Can I afford a $1,400,000 house

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anon1212
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Can I afford a $1,400,000 house

Post by anon1212 » Mon Nov 27, 2017 7:36 pm

Looking to possibly buy a 1.4 million dollar house.
We are both in our late 20s, no kids yet but will probably have them in the next 2-3 years. My spouse has a signed contract to make a base of $320k starting August 2018, expects productivity bonus of about $50k/year. Her salary will likely increase to $400k/yr in 2 years. I expect my salary to remain steady.

Income
My current income - $330,000
Spouses current income (will increase in 8 months)- $56,000

Savings
- Cash - $95k
- 403b/401k/Roth IRA - $75k

Debts
- Student loans - $315k
- Mortgage - $175k
- Car loan - $25k

Monthly expenses (including student loan/car/mortgage/daily expenses/savings for preventative maintenance/vacation/gifts/etc) - $10k

Monthly take home home - $22K
My company funds my 401k with $27k/yr

Estimated new mortgage payment (P&I + taxes + insurance) - $9k
Would rent out current home for about $1700/month
Would put $200k down (from a gift) on the mortgage. No PMI on the mortgage, rate of 4.1%.

I would ideally buy a house in about 2 years after I have more in savings but this is a very unique opportunity on a very unique property. I imagine if I pass up this opportunity I would probably be looking at spending a similar amount on a house in 2-3 years anyway. It makes our budget very tight for the next 8 months.

Goal33
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Re: Can I afford a $1,400,000 house

Post by Goal33 » Mon Nov 27, 2017 7:48 pm

yes you can
A man with one watch always knows what time it is; a man with two watches is never sure.

LarryAllen
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Re: Can I afford a $1,400,000 house

Post by LarryAllen » Mon Nov 27, 2017 7:56 pm

I am confused on income. What do you each make now including bonuses?

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Toons
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Re: Can I afford a $1,400,000 house

Post by Toons » Mon Nov 27, 2017 8:02 pm

Savings
- Cash - $95k

Pay off the car and throw some at the mortgage while you are thinking about the house.
Given your income you should handily fill up the savings account in no time. :happy
Matter of fact I would pay off the student loan before considering a 1,400,000 shelter.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

mega317
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Re: Can I afford a $1,400,000 house

Post by mega317 » Mon Nov 27, 2017 8:03 pm

I think you can, but

1. Be careful with the attitude that it's a unique opportunity. There are tons of houses and if the time or price isn't great, another one will come up.

2. 95k is really not a lot to do all of the things you might want to do for a new house, plus maintain an emergency fund. That can't even be 6 months expenses with the new mortgage, is it?

3. Are you sure the 200k is a gift? No strings at all?

4. I personally would wait until the loans are paid off and the family situation is a little more known. What if you can't have kids, will this be too much house?

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climber2020
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Re: Can I afford a $1,400,000 house

Post by climber2020 » Mon Nov 27, 2017 8:14 pm

What happens if the spouse's job doesn't work out and you have to move?

anon1212
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Re: Can I afford a $1,400,000 house

Post by anon1212 » Mon Nov 27, 2017 8:20 pm

LarryAllen wrote:
Mon Nov 27, 2017 7:56 pm
I am confused on income. What do you each make now including bonuses?
Right now $330k + $56K.
In 8 months spuose's income goes to 320k + bonus

veindoc
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Re: Can I afford a $1,400,000 house

Post by veindoc » Mon Nov 27, 2017 8:21 pm

How are you avoiding PMI with <20% downpayment?
Why would you rent your current home? Will th rent be enough to cover all your expenses?
Can you handle a water heater emergency at old house and a new roof in th new house? What about a vacancy?

Are you prequalified for a mortgage? I don’t see how? A 1.2 million dollar mortgage on a combined salary of $380000? Your wife is not going to make money for a good nine months. Are you sure you want to take this on with $315,000 in student loan debt?!!
What if you have a special needs child and one of you doesn’t want to work? What if she hates the the new job? I wouldn’t count on your wife’s income until she starts generating it.

