thedaybeforetoday
Posts: 818
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Re: Can I afford this house?

Post by thedaybeforetoday »

KlangFool wrote: Wed Jan 31, 2024 6:55 am
thedaybeforetoday wrote: Wed Jan 31, 2024 4:56 am
KlangFool wrote: Tue Jan 30, 2024 2:29 pm
DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
Then I'm confused as to why you would bring it up. But I'm confused by many statements on this board, so I'll just let it go.
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
KlangFool
Posts: 31226
Joined: Sat Oct 11, 2008 12:35 pm

Re: Can I afford this house?

Post by KlangFool »

thedaybeforetoday wrote: Wed Jan 31, 2024 9:07 am
KlangFool wrote: Wed Jan 31, 2024 6:55 am
thedaybeforetoday wrote: Wed Jan 31, 2024 4:56 am
KlangFool wrote: Tue Jan 30, 2024 2:29 pm
DLAKE wrote: Tue Jan 30, 2024 2:23 pm isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? Won't rent continue to increase to keep up with inflation, etc.? I also understand the cost of home ownership and repairs can be a lot too.

It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL
"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
Then I'm confused as to why you would bring it up. But I'm confused by many statements on this board, so I'll just let it go.
As per my model, it is not worthwhile for OP to buy at this moment.

KlangFool
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Nottingham
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Re: Can I afford this house?

Post by Nottingham »

stoptothink wrote: Wed Jan 31, 2024 6:37 am
Nottingham wrote: Tue Jan 30, 2024 7:35 pm
DLAKE wrote: Tue Jan 30, 2024 5:19 pm
Nottingham wrote: Tue Jan 30, 2024 3:00 pm
DLAKE wrote: Tue Jan 30, 2024 2:56 pm

That $700 or so is just the beginning. Chances are your place will be bigger so more utilities cost, then you might have OCD about home improvements which will add additional expenses and so on. But then interest is deductible, property might continue appreciation etc.

Most likely if you stay long term you will come out ahead but don't expect any cash flow improvements in the short term.
Yes, it would be a little bit bigger but probably not as drafty of windows/doors :wink: Yes -- there is an unfinished basement that I'd like to get done asap. The costs add up quick, and that's why I'm considering all options (purchase the house, continue renting (for how long?), move, etc.)
I'm finishing my basement now and after hearing a few quotes I'm doing it on my own. :mrgreen: 20 days 3 hours per day and counting. 8 hours per day in tech, 3 hours per day as a contractor. :mrgreen: I make the same amount finishing my basement as I do in tech (MHCOL). I like working with my hands and I have most of the tools so it's just a nice bonus for me. But be ready for quotes in the ballpark of $50 000 to finish the basement depending on its size/finish and your location.

Most likely it's cheaper in the long run to buy a house with finished basement unless you DIY/or a flipper. Current contractor labor rates are insane.
$50,000 :confused My best friend finished their basement (~1200sq. ft, added 2 bedrooms, a bathroom, vinyl flooring, bargain basement finishes) this last year and it was $70k+. It's insane right now trying to find a contractor. We're also in a MCOL area (Salt Lake City, Utah suburbs), but the $425k house OP is looking at it is easily $650k+ here.

We're going to be buying a home in the next year, probably similar size as home OP is looking at (and with a basement that we'd want to finish almost immediately, we'll have 3 kids and my in-laws living with us). We're in a much better financial position, but it's still insane. I'm projecting closer to $100k for the basement.
As long as in-laws can stay in the basement when it's finished it's money well spent. :mrgreen:
thedaybeforetoday
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Re: Can I afford this house?

Post by thedaybeforetoday »

KlangFool wrote: Wed Jan 31, 2024 9:09 am
thedaybeforetoday wrote: Wed Jan 31, 2024 9:07 am
KlangFool wrote: Wed Jan 31, 2024 6:55 am
thedaybeforetoday wrote: Wed Jan 31, 2024 4:56 am
KlangFool wrote: Tue Jan 30, 2024 2:29 pm

"isn't there a benefit to paying a portion of monthly payment towards principle instead of 100% of rent being to someone else? "

No. It is risky to buy and own a house. I want to be compensated for the risk of house ownership.

