Is 1.3-1.5m house crazy or doable...?

[Contentt]

We're trying to decide how much house we can afford and was looking for random input as we plan a 2017 or 2018 summer purchase. Emed was my wife's second career, so we're a little behind where we had planned to be by now. We had kids late in the game as well. If my wife never leaves her job, she has amazing benefits (big hospital in the US). This is her 2nd job out of residency, and a really good fit. First job lasted a year. Now renting and saving for the house down payment. We've followed the whitecoat blue print to date, but the house purchase might be where we veer off track...

About us
Goal: buy house soon, sick of renting
Both 42
Kids: 7yr old and 3yr old twins
401k maxed
Roth contribution - on hold until house purchase but could revisit depending on time line

Savings
350K in retirement plans now
45K in an emergency fund
125K saved for down payment (saving about 8K a month on avg.)

Debt
30K school loan at 0% (last loan, and no rush)
15k on the minivan I swore I would never buy (low interest rate to hoard cash for a house purchase)

Budget Planning
Our plan is to base our budget off of our ideal working hours (scaling back when we have the down payment). So our total income will be 330K+ a year once we own. I'm a consultant, my wife is the smart one (Dr.) Worst case we could increase income to 400K+ if we run into issues.

Spending
Avg 9k a month now, I budgeted an expense plan of 11K a month for a buffer. I assumed things like daycare ($2600 a month) would simply be spent on other kids stuff = a safe way to plan.  Hope to have 1.5m+ in retirement funds in 20yrs, and 60K per kid in 529s. We live in VA so schools/colleges are well ranked.

How affordable is 1.3m - 1.5m?
A traditional 20% down loan vs doctor loan is a topic of conversation. Ideally we'd get a 30yr traditional mortgage and pay if off in 15, but houses under 900K are old/crap here (HCOL), everything else is a teardown rebuild for 1.3-1.5m. There is little no to inventory in the 900-1.2m range.  So trying to figure out how much of a stretch 1.3+ will be for us and how long we want to save up is the issue. We're here to stay for the long haul, and it's the cheaper option between our two families to live near.

[MochaDoc]

Contentt wrote:

Roth contribution – on hold until house purchase but could revisit depending on time line

Click to expand...

Why put this on hold when fully funding two (one for each spouse) at a total cost of $11000 would only put you behind in down payment savings by a little over 1 month, 1.375 ($11000/$8000) to be exact? Alternatively, your wife could make this with a couple extra shifts (at her current job or as locums) or by working a couple holidays (presumably at an increased hourly rate).

[conniebird]

I live in a much higher HCOL than you and those prices are higher than what we would need. Also remember all the recurring costs like insurances, taxes, up keep -have you factored that into things?

But that's just my opinion. Also 1.5M for retirement? Seems low. Would not stall Roth for house payment. Tough to give answers without knowing more

[Contentt]

Great responses...

- We are currently debating the Roth, delay is primarily so we have the most cash for a purchase in as early as 6 months from now

- 900K house isn't crap, just not what we want There are very few 800K-1m houses as options in our area, usually they are under 800K and 1950 split levels, so yes there are options just not anything we want.

- I've factored in the unknown costs, 11K monthly expense budget is 2-3k over what I think we'll typically spend every month

- I agree 1.5m is a bit low for retirement, but I didn't include her pension or free healthcare in retirement which we hope to utilize, assuming it's there

Not trying to talk myself into an expensive house, just trying to get all the different opinions and angles to think about. Thanks!

[conniebird]

I think you need to save more for a downpayment. Looks like you're going for 10% and the fact that it's so much more than your gross income prolly means you can't really afford it....

It also looks like your efund isn't quite fully funded
Wouldn't count on pension and the healthcare until she's fully vested /actually stays at the job long.

Lastly - both of you have life insurance and disability insurance (her?), etc

[Contentt]

20% down w/ 30yr is ideal and if the loan amount is 1mil I think we could pay that off in less than 20yrs. We'd increase the emergency fund as appropriate to the amount of house we buy.