We looked at homes for three years. I saw many beautiful unique properties come and go. My overly cautious husband just could not pull the trigger. My heart was broken multiple times over. He finally felt “ready” to commit and we found this home that we love. Homes come and go. This may seem like the one and only but it’s not. I would wait and stop looking while I waited to get my financial house in order.

anon1212
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Re: Can I afford a $1,400,000 house

Post by anon1212 » Mon Nov 27, 2017 8:22 pm

climber2020 wrote:
Mon Nov 27, 2017 8:14 pm
What happens if the spouse's job doesn't work out and you have to move?
We can afford the house on one income (barely). If for some reason one of us can't work and we have only one income we might be forced to sell and move

sambb
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Re: Can I afford a $1,400,000 house

Post by sambb » Mon Nov 27, 2017 8:29 pm

yes if she continues working, you can afford it. I would consider that the expenses of maintaining and taxes will cause decrease in savings, and i would focus on homes for 1M, build nest egg first. Move to 2M home in 10 years.

Gill
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Re: Can I afford a $1,400,000 house

Post by Gill » Mon Nov 27, 2017 8:35 pm

You have a deficit net worth. Notwithstanding your high income, you have a ways to go before you should consider a house in this price range.
Gill

Ready3Retire
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Re: Can I afford a $1,400,000 house

Post by Ready3Retire » Mon Nov 27, 2017 8:45 pm

Assets: $95K + $75K = $170K
Liabilities: $315K + $175K+ $25K = $515K

You are under water. Get your head above water, then think about a more expensive house.

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badbreath
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Re: Can I afford a $1,400,000 house

Post by badbreath » Mon Nov 27, 2017 8:47 pm

I'm sorry this is killing me with your income.
Debts
- Student loans - $315k
- Car loan - $25k
Pay this down then look for a house.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

staythecourse
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Re: Can I afford a $1,400,000 house

Post by staythecourse » Mon Nov 27, 2017 8:54 pm

Yes you can afford it, but I wouldn't do it. My wife and I made A LOT more then you guys will when we first got married (obviously no kids) and lived in a 700k townhome for 6 years. Had two kids, made and saved A LOT of money, sold the townhome for a 100k profit and then built a house slightly more expensive then the one you are looking at.

The advantages: 1. Put up a HUGE headstart on liquid net worth by saving and investing instead of paying high mortage+ property taxes+ raising kids. To the point ER at mid 40's is a a given if I choose.
2. Allowed us to mature into house owners first starting with a HOA for most stuff to be done.
3. Allowed us to make sure we liked the city and be secure in our jobs so risk of leaving/ losing jobs was minimal
4. Allowed us to find the area we liked to live in.
5. Needs change in housing based on your future family unit, i.e. no kids, one kid, 3 kids, 2 kids both same sex, 2 kids different sexes etc..
6. You will have more time to investigate school situations once you have school age children, i.e. private vs. public

Here is a very likely possibility if you go through with this purchase: You easily can afford the house, you have a couple of kids in the next couple of years, in 4-8 years when those kids are ready for school you find out you want to go to a private school across town, you want to sell your house at the same time the real estate market tanks making selling your house not reasonable and you get stuck sending your kids to a closer school you don't want just because you made a decision 8 years prior that you didn't need to do. Sounds funny but know SEVERAL folks that exact situation happened and I even warned them the same back then. The negative of being two highly paid workers is that your employer only makes money off you if you work and you will find the logistics of raising kids quite a challenge. Where you live will ultimately make your life easy or hard.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

TheAncientOne
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Re: Can I afford a $1,400,000 house

Post by TheAncientOne » Mon Nov 27, 2017 9:01 pm

What interest rate are you paying on what appear to be medical school loans? Have you looked at refinancing them at lower rates if you haven't already? Unless this is absolutely, positively a unique home opportunity, I'd defer buying for a couple of years until the two of you burn down those loans. But if you want to know if you can purchase that $1.4 MM house, the answer is yes.

AlohaJoe
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Re: Can I afford a $1,400,000 house

Post by AlohaJoe » Mon Nov 27, 2017 9:06 pm

anon1212 wrote:
Mon Nov 27, 2017 7:36 pm
no kids yet but will probably have them in the next 2-3 years.
If I understand it correctly the timeline looks something like:

Currently: wife makes $50,000
In 1 year: wife will start making $320,000
In 2 years: your wife will stop working when you start having kids

Regardless of what you and your wife currently think about her continuing to work after having kids...in my experience a lot of people rethink that once they actually have kids.

