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How much is too much mortgage for my income?

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  • How much is too much mortgage for my income?

    Moving to a very HCOL area. Will likely be looking in the 2-2.75M range. Will have 20% to put down, so mortgage of 1.6-2.2M. Roughly 450k in savings (not including down payment). Late 30s, married. Total income 550k a year.

    FWIW not looking for mansions or anything fancy, this is just the price to live in the area we grew up in and want to raise our kid in. So while I'm aware I could do this for much less in other parts of the country, just curious if I'm way over extending myself based on our income. Appreciate your advice.

  • #2
    Depends on when you want to retire and if you want to live there forever.

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    • #3
      Originally posted by clozareal View Post
      Moving to a very HCOL area. Will likely be looking in the 2-2.75M range. Will have 20% to put down, so mortgage of 1.6-2.2M. Roughly 450k in savings (not including down payment). Late 30s, married. Total income 550k a year.

      FWIW not looking for mansions or anything fancy, this is just the price to live in the area we grew up in and want to raise our kid in. So while I'm aware I could do this for much less in other parts of the country, just curious if I'm way over extending myself based on our income. Appreciate your advice.
      Not a good idea in my opinion

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      • #4
        550-110 (20% towards retirement) =440 - 200( guess at taxes might be low) = 240 /12= 20K a month

        2M mortgage is about 10K a month.

        Property taxes? Probably at least 1K a month

        Insurance and upkeep? at least another 1K or more a month

        Vehicles? Kids? Food? vacations? Loans?

        Getting tight for my liking. But you got to fill in these gaps.

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        • #5
          Originally posted by CordMcNally View Post
          Depends on when you want to retire and if you want to live there forever.
          Ideally retire in 25 years. Plan to live in this house that entire time. Should also add, the estimated mortgage on this home would still allow for saving 18% gross income which SEEMS like it's more than enough, particularly when you factor in home equity and this area hasn't seen home value decline in decades (2008 included).

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          • #6
            Originally posted by Lordosis View Post
            550-110 (20% towards retirement) =440 - 200( guess at taxes might be low) = 240 /12= 20K a month

            2M mortgage is about 10K a month.

            Property taxes? Probably at least 1K a month

            Insurance and upkeep? at least another 1K or more a month

            Vehicles? Kids? Food? vacations? Loans?

            Getting tight for my liking. But you got to fill in these gaps.
            Appreciate the thoughts. I used some calculators to fill in these gaps.

            Taxes after accounting for 401k and deductions will net 28k a month. After accounting for further savings that would leave 23k a month. Running 2M mortgage through a PITI calculator seems to show 10.9k a month all in. Seems like I should have about 12k a month for everything else. I *think* this sounds like enough, but truthfully, not sure.

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            • #7
              Originally posted by clozareal View Post

              Ideally retire in 25 years. Plan to live in this house that entire time. Should also add, the estimated mortgage on this home would still allow for saving 18% gross income which SEEMS like it's more than enough, particularly when you factor in home equity and this area hasn't seen home value decline in decades (2008 included).
              You can do it but you're going to have to pay attention to your savings and expenses. I also wouldn't even think about home values at this point.

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              • #8
                It's obviously doable. Just have to be diligent. I personally wouldn't take 3.5x mortgage.

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                • #9
                  Originally posted by clozareal View Post

                  Ideally retire in 25 years. Plan to live in this house that entire time. Should also add, the estimated mortgage on this home would still allow for saving 18% gross income which SEEMS like it's more than enough, particularly when you factor in home equity and this area hasn't seen home value decline in decades (2008 included).
                  ROT = 2x gross. Forget the appreciation, you are living in it. The past is no guarantee of the future. Will you be able to afford it in retirement? You won't have much room to up savings or much of anything else. What about the proposed social security over $400k (12.4%)? Do you think Cali income taxes might go up? The point is if it doesn't work out, you are going to take a haircut and potentially destroy your retirement plans. Just noted that you already cut the retirement saving 2%. Not a good sign.
                  That savings was for retirement. What else would you save for? Get the point? Stretching it already.

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                  • #10
                    That’s really pushing it but you could figure out a way to make it happen. I suspect you’ll be very stressed about money for a long time. I would not do it. Good luck.

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                    • #11
                      The points above are well-taken. I could increase to 20% gross savings, maintain an 11k PITI, and have about 5k left over after accounting for food, gas, etc.

                      So what do you all suggest to feel more comfortable and not squeeze it? 6k? 8k?

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                      • #12
                        In my opinion, one cannot comfortably afford a $2.5M home on a $550k income. Can you get by, probably, the margin for error or lifestyle inflation is very narrow.

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                        • #13
                          I'm unclear on how much you have in retirement savings- is it the 450k? Do you have childcare expenses? Is the 529 taken care of? Will you have more kids? Will there be private school? I think 11k/ month just on housing is going to be tight if you are still trying to save for these other things. And still be able to take vacations, buy new cars periodically, etc. We grossed around 650k last year and only spend 5k on housing each month and I would not willingly double that number.

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                          • #14
                            Originally posted by wideopenspaces View Post
                            I'm unclear on how much you have in retirement savings- is it the 450k? Do you have childcare expenses? Is the 529 taken care of? Will you have more kids? Will there be private school? I think 11k/ month just on housing is going to be tight if you are still trying to save for these other things. And still be able to take vacations, buy new cars periodically, etc. We grossed around 650k last year and only spend 5k on housing each month and I would not willingly double that number.
                            Yes, we currently have 450k in savings. We'll be selling or doing a heloc on our current home which will allow for the downpayment on the next. Kid will be in public school by time of home purchase, no childcare expenses. No more children. I guess I'm just looking at things from my current standpoint where we get by just fine with an extra 2.5k a month in "extra" income after all bills are paid. But maybe this is not the right way to look at it if planning for the future, I don't know..

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                            • #15
                              I don't think that you are looking at the whole picture. If you take out a 1.5 million dollar mortgage on a 2 million dollar home (the low end of what you are looking at) and pay it off with a 15 year mortgage, at a 3% interest rate, are going end up paying $364,000 post tax dollars over the 15 years in interest. I don't know how property taxes are there, but in my area, they'd be some $30K per year of post tax money if you are not itemizing (total cost over 15 years=15X$30K taxes + $360 interest=$810,000 in non-refundable "fees" over 15 years. So you should compare those cost to something you can better afford, maybe a 1 million dollar home with a 500K mortgage over 15 years, about $121,000 in interest, and assume the property tax is half at 15K per year, you end up with a total cost of 15X$15K+&121,000=$346,000 or almost $500K of post tax money less then 2 million property. At your salary and tax rate, that's several years of additional work you will have to put in before you can retire. That's over-simplified math too, the effect is much more dramatic when you see what a $10-12K mortgage payment does to your overall cash flow and ability to invest in a taxable account for retirement and the lifestyle creep and increased maintenance that comes with a 2 million dollar home. I don't know how the commute is from the 2 million dollar homes, but I can't imagine most people's workplace being that close to those properties due to high cost of land. I would find someplace close to work that you can pay off comfortably prior to a potential early retirement. I imagine that a lot of doctors in their late 60's and 70's are wishing that they had not bought that nice home and had to continue to work during this pandemic.

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