Disability she has an individual policy and some coverage at work, I've budgeted for a 2mil umbrella policy with the house, and life of 2mil for her and 1m for me. We have coverage now but I'm buying more. If either of us kick it early we'd downsize the house and probably live with family for a while. On retirement we plan to downsize to a condo or smaller house, once the kids are out we're not going to want a huge place. Forgot there's also some family property in the mix (400k or rental income should we decide to keep it when my parents hand it down) but I'm not really factoring that in.

My gut says don't take a loan over a 1m and whatever we can put down on top of that within two years is the house we can afford. Probably need around 300K cash to cover all the closing costs.  So 1.3m is probably our max all in price that I think I'm comfortable with.

Love the input!

[EH]

How does your current rent compare to anticipated mortgage plus property tax? I assume you've calculated this but it's hard to tell from what you've written. Where I live property tax on that 1.3m house would be nearly 2k a month so your budget wouldn't add up. You also need to factor in maintenance and household items and possibly things like gardener, higher utilities, etc. my budget went up way more than 2k when I bought, and more than I had anticipated.

[Hatton]

I know you are not really asking about this but $1.5 mill is not going to cut it for retirement. How sure are you that she will get a pension and how much will it be?  Based on your spending you need $2.7 to 3.3 mill.  Yes some of your expenses will decline when the kids leave the nest but you only have 350k in retirement now.  The house seems expensive to me but I live in a cheap area.  Houses and cars are where lots of docs screw up financially speaking. If you buy something cheaper maybe your wife will be able to retire prior to 70. She may like her job now but with a late start and 3 kids to educate things can easily blow up.  I don't want to rain on your parade but I would keep looking for a more affordable house.

[Dicast]

With 1.5m at between 4-5x income you won't be leaving yourself a lot of cushion.  Emed (emergency medicine?) may be at a peak of salary currently.  The belief that at any time over the next 2 decades you could simply work more and bump the salary up would be the part that concerns me the most.  We never know if reimbursement will drop by a significant amount, just go talk to an ophthalmologist.  I personally hope EM is mostly untouched or only improved by future payments/Obamacare/Trumpcare but we can't be sure.

If you're already planning to work more to cover costs in unexpected situations then I'd probably look at changing the plan.  I'm 4 years into emergency medicine and I like what I do, my wife is 1 year into her MD job and is still figuring it out.  In 10 years I hope we'll be able to contemplate retirement if we want it but expect to work at least until our youngest leaves high school (so 16 years minimum).  I don't know about your wife but I already don't enjoy working nights and I can only imagine at age 62 it will be a bit rough.  With our budget if reimbursement drops we won't have to work more each year but will probably have to add years to the current plan.  Adding years past 60 may be difficult.

[Contentt]

Rain on my parade! That's why I'm here A 1.3m house seems cheap from my home town, we left last year because 1m would get us a 2BD 1bath shack in a bad school district and a 1hr+ commute (Bay Area).  Trying not to let that absurd reality affect our judgement.

Retirement savings is a factor, and probably the main reason I'm concerned. I believe the pension number is 50% of avg salary calculated over multiple years, but I was trying to see what the numbers looked like without it to be conservative. I've seem avg numbers like (70K per year needed for 25 years), but if anyone knows a good resource to look at I'd appreciate it.  We buy used cars when we need to.

I thought I had increased utilities and gardner but double checking I didn't, thanks!   Property tax is 1.13%, but I should double check those numbers. I've looked at different projection models online and they all come out different since they seem to take different factors into account which makes my head want to explode.  Here's an example that seemed on the low side:

Purchase price	1300000
Downpayment	200000
Interest rate	4%
Principal amortization (years)	30
Property tax rate	1.13%
Annual maintenance	1000
Housing association dues (annual)	0
Annual insurance	1500
Assumed annual appreciation	3%
Assumed marginal income tax rate	30%
General inflation	2%
Monthly mortgage payment	5226.62

Off for turkey day travels.

[Contentt]

Budget is based on working less (3 shifts a week), yes Emed. So the assumption would be if we had to she could increase shifts to cover us in a pinch, but if that happened we'd look at other options like downsizing the house to adjust to a new reality. It's merely a contingency plan to avoid getting kicked out on the street  So all our numbers are based on working less than a full time employee in emed.

[DMFA]

That's iffy, my friend...yeah, it might all work out just fine, but you're leaving yourself over-extended on the house and under-funded for retirement.