It seems like the best case scenario -- your wife goes back to work, say, 6 months after giving birth, is that you have nearly 2 years of being house poor and having "mortgage stress". That's a long time to live with stress, in my experience.

But it ultimately comes down to you. People take all kinds of risks in life. Often they work out. Honestly, there's probably like an 80% chance everything works out totally fine.

I would also second the other poster about how housing "opportunities" are almost never that uncommon.

ThePrince
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Re: Can I afford a $1,400,000 house

Post by ThePrince » Mon Nov 27, 2017 9:09 pm

anon1212 wrote:
Mon Nov 27, 2017 7:36 pm
Looking to possibly buy a 1.4 million dollar house.
We are both in our late 20s, no kids yet but will probably have them in the next 2-3 years. My spouse has a signed contract to make a base of $320k starting August 2018, expects productivity bonus of about $50k/year. Her salary will likely increase to $400k/yr in 2 years. I expect my salary to remain steady.

Income
My current income - $330,000
Spouses current income (will increase in 8 months)- $56,000

Savings
- Cash - $95k
- 403b/401k/Roth IRA - $75k

Debts
- Student loans - $315k
- Mortgage - $175k
- Car loan - $25k

Monthly expenses (including student loan/car/mortgage/daily expenses/savings for preventative maintenance/vacation/gifts/etc) - $10k

Monthly take home home - $22K
My company funds my 401k with $27k/yr

Estimated new mortgage payment (P&I + taxes + insurance) - $9k
Would rent out current home for about $1700/month
Would put $200k down (from a gift) on the mortgage. No PMI on the mortgage, rate of 4.1%.

I would ideally buy a house in about 2 years after I have more in savings but this is a very unique opportunity on a very unique property. I imagine if I pass up this opportunity I would probably be looking at spending a similar amount on a house in 2-3 years anyway. It makes our budget very tight for the next 8 months.
I would payoff your current non-mortgage debt first. Also, I would sell your present home when the time comes to upgrade.

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whodidntante
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Re: Can I afford a $1,400,000 house

Post by whodidntante » Mon Nov 27, 2017 9:11 pm

There will be another house. Buy when you are ready.

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ram
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Re: Can I afford a $1,400,000 house

Post by ram » Mon Nov 27, 2017 9:15 pm

Not recommended. Pay down the loans. Other houses will come along.
Looks like one of you is a newly minted attending and the other in the last year of residency/fellowship. (At least you have compatible assets/liabilities and income projections).
Live on 2x to 3x of your residency budgets for next 5 yrs and then you can apply as a "fellow" of Bogleheads. You will then get permission to buy your 1.5 M house from the boglehead community.
Ram

Nate79
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Re: Can I afford a $1,400,000 house

Post by Nate79 » Mon Nov 27, 2017 9:18 pm

Pay off the student loans. You are broke and in deep debt. I would suggest to have 2 years of income for each of you at these high income levels before trying to buy such a very expensive house.

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Watty
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Re: Can I afford a $1,400,000 house

Post by Watty » Mon Nov 27, 2017 9:40 pm

anon1212 wrote:
Mon Nov 27, 2017 7:36 pm
Savings
- Cash - $95k
- 403b/401k/Roth IRA - $75k

Debts
- Student loans - $315k
- Mortgage - $175k
- Car loan - $25k
From what you have said your net worth is about NEGATIVE $320,000.

To put this in perspective my tattooed 20 something neice that dropped out of college and now works at a fast food restaurant has a vastly higher net worth than you do, and she has a paid off car even if it is a beater.

You have great prospects for future income but you cannot afford an expensive house yet. If you buy the house then with all the expenses that go along with it you could be pushing 40 by the time you get a positive net worth.

