How much did you spend on your "forever" home in relation to your income

[Tim]

Let’s talk about forever.
I have 3br/3b, huge gameroom and separate media room. That’s the upstairs!
I custom built 20 years ago, 2 kids (1 starting ms & 1 hs).
One actually inquired about a water slide from his room into the pool. Second master down so no worries about guests. Would I build the same house today?

There is absolutely no reason to purchase more house than you need or desire. You can do it, but it comes with some drawbacks for your kids. Real drawbacks. Every “friend” and parent and acquaintance through their formative years and college will be greatly impressed but they will carry a tag of being “rich” and living in the “mansion”.

I would suggest you and your spouse think how you really want to raise your kids. You will not need it “forever”. That’s why we have empty nesters. You can swing it, the question is does the ego boost mean enough to sink the money into it, given some real issues for the kids.

No opinion, but I have about 2500 sqft I have zero use for “forever”. $750k isn’t exactly slumming it in a MCOL area. By the way, most of the amenities won’t mean a thing in your daily lives. Nice to have, no more no less.
Sometimes less is better.

[White.Beard.Doc]

We live in a VHCOL area.  After 1 year of being an attending, we spent 2.3X income on our "forever" house.  After subtracting the downpayment, our mortgage was 1.9X annual income.  All of my calculations at the time said that the house expense was doable for us, but it felt scary to put a big chunk of our savings into the downpayment and the large monthly mortgage payments felt a bit scary for the first year.  As we got settled, we realized that we were still maxing retirement accounts and saving enough.  It ended up being a good decision.  We raised our family in that "forever" house and then ended up selling it after 21 years.  Our priorities had changed after the kids were done with school, so we moved for a better location and better lifestyle.

How did the expensive house work out for us?  It worked out great.  We raised our children there, and the schools were top notch.  Over 21 years, the mortgage had been paid off, the house sold for 2.4X the original purchase price, and it contributed nicely to the growth in our net worth.  We ended up with cash out at the sale of 12.5X our original downpayment.

[ajm184]

We spent just over 2x income for our current home.  Lived in it for a bit over 5 years (have 2 children) and I can't wrap my head around 'forever' with a home.  The second the kids are gone/out of house, I want to move to a place a third smaller (and/or Italy) than our current home.  The good thing is we expect to pay off our remaining mortgage by year end.

[Antares]

I would hate to have what felt like a large mortgage limiting my savings and resources even if I were able to save 20%.

We are in a HCOL area, and bought for $440k when our income was probably 260k. Today, after some refis  and paydowns, the mortgage is a little over 3% of income, and I like that. (Of course the property taxes are 5%, but that’s another story!)

[portlandia]

0.75X, but waited longer, had more of a downpayment and am more risk averse than most. Agree with @fatlittlepig about a 1M mortgage. That would keep me up at night.

I also think that these rules of thumb break down at the very high 1M+ home prices you are speaking of.  IMHO people should be more conservative at these valuations than the rule of thumb suggests, in no small part because reasonable housing options exist at much lower prices. Also, homes in this price range, especially in any area other than VHCOL, take longer to sell, so if life happens and you need to get out quickly, you can't.  Using a combination of income and net worth can also be more robust way of analyzing these situations as @Kamban mentioned.

Best of luck with whatever you decide.

 

[JK]

Appreciate all the input. Additional info per some of the responses.

-No debt whatsoever at this point. Student loans paid off, own vehicles, no CC. No practice debt as not a partner and not buying in. Mortgage would be only debt.

-Current NW ~700k.

-First full year as an attending at current income. Probably will end up saving 45-50% of gross which also includes money I spent on health insurance premiums, daycare, etc... Probably considered a "super saver."

-In MCOL area, so the home does price a portion of the population out...but it is still a semi-affluent area. I wouldn't expect significant appreciation though...but if a long term home then that matters less to me.

-In terms of job stability. I'm not a partner and that's not on the table. I'd like to think there is stability with the practice (sole owner at 50yo) and he is expanding, but obviously I can't guarantee that.

 

Essentially this is the first major purchase in my life...and hopefully the last. Up until this point I've been so hyper focused on college--> medical school--> residency (derm)--> well paying job--> work really hard. Make good money--> live frugally--> pay down debts and invest. By some of the metrics I've put in calculators (25x anticipated spending), there is a chance I could be FI late 30s to early 40s. However, I suppose there is some anxiety with making a purchase that big. Lots of people on this forum seem to be similar to me and not the physician norm hence why I feel I can talk more to this audience. As one poster stated, I don't want to be seen as the "fancy doctor" or really inhibit my ability to save, but at the same time I won't to be able to actually spend my money in a responsible manner. Not that 700-800k house is shabby by any means, but should I feel guilt free in increasing the spending.

