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Advice Regarding Home Purchase Price

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  • Advice Regarding Home Purchase Price

    Hi Folks,

    I need help deciding about the better price I should pay for a house.

    Both me and my wife are physician, finished training last July. We have been attendings for about 6 months. My wife works part time and I am full time, we have 2 kids 7 and 2.

    No dept, no medical school loan as we are both foreign graduates

    We both saved about 70K since then, and I have 29K in 403B, our annual income should be around 430-450K combined

    We live in a very expensive market with old houses, talking about eastern Massachusetts.

    I am currently paying about 3K for rent for a 3 beds townhome. I was initially planning for about 700K purchase, with a 5% down and a physician loan. However, the more we see houses, we stretch our budget and how up to 850K. Lastly we saw a perfect house for 1 million, may be we can push for 950K

    Is it crazy to purchase a house that expensive that early after finishing training. I am okay with renting, but the rentals market is very bad with very few houses, very old and too expensive.

    My wife's argument, that the difference between 950K and 750K in mortgage monthly payment is about a thousand dollar, if we buy the 750K and thought about moving, will lose more money in the selling/buying process so we should buy the house we like from the start.

    One financial adviser mentioned that the monthly payment (including principal, interest, tax, and insurance) should not be more than 28% of my income. How true is that? for a house price 950K, payments monthly will be $6200, annually is 74400 which is 18% of our income



  • #2
    I personally don't think its crazy (but I still rent and have 2 years of fellowship left), if its a house you would be able to afford anyway in another 3 years, seems like it wouldn't make too much sense to purchase the 700k home, and sell a few years down the road before your mortgage is paid off. Have you considered 700k homes with a 100k renovation? I'm a fellow in Boston so I know how tough the market is out  here.


    • #3
      So many unknowns. Your lives cannot be boiled down into a rule of thumb - you should weigh all the connected issues surrounding spending up to $1M with more gravity than this. Please consider hiring a fee-only financial planner to help you articulate your current and future goals and develop a financial roadmap to follow before taking this step.
      My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
      Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


      • #4
        Affordability is a non-issue, as long as you both work, you can easily afford it.  Just a question of if you should or shouldn't.

        I agree with your wife, if you are willing to spend $700k, but the home you really want is $850k or even $1M, just spend the extra and get what you want now and avoid a costly move later.  If the note bothers you, just pay it off sooner.

        If your wife is bringing significant money to the table herself, and is going to continue to work, even part time, you should be very thankful for this and let her make the call on this one.  


        • #5
          You are sure your wife wants to continue working?

          These threads are always hard for me to answer.  Technically you can probably afford it.  But whether it is reasonable would depend on the house and what you are getting for the extra $$.  In my LCOL area of course a 1M house is a fairly ridiculous mcmansion.  We could afford a 1M house also fairly easily, but that doesn't mean it makes sense..


          • #6
            Honestly, it really depends on your situation. If you're planning to buy a home, it's best to see if you think you'll be there for the long-term especially when it comes to buying high priced ones. Regarding the 1/3 of your income rule, it's very general and I believe it's based on gross income (not net).

            In my opinion, there's nothing wrong with renting as long as the payments are affordable. In the end, most people don't even pay off their homes and/or go through a change where they end up selling anyways. I think it evens out in the end. I believe a home is just a place to live, not an investment. Just my thoughts.

            Hope that helps!


            • #7
              My concern is that you have only been on your jobs for 6 months.  Most of us who post here frequently recommend waiting about 2 years to be sure about job security and to have a bigger down payment.  You are in a better position than most since you have no student loans.


              • #8


                Are you on a partner track. Do the people ahead of you who have joined become a partner. Are you a hospital employee. Are you likely to stay in that area for 5+ years.

                These are questions that are more important to forming an opinion to give to you, rather than on whether to choose a 700K house of a 1M house.


                • #9
                  Here's another point to consider.  You are very very fortunate to be starting your career with no debt.  You have a unique opportunity right now to really boost your savings at an early stage.  If I could go back and do it all over again and if I were in your shoes, I would try my hardest to wait a few years to purchase a house.  During those few years I would save as much cash as possible (I mean really rake it in!  500k or more would be amazing).  Then, you'll be way ahead in terms of your wealth building when you finally do buy a home.  Once you have a 6500/month house payment your ability to build wealth will go way down.  You'll be paying taxes, repair bills, buying furniture, utilities, remodeling, etc, etc.  Believe me, I've learned the hard way, houses are crazy expensive!  Especially older homes.  I love old houses, but they really drain your bank account.

                  Right now you have a huge have a relatively small monthly payment for rent and not much else.  You can save like crazy right now.


                  Build wealth for a few years and you'll thank yourself for it later