Your combined incomes are indeed impressive but you also need to consider what your after tax income will be to get a more reasonable expectation of what you can afford.
anon1212 wrote:
Mon Nov 27, 2017 7:36 pm
Would rent out current home for about $1700/month
One of the "problems" with having a high income is that doing things like managing a rental property is not an effective use of your time and any money you earn will be highly taxed. Even with a property management company you will still need to spend time overseeing the property management company and getting involved with decisions when needed. Occasionally you will also need to change property management companies and finding a good one can take a lot of effort. If you have kids then your time will become even more valuable and every hour you spend dealing with the rental is an hour you don't spend with your kids.

If your current home has increased in price then you would also likely qualify for the homeowners capital gains exemption and get that money tax free. If you rent the house for a few years then you will lose that exemption.

Depending on how much your current house is worth you could almost have two million dollars in residential real estate in the same city which is a diversification problem. People sometimes end up with say 400% of their net worth in real estate which can be a problem since a 25% drop in real estate prices could wipe out their entire net worth. Trying to look at it that way for you is problematic since the percentage of your net worth in real estate doesn't make any sense when you have a negative net worth. :oops:

WanderingDoc
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Re: Can I afford a $1,400,000 house

Post by WanderingDoc » Mon Nov 27, 2017 9:56 pm

Ready3Retire wrote:
Mon Nov 27, 2017 8:45 pm
Assets: $95K + $75K = $170K
Liabilities: $315K + $175K+ $25K = $515K

You are under water. Get your head above water, then think about a more expensive house.
Can always count on the folks at BG to give rational yet very conservative advice. Like a stern uncle. I love it! :P
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

aristotelian
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Re: Can I afford a $1,400,000 house

Post by aristotelian » Mon Nov 27, 2017 10:15 pm

Don't rush into it. Buying a house is the most important financial decision of your life. You can't just take it back if you choose poorly.

RDB
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Re: Can I afford a $1,400,000 house

Post by RDB » Mon Nov 27, 2017 10:22 pm

I agree with others. Maybe those posting about net worth are trying to really hammer the point across, and you must not have given the value of your current house (I did not go back and re-read your op), but it is kind of silly to not list the value of the current home in your net worth calculations.
I am in a similar situation to yours. However I make around 600k, my wife mostly stays home with kids, we have stayed put in our 450k house and are getting ourselves on vey solid footings financially prior to likely ending up in a similar value home as you are describing.
I would stay put and pay off loans, get way ahead on savings, then do it when the process is enjoyable and low stress because you know you are set financially. The comments about kids should not be taken lightly either, they are life changers, nobody has any idea what impact they will have until you have them.

samsmith
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Re: Can I afford a $1,400,000 house

Post by samsmith » Mon Nov 27, 2017 10:26 pm

Had a similar issue years ago when my wife and I started out. At that time the house was $700,000, and we would have needed help for the down-payment. My salary would have covered the mortgage, but we would have had to ask my parents and inlaws for down-payment help. To this day I am confident they would have said yes (my wife and I would have explained that we were living in a very HCOl area - which was true). But all I could think of was both sets of parents (after saying yes to helping) getting off the phone and wondering why I was buying a more expensive home than they lived in. Never asked them. Rented for years and saved up. Eventually bought a different home in the same neighborhood. The original house still looks great and I think things would have worked out. But at several times in my career, I was able to make decisions and take actions because we were not "saddled" with a big mortgage. As others have said, until you pay down some more student debt and it is clear how long (and in what capacity) your wife will work - that seems like a lot of house for you guys. Other unique houses will be viable in the future. The worst that happens if you don't buy is that you and your wife are so successfully that you realize in the future you could/should have bought the $1.4M house. That seems like a good "mistake" to have made.

nick2302
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Re: Can I afford a $1,400,000 house

Post by nick2302 » Mon Nov 27, 2017 10:30 pm

More than likely (I could be guessing incorrectly) you are looking at a home in California. Property is going through the roof in Ca. Where it will stop no one knows. But remember the house needs to be earthquake resilient and that can take up to 200K depending on house size and location. The insurance for earth movement is astronomical. I have kicked myself a hundred times over for giving up and not biting the bullet and buying what I loved and waiting to be more practical. The way housing prices are going especially in Ca. you will never save enough fast enough to buy a house comfortably. In 2 years maybe even less your 1.4M house will be worth 1.8 to 2M. Along with that everything goes up. Your property tax bite will be based on your purchase price that is one saving grace.

