How much downpayment?

[Hank]

@OP - i'm in a similar situation as you and have pretty much the same questions. We can have a combined family income of around 700K and are looking to buy in the bay area. We can put down around 600K, and are looking for a home in 1.5-1.6 million dollar price range, so it would be substantially more than 20%. I want to make sure our offer is competitive, but also wondering if that money wouldn't be better invested, or even just used to finish paying off our last bit of student loans (have around 100K left at 4.5%... i know, i know...)

Following!

You ought to be able to do better than 4.5% on those remaining student loans. Refinance, then kill them off at whatever pace makes the most sense.

$1.5M to $1.6M for a house in the south Bay or on the peninsula when you have a gross income of $700K seems almost... frugal? Sure, it won't make any sense whatsoever for the folks in Iowa or rural Alabama, but that's a remarkable degree of restraint for that market. If anything, I'd be concerned if the school district and commute aren't good enough to make this a long term house.

If spending $2M or $2.1M gets you a place where you can stay for the next 20 years, the extra money may be well spent. This presumes, of course, that you're saving 20%+ of gross income towards retirement, maximizing all qualified funds, avoiding carrying consumer debt, etc.

[Dusn]

So I’m extremely cynical but if you seem to be unlikely to leave the practice (ie. have already bought a house), you have less leverage when the partners decide that the partnership buy in will be -1 million to cover “goodwill.”

[NorCalEDMD]

You ought to be able to do better than 4.5% on those remaining student loans. Refinance, then kill them off at whatever pace makes the most sense.

$1.5M to $1.6M for a house in the south Bay or on the peninsula when you have a gross income of $700K seems almost... frugal? Sure, it won't make any sense whatsoever for the folks in Iowa or rural Alabama, but that's a remarkable degree of restraint for that market. If anything, I'd be concerned if the school district and commute aren't good enough to make this a long term house.

If spending $2M or $2.1M gets you a place where you can stay for the next 20 years, the extra money may be well spent. This presumes, of course, that you're saving 20%+ of gross income towards retirement, maximizing all qualified funds, avoiding carrying consumer debt, etc.

Ha, thanks for that reply . We have two kids that we are going to be sending to private school, and a vacation home (that we actually currently live in as a primary residence) in Tahoe which still has about 400K left in mortgage, so not too frugal unfortunately! Our gross income actually varies between 700K and 800K but i'm trying to be conservative with our estimates so that we're not too house poor. I also come from a very middle class background, so all of these numbers are... astounding.

[NorCalEDMD]

Oh, and we are going to buy in the East Bay - Oakland/ Berkeley Hills area, so still astronomical prices but a bit more affordable tha the peninsula. 1.5 million should buy us a reasonably updated 3/2ba 1800ish square foot home, which is plenty.

[White.Beard.Doc]

In terms of making a competitive offer, you can show you have, for example, 30% cash in the bank that could be put towards a downpayment, and your mortgage contingency can be for a 20% down loan, and you could still obtain even a 90% LTV loan. The extra cash makes your offer more competitive. As another example, I might make a cash offer on a home, no mortgage contingency, and still close with 85% financing.

On another note.... What is your plan B if the owners of the practice sell to private equity before you become partner and your income never goes up or you have to find another position? Do you have a non-compete in your contract? How would you feel if taking a new position forced you to lose 100k in expenses to sell the house? Is your overall employment situation stable enough that it is worth it to take on that 100k loss risk? The likelihood of that scenario is something only you can judge.

[8arclay]

OP says funds not used on downpayment would go towards upgrading the home instead of investing. If thats really the case, put it towards the downpayment.

[TXDoc21]

Oh, and we are going to buy in the East Bay - Oakland/ Berkeley Hills area, so still astronomical prices but a bit more affordable tha the peninsula. 1.5 million should buy us a reasonably updated 3/2ba 1800ish square foot home, which is plenty.

It sounds like you are thinking about this the right way and have gotten some good feedback so far. White heard doc always has very good advice in my experience.

On a side note, for 1.5 million you could move to Texas and live like a King and Queen! I know, Bay Area real estate is it’s own animal.

[EntrepreneurMD]

Echo WorkforFIRE.