You'll be facing a jumbo loan and it will be difficult to get a great interest rate, especially if you find a way to avoid PMI such as a "doctor loan" since those usually have higher interest rates.

I want to be in your corner and cheer you on, and lives and needs/wants vis-à-vis money are complex things, but the math really is not on your side. :-/

[Bejit1]

Call me old fashioned, but I really believe in the 20 percent down payment. Don't think housing prices are going down. But you don't want to be left in the lurch if they do and you need to move for what ever reason. Don't like the possibility of being underwater. I would wait until you had the 20 percent down payment.

[childay]

I think it will be tight.  People do it but I wouldn't.  How much are you guys making before "scaling back?"  You might need to consider either continuing current work schedule or buying a smaller house.  Also consider you might already be "behind" on your retirement savings at least for WCI reader doctors.

That said I don't live in a HCOL.  Care to post examples of these <900k crap houses?

[RogueDadMD]

Contentt wrote:

We’re trying to decide how much house we can afford and was looking for random input as we plan a 2017 or 2018 summer purchase. Emed was my wife’s second career, so we’re a little behind where we had planned to be by now. We had kids late in the game as well. If my wife never leaves her job, she has amazing benefits (big hospital in the US). This is her 2nd job out of residency, and a really good fit. First job lasted a year. Now renting and saving for the house down payment. We’ve followed the whitecoat blue print to date, but the house purchase might be where we veer off track…

About us
Goal: buy house soon, sick of renting
Both 42
Kids: 7yr old and 3yr old twins
401k maxed
Roth contribution – on hold until house purchase but could revisit depending on time line

Savings
350K in retirement plans now
45K in an emergency fund
125K saved for down payment (saving about 8K a month on avg.)

Debt
30K school loan at 0% (last loan, and no rush)
15k on the minivan I swore I would never buy (low interest rate to hoard cash for a house purchase)

Budget Planning
Our plan is to base our budget off of our ideal working hours (scaling back when we have the down payment). So our total income will be 330K+ a year once we own. I’m a consultant, my wife is the smart one (Dr.) Worst case we could increase income to 400K+ if we run into issues.

Spending
Avg 9k a month now, I budgeted an expense plan of 11K a month for a buffer. I assumed things like daycare ($2600 a month) would simply be spent on other kids stuff = a safe way to plan.  Hope to have 1.5m+ in retirement funds in 20yrs, and 60K per kid in 529s. We live in VA so schools/colleges are well ranked.

How affordable is 1.3m – 1.5m?
A traditional 20% down loan vs doctor loan is a topic of conversation. Ideally we’d get a 30yr traditional mortgage and pay if off in 15, but houses under 900K are old/crap here (HCOL), everything else is a teardown rebuild for 1.3-1.5m. There is little no to inventory in the 900-1.2m range.  So trying to figure out how much of a stretch 1.3+ will be for us and how long we want to save up is the issue. We’re here to stay for the long haul, and it’s the cheaper option between our two families to live near.

Click to expand...

The current state numbers you provide aren't dramatically different than my own, except I have no loans, bought a house that's less than half the price of what you are looking at, and we're several years younger.

Even w/20% down you're going to have a huge monthly payment (though I don't know how that compares to your rent), and I think you will find that saving adequately for retirement and college for the kids is going to be quite difficult, especially given your shorter time horizon to retire.  Your retirement and 529 goals as currently set are feasible, however I am not sure the retirement goal is adequate, as many others have said.

The short answer is you can probably make the house payment work, but you very well could be house poor.  If you're not going inclined to be extremely frugal in other areas (cheap/used clothes, eat economically, etc) you could find that mortgage payment to be a huge albatross over your head.  Your monthly payment is easily going to be $6k or higher (including property taxes).  Maybe that's where you are at with rent already, and if you're saving 8k/month extra each month now then perhaps you're doing so well in reducing expenses elsewhere already so this won't be a big deal.

But do not underestimate the cost of kids and the cost of maintaining a $1M+ house.  Also don't assume your wife will be super eager to work extra shifts in the ED to maintain your lifestyle.  What seems easy to do now is not going to be that easy when you're missing all the kid events or exhausted, and will become less palatable every year.