If you are looking at a home somewhere other than Ca. I would say wait and pay off at least the college loans. California is a whole different ball game than most any other housing market in the country.

Good luck with your decision. Would like to know what your final conclusion is.

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Sandtrap
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Re: Can I afford a $1,400,000 house

Post by Sandtrap » Mon Nov 27, 2017 10:33 pm

Right now you are very vulnerable to personal/life black swans and "financial black swans".
Greater debt will not make it better.
Patience.
Patience.
j :D

bigred77
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Re: Can I afford a $1,400,000 house

Post by bigred77 » Mon Nov 27, 2017 10:40 pm

I think you can afford it but I would recommend waiting a few years, living a great life on 10k a month in expenses, and stockpiling assets while paying down debt before upgrading the house.

I mean it’s not like your slumming it in the name of making financial progress. Your living higher on the hog than the vast majority of the country. Just waiting for a few years will give you a gigantic financial cushion. I would personally wait until you know your done having kids and then pick the best location for your family.

LarryAllen
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Re: Can I afford a $1,400,000 house

Post by LarryAllen » Mon Nov 27, 2017 10:41 pm

anon1212 wrote:
Mon Nov 27, 2017 8:20 pm
LarryAllen wrote:
Mon Nov 27, 2017 7:56 pm
I am confused on income. What do you each make now including bonuses?
Right now $330k + $56K.
In 8 months spuose's income goes to 320k + bonus
I would say you don't make enough. I would save more. I think you will be house poor.

WL2034
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Re: Can I afford a $1,400,000 house

Post by WL2034 » Mon Nov 27, 2017 10:43 pm

There are a couple of reasons I would wait. Some of this is assuming your wife (and maybe you) is a doctor soon to be out of training. You didn't give a lot of information, so I'm trying to fill in the blanks.

1. You both have brand new jobs (she hasn't even started hers yet), so I would think very carefully before tying myself to a $1.4M asset with significant transaction costs to buy/sell and one that might not be very liquid ($1.4M might sell easily in SF/NYC, but might be hard to sell if it is twice the avg home price in the area, for example). Keep in mind that a high percentage of doctors do not remain with their first job out of residency. If one of you is in a partner track, how many years and is it guaranteed? Just given that it is very common for physician first jobs not to work out long-term, and you are (I'm assuming) two doctors, there is a very high chance that one of your jobs will not work out.

2. This is a common step for physicians (or let's say all late-starting, high-earning professionals) in the process fail to accumulate wealth.
-Start off with $400k in debt.
-Get high paying jobs.
-Immediately spend that new money before paying off the debt. ($1.4M house + furnishings + cars to park in front of $1.4M house, etc.)
-Now you are trying to pay off $400k student loans while also paying $1.2M mortgage and living the doctor lifestyle. You have the money to do it, for sure. But it is going to be tighter than it needs to be. You are getting on the treadmill, IMO.

Since you said you are getting a $200k gift (no strings attached?-- if so, maybe use it for student loans, since those are probably at a higher rate than your mortgage--might be able to get a 0% down doctor loan?), then perhaps you have other inheritance on the way and money is not a huge issue for you.

This is just my opinion, having been in similar position and knowing people who have done it both ways. I suppose it is clear which way we chose to do it. We are quite happy having completely paid off student loans and maximizing our retirement savings and taxable investments over the past 3-4 years.

On the other hand, if the bank will give you the loan, then they believe you can make the payments. Just make sure that the decision is what is best for YOU (we are happy with our decision, but maybe waking up in a nice house and looking out the window at a nice lawn and great view is what brightens your day every morning). Don't do it because your family or anyone else expects you to have a big house. If jobs don't work out and you have to sell it soon, that is another nearly $100k in transaction costs you may lose, in addition to the moving costs, furnishings you can't recoup, etc.

investing1012
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Re: Can I afford a $1,400,000 house

Post by investing1012 » Mon Nov 27, 2017 10:55 pm

Gill wrote:
Mon Nov 27, 2017 8:35 pm
You have a deficit net worth. Notwithstanding your high income, you have a ways to go before you should consider a house in this price range.
Gill
I beg to differ, they're high income in secure fields (ie medicine) makes them easily afford this house.

aqan
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Re: Can I afford a $1,400,000 house

Post by aqan » Mon Nov 27, 2017 11:02 pm

anon1212 wrote:
Mon Nov 27, 2017 8:20 pm
LarryAllen wrote:
Mon Nov 27, 2017 7:56 pm
I am confused on income. What do you each make now including bonuses?
Right now $330k + $56K.
In 8 months spuose's income goes to 320k + bonus
boy.. 56K to 320K in 8 months... lucky you OP. go buy that house and some nice furniture too.