 

[FN9]

JK wrote:

Appreciate all the input. Additional info per some of the responses.

-No debt whatsoever at this point. Student loans paid off, own vehicles, no CC. No practice debt as not a partner and not buying in. Mortgage would be only debt.

-Current NW ~700k.

-First full year as an attending at current income. Probably will end up saving 45-50% of gross which also includes money I spent on health insurance premiums, daycare, etc… Probably considered a “super saver.”

-In MCOL area, so the home does price a portion of the population out…but it is still a semi-affluent area. I wouldn’t expect significant appreciation though…but if a long term home then that matters less to me.

-In terms of job stability. I’m not a partner and that’s not on the table. I’d like to think there is stability with the practice (sole owner at 50yo) and he is expanding, but obviously I can’t guarantee that.

 

Essentially this is the first major purchase in my life…and hopefully the last. Up until this point I’ve been so hyper focused on college–> medical school–> residency (derm)–> well paying job–> work really hard. Make good money–> live frugally–> pay down debts and invest. By some of the metrics I’ve put in calculators (25x anticipated spending), there is a chance I could be FI late 30s to early 40s. However, I suppose there is some anxiety with making a purchase that big. Lots of people on this forum seem to be similar to me and not the physician norm hence why I feel I can talk more to this audience. As one poster stated, I don’t want to be seen as the “fancy doctor” or really inhibit my ability to save, but at the same time I won’t to be able to actually spend my money in a responsible manner. Not that 700-800k house is shabby by any means, but should I feel guilt free in increasing the spending.

 

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Here is a different approach, since you save 45-50% of gross, how about save for the next 2-3 years and either pay cash or put a hefty down payment, you would still have a hefty NW (including house)  and feel less guilty since you would own it free and clear (or almost if you owe a small mortgage).

[Lordosis]

No debt in your first year out and a new worth of 700k?
Yeah do whatever you want.

[DCdoc]

Forever home is a marketing tool from realtors.

[White.Beard.Doc]

Your desires with housing will change with time, but if the idea of "forever" to you means you will live there for a long time, as in a decade or more, then buying generally works out quite well.

And as a derm making the kind of money you are making, combined with good financial habits, go ahead and buy the 1.2MM house if it is what you want for yourself, your spouse and your family.  You will be in good financial shape in the future whether you spend 750k or 1.2MM on a house.  Only you and your spouse know how important the nicer house is for you, but financially you will be fine either way.

[White.Beard.Doc]

And one more comment, as another high income supersaver, the cost of that initial house purchase within the reasonable range you are looking at played such a tiny role with where we are now, it is almost inconsequential.  For reference purposes, we were making decisions 2 decades ago in the same financial range that you currently are, albeit adjusted for inflation over time.

[EntrepreneurMD]

If you like, you can buy my McMansion. My forever dream home when the kids move out is oh let's say about 1500-2000 sq ft with no pool, elevator, fancy automation, redundant appliances, home theater or lawn to bother maintaining/repairing or outsized utility/insurance/tax bills. What was I thinking? Well at least we all made great memories for the kids.

My current home was over 3x household income when built (but paid off within 5 years). My "forever" home will likely be about 0.1x household income. Think I'll call it my "freedom" home though.

[wideopenspaces]

Go for it.

I highly doubt I'm living in the house I'll die in but it's probably the one I'll raise my kids in. Paid about 2x salary. I would be fine spending 1.2M on a home at a 600k salary with no debt.

[MaxPower]

At the time we bought it with my base salary, our house was just less than 1.5x in MCOL area (what are the definitions for LCOL, MCOL, HCOL, etc by the way?).

With current salary based on production that has been steadily rising year over year, our original mortgage amount is now about 1.05x annual salary.

We could have bought more house and were approved for more, but we got everything we wanted at that price. Sure we could have spent more for slightly bigger or more ornate, but it was an amount we felt comfortable with.

[nephron]

I bought a 930 K home with a household income of 400K at the time.   We took out a 15 yr mortgage with a 400K downpayment, so our monthly payments are manageable.   I think that's the key thing, make sure your down payment is high enough so that you are paying off your house in a 15 year time period and you should be ok.  The high property taxes (our non-deductible property tax is probably the size of some peoples mortgage, 15K per year), maintenance costs, and opportunity cost of using your funds to pay down your house instead of investing them do add up though.    A nice house tends to necessitate nice furniture and keeping up with your well to do neighbors with things like private school, camps, etc.   Luxury homes are consumption items but your ratios are quite reasonable. Just realize that those expensive homes are a drag on your path towards financial independence/net worth accumulation, but I personally put them as having far more value to your quality of life then a nice car does and you have to spend your money on something.