"Won't rent continue to increase to keep up with inflation, etc.? "

Not necessary true. In my neighborhood, the housing price reached a peak at 2004/2005. It didn't recover to that level until 2019.

Housing is local.

"It seems that finding a mortgage for less than $1,600/mo with 20% down would be very challenging, and almost impossible where I live in this MCOL"

A) Is it really a MCOL area? What do you get for a 400K house? How many square feet?

B) If the house's price drop enough in the coming recession, it will be possible.

KlangFool
Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
Then I'm confused as to why you would bring it up. But I'm confused by many statements on this board, so I'll just let it go.
As per my model, it is not worthwhile for OP to buy at this moment.

KlangFool
Oh I think I understand, you are thinking wait until the recession knocks down housing prices relative to rents, then buy?
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
KlangFool
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Re: Can I afford this house?

Post by KlangFool »

thedaybeforetoday wrote: Wed Jan 31, 2024 9:25 am
KlangFool wrote: Wed Jan 31, 2024 9:09 am
thedaybeforetoday wrote: Wed Jan 31, 2024 9:07 am
KlangFool wrote: Wed Jan 31, 2024 6:55 am
thedaybeforetoday wrote: Wed Jan 31, 2024 4:56 am

Klang:
Given you are predicting a "coming recession" and that this will impact OP's decision, can you kindly inform us when the recession will arrive?
The timing of the "coming recession" will definitely impact the OP's decision.
Thanks
The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
Then I'm confused as to why you would bring it up. But I'm confused by many statements on this board, so I'll just let it go.
As per my model, it is not worthwhile for OP to buy at this moment.

KlangFool
Oh I think I understand, you are thinking wait until the recession knocks down housing prices relative to rents, then buy?
Correct! Until then, continue to rent.

KlangFool
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thedaybeforetoday
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Re: Can I afford this house?

Post by thedaybeforetoday »

KlangFool wrote: Wed Jan 31, 2024 9:59 am
thedaybeforetoday wrote: Wed Jan 31, 2024 9:25 am
KlangFool wrote: Wed Jan 31, 2024 9:09 am
thedaybeforetoday wrote: Wed Jan 31, 2024 9:07 am
KlangFool wrote: Wed Jan 31, 2024 6:55 am

The timing of the recession will not affect anyone's decision in this model. If it is not significantly cheaper to buy, don't buy. Continue to rent. It is not based on prediction.

KlangFool
Then I'm confused as to why you would bring it up. But I'm confused by many statements on this board, so I'll just let it go.
As per my model, it is not worthwhile for OP to buy at this moment.

KlangFool
Oh I think I understand, you are thinking wait until the recession knocks down housing prices relative to rents, then buy?
Correct! Until then, continue to rent.

KlangFool
Count me as unconfused!
"When I was a kid my parents moved a lot, but I always found them." R. Dangerfield
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Johnnie
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Location: Michigan

Re: Can I afford this house?

Post by Johnnie »

Question for KlangFool:

Context: I have two relatives who recently sold the big waterfront house they shared, for an amount that allows them to each buy their own nice non-waterfront with cash. They want to remain in the same area, but prices have risen very high there.

One has already bought an expensive house, the other got a good deal on a rental, but isn't sure if she should keep it instead of buying something now.

You appear to be stating a general formula:

"If it's cheaper to rent than buy, then you should rent until a recession makes it cheaper to buy."

Other things being equal, is that correct? You seem to be saying that when (not if) a recession strikes, home prices will (generally) fall to where it's cheaper to buy than rent, or at least is about the same.

I may have overstated that, and of course it's just a generalization. But if it approximately applies that would be useful.


Thanks
"I know nothing."
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