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Sandtrap
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Re: Can I afford a $1,400,000 house

Post by Sandtrap » Mon Nov 27, 2017 11:06 pm

WL2034 wrote:
Mon Nov 27, 2017 10:43 pm
. . . .
2. This is a common step for physicians (or let's say all late-starting, high-earning professionals) in the process fail to accumulate wealth.
-Start off with $400k in debt.
-Get high paying jobs.
-Immediately spend that new money before paying off the debt. ($1.4M house + furnishings + cars to park in front of $1.4M house, etc.)
. . . . .
Good point.
My brother is retiring after 40 years in private practice. He start out the same way as the OP. It all worked out but it was a very very very long financial row to hoe.

aqan
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Re: Can I afford a $1,400,000 house

Post by aqan » Mon Nov 27, 2017 11:08 pm

LarryAllen wrote:
Mon Nov 27, 2017 10:41 pm
anon1212 wrote:
Mon Nov 27, 2017 8:20 pm
LarryAllen wrote:
Mon Nov 27, 2017 7:56 pm
I am confused on income. What do you each make now including bonuses?
Right now $330k + $56K.
In 8 months spuose's income goes to 320k + bonus
I would say you don't make enough. I would save more. I think you will be house poor.
Really? The mortgage payment is high but collectively they'll make 650K and I'm guessing they're both doctors.. so the job will be safe enough. If they want they could pay off all the loans in 10-15 years with this much income.

random_walker_77
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Re: Can I afford a $1,400,000 house

Post by random_walker_77 » Mon Nov 27, 2017 11:12 pm

investing1012 wrote:
Mon Nov 27, 2017 10:55 pm
Gill wrote:
Mon Nov 27, 2017 8:35 pm
You have a deficit net worth. Notwithstanding your high income, you have a ways to go before you should consider a house in this price range.
Gill
I beg to differ, they're high income in secure fields (ie medicine) makes them easily afford this house.
Just because you can doesn't mean you should. With a 700K combined income in 2 years, they could probably get a bank to help them into a 2.8M house. Sure, that'd be stretching things a bit, but the bank will probably make money. Just because a bank thinks you can afford it doesn't mean you really can afford it... but if a bank doesn't think you can afford it, then you really better watch out!

I'm with the others. Don't count your eggs before they hatch (on income and stability), it's better to build up a financial cushion, and for the young and childless, there's a multitude of reasons not to get anchored to an expensive house. Put another way, yes you can afford it, but it seems inadvisable. It's "only" 4x your current income and you're only 0.3M in debt.

WL2034
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Re: Can I afford a $1,400,000 house

Post by WL2034 » Mon Nov 27, 2017 11:19 pm

aqan wrote:
Mon Nov 27, 2017 11:08 pm
Really? The mortgage payment is high but collectively they'll make 650K and I'm guessing they're both doctors.. so the job will be safe enough.
"The job," meaning the field of medicine, may be safe enough to easily afford this house. But new attending physician jobs straight out of training have so much turnover in the first few years that I would argue the specific jobs they are currently in are not safe, at all.

I would strongly recommend that two new physicians just out of training not plan to buy an expensive home until they spend a couple years in a job and figure out the politics and make sure they are happy with the employment situation. If in a partnership track, make sure you are going to make partner.

If it is a major city with multiple employment opportunities in your field that you can commute from the house if necessary, that will mitigate the situation somewhat--but it remains a very important consideration.

