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  • buying new house, gut check

    Hello would love to get some input regarding a future house purchase.  My wife and I are both physicians. We have 2 small kids at home. My wife is currently working part time and i'm full time. We are in a LCOL area and will be moving to a MCOL/HCOL area. We gross around 400-450k here but would probably take a paycut to maybe 300-350 in the new area.  We had car loans and student loans. Car's are paid off and we have about 30k of loans left ( had about 400k to start with). We both have term life insurance. I have a guardian own occupation disability insurance policy through guardian. We have a mortgage currently which is about 1800 ( have about 40k equity) and are saving aggressively for a house down payment after maxing out retirement accounts ( his 403b,457,backdoor roth, and HSA). I would personally want to stay <650K. Wife is thinking more along the lines of 750K. Even though the salary is lower in the new area we would probably utilize public schools instead of private schools. If we stayed in our current area we would definitely use private which should cost 40-50k a year.  Current assets in retirement account are close to 300K. Have about 30K in taxable. And have about 25k in cash.    


     


    1. What do you think about the purchase price of the new house? My wife and I both value spending time with each other and the family as opposed to making the most money. Combined if we both worked full time we could probably gross 550-600 but the work/life balance would not be consistent with what makes us happy.  I dont want to be a slave to my job and i'm concerned that overspending on a house would make that happen. Then again we are saving quite a bit of money by going the public school route in the new location so in my mind it almost seems like a wash.   


     


    2. What are your thoughts on moving from LCOL to MCOL/HCOL. I'm wondering what exactly makes a city more or less expensive. I would imagine housing costs and education ( private schools ) but what else?  One of the main reasons of moving is family would be significantly closer which is important to my wife and I.    


     


    3. When would be the right time to move? I'm thinking when i have a minimum of 20% of a down payment and all my student loans are gone.  Would you wait to put a larger down payment?    Thanks!  


  • #2

    Your checklists and savings look solid.  Contrats on those student loans.  A debt/income ratio < 1-2 is recommended by WCI.  that's mortgage debt, not home price. 


    #2)  what makes a region LCOL/HCOL ?   Great question that has never been addressed directly.  I'll start with my impressions, and I think you'll get lots of feedback on this.   


    Top of the list:   income taxes, state and local.   Mortgage/home costs. Property taxes.  Labor:  babysitting, lawn care, home maintenance and repair,  cost to reroof your house, costs for plumbers and electricians.   I live in a LCOL city and my in-home babysitting topped out at $16k annually for 3 kids. 

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    • #3

      Timing on moving is about as good as timing to have kids


      Make out your expense list:  bare bones - balanced -- and living the high life scenarios --- to balance out the income levels needed to reach that -- Taking into account things like SALT being lost and even Mortgage interest too now;  along with retirement and 529 savings for the little ones on the expenses.


      That will give you an idea of career choices on work and splitting that between the two of you--watch the horizon of career with the kids too.  2 were two MD income with serious work/life balance priorities -- she won the coin toss and stay at home mom when the kids hit middle school, and she's not looking to swap duties any time soon!.    So really have to watch the income variables on this for the both of you.


      Only then will you have an idea of how much house you should be looking at (with the appropriate neighborhood/school district/commute location).  

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      • #4

        1. Common rule of thumb is mortgage no larger than twice your income. Using the low end of your estimated new income- mortgage of 600k would be the upper limit so if you put 20% down the purchase price could be 750k. You should sit down and make a budget- with your planned mortgage amount, could you still save your desired percentage for retirement and have enough left for other expenses? My situation is actually pretty close to yours- combined income of about 320k, MCOL area, built a home for the purchase price of 740k (but we put less than 20% down). We're having no problem saving 25% for retirement and we LOVE our house. I won't retire at 40 but I'm okay with that.


        2. I think the big thing is housing expenses- real estate prices and property taxes. Amazon shipments cost the same :-) Sounds like having family close is a good reason to move


        3. I think 20% is plenty! 

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        • #5
          I tend to be more conservative, so keep that in mind. I also value being at home more with the kids and don't like to stress about money, which is why I'd want a good cushion. I'd want the mortgage less than 600k, I probably be more comfortable with 550k. So whatever downpayment you'd need to get it to that level. And then I'd also want student loans paid off, 6 month emergency fund in place, and a good 50k to spend on stuff for the new house. That's just me though. Figure out what you are comfortable with, your plan doesn't sound too crazy to me in general. Strong work on paying down those student loans!

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          • #6
            i'm not sure we have enough information to answer this question.  if you want to retire young (50), i think taking that mortgage with the income you describe is going to make it less likely your budget in retirement can be 120k.  depends on what other choices you are going to make with regards to spending.

            you are not going to be a slave to the house but your savings rate will be affected in other words.

            if you have no desire to retire early, than no problem.  you can definitely afford the house.  no problem.

            it's just the lifestyle creep that comes with houses in nicer neighborhoods.  suddenly it's normal to take disney cruise every year.  kids need private violin lessons.  soccer tournaments and select teams.

            for a data point, even with our dream homes, we never went past 1.5 incomes and that was when houses were appreciating faster than the stock market.  currently our dream home is less than 1x our annual income.

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