I hear rentals in HCOL or VHCOL areas are low relative to the cost of buying. There is something psychological about owning a home versus renting but in your case timing may be everything. Resist emotion and keep it objective. It is generally not advisable to time a home purchase based on low interest rates.

If you wait, you can secure partnership first. Additionally, you currently don't have any children and when they come along younger ones don't need too much space and school district doesn't matter giving you more flexibility, so renting for now means you can save on square footage rather than buying a house now that has to take children into account, prematurely.

Generally I like to put down as much as possible on RE, I never put down less than 20%. If you do buy, make sure it does not compromise your ability to allocate at least 20% towards saving/investing or overly compromise your EF. Make sure to factor in closing costs, property taxes/insurance, furniture and decor expenses, additional utility costs, maintenance/repairs, etc. into your calculations.

If you keep renting until the nuclear family comes along, they you may be able to allocate even more than 20% towards saving/investing in the meantime. A snowball effect there may mean you could have even more for a down payment (earned passively) when it's the right time for the purchase, at which time you will likely be earning more.

Knowing what I know now, I would wait as long as possible for the headaches of home ownership. It's easy to be enamored early in one's career.

[Hank]

Ha, thanks for that reply . We have two kids that we are going to be sending to private school, and a vacation home (that we actually currently live in as a primary residence) in Tahoe which still has about 400K left in mortgage, so not too frugal unfortunately! Our gross income actually varies between 700K and 800K but i'm trying to be conservative with our estimates so that we're not too house poor. I also come from a very middle class background, so all of these numbers are... astounding.

I gotta say, buying in Oakland and paying for private school isn’t the way I would do it. Did you mean to say Piedmont?

Have you looked at what $1.5M to $2.1M would get you in San Mateo or Burlingame? Assuming the commute isn’t horrible, I’d look at just how much more house you could get by adding the monthly amount of private school tuition to a mortgage payment. Say $30K per year per kid for private school, no sibling or parishioner discount, that’s $5K per month for when the kids are in school. If you could get a comparable education at a public school, that’s a pretty nice contribution towards the mortgage payment.

The second home in Tahoe isn’t completely unreasonable either. I’d prefer to be on the Nevada side of the lake and look for job opportunities in Reno, but it’s your choice to spend an extra 10.3% to 12.3% on California income taxes when you don’t have to. (At least you know the money will be spent prudently and not just wasted in Sacramento )

[NorCalEDMD]

I gotta say, buying in Oakland and paying for private school isn’t the way I would do it. Did you mean to say Piedmont?

Have you looked at what $1.5M to $2.1M would get you in San Mateo or Burlingame? Assuming the commute isn’t horrible, I’d look at just how much more house you could get by adding the monthly amount of private school tuition to a mortgage payment. Say $30K per year per kid for private school, no sibling or parishioner discount, that’s $5K per month for when the kids are in school. If you could get a comparable education at a public school, that’s a pretty nice contribution towards the mortgage payment.

The second home in Tahoe isn’t completely unreasonable either. I’d prefer to be on the Nevada side of the lake and look for job opportunities in Reno, but it’s your choice to spend an extra 10.3% to 12.3% on California income taxes when you don’t have to. (At least you know the money will be spent prudently and not just wasted in Sacramento )

Thanks for the input, all good points. Actually the private school is the main reason for our move - we work in the Central Valley a few days per week and otherwise remotely so commute wise it’s a slog either way. We’re sending the kids to Jewish day school and that’s important to us, though yes the price tag certainly hurts. The school itself is in Oakland, and while we could potentially afford to live in Piedmont or Berkeley instead, we couldn’t do that AND keep the Tahoe house. Looked at jobs in Reno btw and didn’t like what I saw - love my current job but it’s in Cali! Taxes, yes, painful for sure, but being from NY originally I’m no stranger to them...

[Bonez]

Just out of curiosity.... Why would a seller care how much you are putting down if you can get a mortgage to cover the difference between the down-payment and purchase price?

If I was selling a house, I could care less if someone put 10% down vs 50% down so long as they had been approved for a mortgage that covers whatever is left over to meet the price they agreed to pay.

[Tim]

10% down leaves an uncertainty that the mortgage will turn into reality, FOMO.
50% down leaves an impression that the mortgage is a formality.
100% down leaves only question, “When?”