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Hawaiishrimp
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Re: Can I afford a $1,400,000 house

Post by Hawaiishrimp » Mon Nov 27, 2017 11:22 pm

Of course you can. Do it.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.

aqan
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Re: Can I afford a $1,400,000 house

Post by aqan » Mon Nov 27, 2017 11:46 pm

WL2034 wrote:
Mon Nov 27, 2017 11:19 pm
aqan wrote:
Mon Nov 27, 2017 11:08 pm
Really? The mortgage payment is high but collectively they'll make 650K and I'm guessing they're both doctors.. so the job will be safe enough.
"The job," meaning the field of medicine, may be safe enough to easily afford this house. But new attending physician jobs straight out of training have so much turnover in the first few years that I would argue the specific jobs they are currently in are not safe, at all.

I would strongly recommend that two new physicians just out of training not plan to buy an expensive home until they spend a couple years in a job and figure out the politics and make sure they are happy with the employment situation. If in a partnership track, make sure you are going to make partner.

If it is a major city with multiple employment opportunities in your field that you can commute from the house if necessary, that will mitigate the situation somewhat--but it remains a very important consideration.
I give you that. there are other non-financial things to consider but hopefully OP has already considered them as they already own a house.

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ClevrChico
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Re: Can I afford a $1,400,000 house

Post by ClevrChico » Mon Nov 27, 2017 11:59 pm

I wouldn't buy a house until kids arrived and the current residence couldn't accommodate everyone. (No matter how unique it is.)
Last edited by ClevrChico on Tue Nov 28, 2017 12:02 am, edited 1 time in total.

Pacman
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Re: Can I afford a $1,400,000 house

Post by Pacman » Tue Nov 28, 2017 12:02 am

Well I hope Klangfool chimes in. In my view, you can't even afford the down payment on your own without a gift. That alone should answer it.

thangngo
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Re: Can I afford a $1,400,000 house

Post by thangngo » Tue Nov 28, 2017 12:02 am

anon1212 wrote:
Mon Nov 27, 2017 7:36 pm
Looking to possibly buy a 1.4 million dollar house.
We are both in our late 20s, no kids yet but will probably have them in the next 2-3 years. My spouse has a signed contract to make a base of $320k starting August 2018, expects productivity bonus of about $50k/year. Her salary will likely increase to $400k/yr in 2 years. I expect my salary to remain steady.

Income
My current income - $330,000
Spouses current income (will increase in 8 months)- $56,000

Savings
- Cash - $95k
- 403b/401k/Roth IRA - $75k

Debts
- Student loans - $315k
- Mortgage - $175k
- Car loan - $25k

Monthly expenses (including student loan/car/mortgage/daily expenses/savings for preventative maintenance/vacation/gifts/etc) - $10k

Monthly take home home - $22K
My company funds my 401k with $27k/yr

Estimated new mortgage payment (P&I + taxes + insurance) - $9k
Would rent out current home for about $1700/month
Would put $200k down (from a gift) on the mortgage. No PMI on the mortgage, rate of 4.1%.

I would ideally buy a house in about 2 years after I have more in savings but this is a very unique opportunity on a very unique property. I imagine if I pass up this opportunity I would probably be looking at spending a similar amount on a house in 2-3 years anyway. It makes our budget very tight for the next 8 months.
No, you can't. Until you pay off all your debts, save at least 420k (30%) for down payment, and save at least another 33% your gross income for retirement annually, you can't afford this house. Your high income level will help get you there faster than other people.

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woof755
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Re: Can I afford a $1,400,000 house

Post by woof755 » Tue Nov 28, 2017 2:18 am

What are the interest rates on the car loan and the student loan debt?

I am a concerned by all the people advising to pay off those loans prior to buying a home at a pretty low interest rate--without knowing the rates on the loans he has. If this were credit card debt, different story.
(my wife's student loan debt is at 1.7% and at that rate, I'll stick with the 25 year plan)

Having just bought a house at a little less than that price on a little less than your soon-to-be combined income, I think you can afford it. Our property taxes are lower here, so our mortgage isn't $9k. But 4.1% is still an awfully low interest rate on what in most parts of the country would be a jumbo loan.

You can afford it. There's some life advice that your situation conjures up, but you don't (and you shouldn't) want to hear that from a stranger. : )



edited x 1 for clarity
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White Coat Investor
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Re: Can I afford a $1,400,000 house

Post by White Coat Investor » Tue Nov 28, 2017 3:37 am

Live like a resident until the loans are paid off. Or at least until you get back to broke. Residents don't buy $1.4M houses. Can you buy it eventually? Sure, if you both continue to work full time.

You don't mention where you live. Is it a place where you really can't get much of a house for less than that or do you just want something really nice?
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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djpeteski
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Re: Can I afford a $1,400,000 house

Post by djpeteski » Tue Nov 28, 2017 6:40 am

badbreath wrote:
Mon Nov 27, 2017 8:47 pm
I'm sorry this is killing me with your income.
Debts
- Student loans - $315k
- Car loan - $25k
Pay this down then look for a house.
Agreed.

Looking at your financials, I have to shout: No! Your emergency fund is meager (for your income and potential expenses), and your student loans are ridiculous.

Why, at your income, would you have a car loan? It is so silly.

Admiral
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Re: Can I afford a $1,400,000 house

Post by Admiral » Tue Nov 28, 2017 7:08 am

Buy a home that you can afford on one salary. That's my advice. You can afford plenty of house with $300k of income...just not a $1.4m house. Not with all that debt, anyway.

Good luck!

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Watty
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Re: Can I afford a $1,400,000 house

Post by Watty » Tue Nov 28, 2017 8:05 am

aqan wrote:
Mon Nov 27, 2017 11:08 pm
Really? The mortgage payment is high but collectively they'll make 650K and I'm guessing they're both doctors.. so the job will be safe enough. ...
It is important to remember that after; federal taxes, state taxes, maxing out 401ks, FICA, payroll withholding, etc that they will likely have take home pay that might be in the ballpark of $350K. If they have some kids then there will be things like daycare costs too.

That is still a lot but they would still be house poor for a long time.

stlrick
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Re: Can I afford a $1,400,000 house

Post by stlrick » Tue Nov 28, 2017 8:40 am

No, you cannot afford it now. You are projecting that you will be able to afford it. That does not only refer to your wife's change in salary. It involves your debt and your savings relative to the cost of the house.

Which cliches should we invoke here? The future is promised to no one. Bad things happen to good people. Buy it when you could maintain it and continue to live there - and not add another layer of crisis or complication - should something unexpected happen.

letsgobobby
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Re: Can I afford a $1,400,000 house

Post by letsgobobby » Tue Nov 28, 2017 9:17 am

Another strong no vote here. You're not even off the starting block yet. Pay off your debts, save your own down payment, and prove that the jobs are a good fit for a few years. Then buy the house you want.

LarryAllen
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Re: Can I afford a $1,400,000 house

Post by LarryAllen » Tue Nov 28, 2017 9:26 am

aqan wrote:
Mon Nov 27, 2017 11:08 pm
LarryAllen wrote:
Mon Nov 27, 2017 10:41 pm
anon1212 wrote:
Mon Nov 27, 2017 8:20 pm
LarryAllen wrote:
Mon Nov 27, 2017 7:56 pm
I am confused on income. What do you each make now including bonuses?
Right now $330k + $56K.
In 8 months spuose's income goes to 320k + bonus
I would say you don't make enough. I would save more. I think you will be house poor.
Really? The mortgage payment is high but collectively they'll make 650K and I'm guessing they're both doctors.. so the job will be safe enough. If they want they could pay off all the loans in 10-15 years with this much income.
I make the same income and my mortgage is much less and we still don't save enough for retirement. The problem is lifestyle creep; big house, big cars, big vacations, etc.... Especially since they are so young. I would work on cementing saving values, living below one's means, and then buy the big house in 5 years.

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Re: Can I afford a $1,400,000 house

Post by bloom2708 » Tue Nov 28, 2017 9:34 am

Definite no here.

Slow down. Don't live in "Fast Forward" mode. You have awesome salaries/salary potential.

That is not the same thing as wealth. Clean up your debts. Max retirement accounts. Build a cushion.

While you do it, live. Figure out what is important for you. Not from some website, friends, HGTV shows or anything else.

A $1.4 million dollar house will own you at this point. A trap. Stay flexible.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

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