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How much is too much mortgage for my income?

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  • #31
    I have been staff for almost 7 years. I would like to say mid-30s (36, so probably late 30s now). Similar salary range: $550-650 based on how much I choose to work extra. I bought a home for $1 mm even. I feel comfortable and am enjoying my Tesla. We have one child and daycare is about $2000 a month. We save about 25% of our pretax income.

    Therefore, we are nearly identical in some baseline metrics. I would say $1.5 is probably your MAX. These days, I am so appreciative of where we landed on home price, which is MCOL city so apples and oranges for what we get here compared to what I assume is Bay Area. Soon, when daycare is done and I have paid off my second mortgage (partitioned conventional max $548K at 2.1% for 15 years and HELOC for the extra $200K of my balance -- I will get rid of in two years)... THEN I will be really saving huge sums with the ability to think about doing a sabbatical, taking nice trips, and most importantly decreasing my FTE to 0.75.

    So think about how heavy your lift is going to be over time and don't get trapped into a big mortgage.

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    • #32
      Originally posted by STATscans View Post
      Curious about comments. Sentiment is “yes it can be done but don't do it”. Is it because of low savings? Lets say he had 2 million in taxable and 401/ira/hsa/529 and all other things being equal, would you tell him, “yes do it?”
      In taxable $2m would make a difference IF it free from retirement savings. Liquidity at the expense of taxes. You can actually get a loan or liquidate. Do I want to pay cash or carry a mortgage is a different question.

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      • #33
        Originally posted by IlliniGopher View Post
        I have been staff for almost 7 years. I would like to say mid-30s (36, so probably late 30s now). Similar salary range: $550-650 based on how much I choose to work extra. I bought a home for $1 mm even. I feel comfortable and am enjoying my Tesla. We have one child and daycare is about $2000 a month. We save about 25% of our pretax income.

        Therefore, we are nearly identical in some baseline metrics. I would say $1.5 is probably your MAX. These days, I am so appreciative of where we landed on home price, which is MCOL city so apples and oranges for what we get here compared to what I assume is Bay Area. Soon, when daycare is done and I have paid off my second mortgage (partitioned conventional max $548K at 2.1% for 15 years and HELOC for the extra $200K of my balance -- I will get rid of in two years)... THEN I will be really saving huge sums with the ability to think about doing a sabbatical, taking nice trips, and most importantly decreasing my FTE to 0.75.

        So think about how heavy your lift is going to be over time and don't get trapped into a big mortgage.
        Late 30s does not start until 37.5. I give you full internet stranger permission to say mid thirties.

        Daycare is a B. But at least it ends some day and then we will have extra money!!!

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        • #34
          Originally posted by STATscans View Post
          Curious about comments. Sentiment is “yes it can be done but don't do it”. Is it because of low savings? Lets say he had 2 million in taxable and 401/ira/hsa/529 and all other things being equal, would you tell him, “yes do it?”
          The difference between 450k and 2 million saved by mid/late 30s is huge when you take into account the effect of compounding over the next 2-3 decades. When you commit too much to mortgage too young before you’ve really built your initial nut that is going to compound you really limit your options later on. The more you rapidly save in your 30s/40s the more options you have later on.

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          • #35
            Originally posted by clozareal View Post

            90/10 in favor of taxable accounts. Recently got involved with financial advisor used by my family who is helping manage retirement/savings goals. Have about 20k emergency fund which will continue to build up over the next 6 months of residency.
            Wait a minute. You are still in residency? This is an even bigger push to say wait a bit. Just be patient.

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            • #36
              Originally posted by IlliniGopher View Post

              Wait a minute. You are still in residency? This is an even bigger push to say wait a bit. Just be patient.
              WOW, I missed that somehow. OP-So you haven't made 500K in salary yet? Or is your spouse a high income earner? Kuddos to having 450k saved as a resident. Forgetting just the financials of it, read up on all the "should I buy a house now that I signed up for my new job" posts on this forum. Almost universally the answer is no, not until you've been at said job for over a year or 2 and know how stable/good it is. Especially if you signed a non-compete.

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              • #37
                Originally posted by IlliniGopher View Post

                Wait a minute. You are still in residency? This is an even bigger push to say wait a bit. Just be patient.
                I hope he meant residency in the State of CA and not medical residency. That would be a bad decision.

                This thread also answers the other thread about why shouldn't making 800K for 30 years not make one filthy rich. This couple will come close in income at 600K per year but will not be filthy rich after 30 years. More likely to be living dangerously close to the edge most of the time.
                Last edited by Kamban; 01-27-2021, 06:06 AM.

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                • #38
                  Originally posted by Kamban View Post

                  I hope he meant residency in the State of CA and not medical residency. That would be a bad decision.

                  This thread also answers the other thread about why shouldn't making 800K for 30 years should make one filthy rich. This couple will come close in income at 600K per year but will not be filthy rich after 30 years. More likely to be living dangerously close to the edge most of the time.
                  What could go wrong?

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                  • #39
                    Originally posted by IlliniGopher View Post

                    Wait a minute. You are still in residency? This is an even bigger push to say wait a bit. Just be patient.
                    I was wondering if anyone would were to pick up that little nugget of information. My guess is this individual is still in their medical/surgical residency at it is January and 6 months from now is July so that would be consistent with a graduating resident.

                    Of course you can make this decision, but you will unlikely ever feel financially independent and comfortable “taking your foot off the gas”.

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                    • #40
                      Originally posted by endo4jc View Post

                      I was wondering if anyone would were to pick up that little nugget of information. My guess is this individual is still in their medical/surgical residency at it is January and 6 months from now is July so that would be consistent with a graduating resident.

                      Of course you can make this decision, but you will unlikely ever feel financially independent and comfortable “taking your foot off the gas”.
                      I will chalk this up to another HCOL post where the “norm” is $2 mm homes and people just get trapped thinking this is what “everyone does.” My brother in law in Toronto thinks his max budget is $3 mm (as an academic nephrologist). Same age as me, zero retirement, all his eggs in one basket (home).

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                      • #41
                        Originally posted by endo4jc View Post

                        I was wondering if anyone would were to pick up that little nugget of information. My guess is this individual is still in their medical/surgical residency at it is January and 6 months from now is July so that would be consistent with a graduating resident.

                        Of course you can make this decision, but you will unlikely ever feel financially independent and comfortable “taking your foot off the gas”.
                        Likely to feel that the tank is empty and you are running on empty. What are the dangers? Some don't realize that life is a marathon, burnout and suicide are two words that are frequently mental hazards mentioned related to physicians. Train for the long run, not the sprint.
                        https://youtu.be/MuwLU2z2Cx0
                        It will be alright.

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                        • #42
                          There are a lot of ways to skin a cat. I think going above 3x is very reasonable in the proper setting, especially as your gross income increases if you keep the remainder of your expenses down.

                          My wife and I have an income of 750k in Silicon Valley which will rise to ~1m as a partner. We stay here due to family ties, loving the area and weather, and our jobs (I earn 90th percentile for my specialty, not sure I could replicate that elsewhere I would want to live.

                          To buy a nice (4BR, 2500ish squ feet) in a very good school district here is about 3-3.5M, say 3.5 for the sake of argument.

                          Savings: 40k (401k) + 40k (401k matches) + 30k max cash balance plan + 12k Backdoor Roth= 112k retirement savings before even looking at take-home pay, which is 42.5/month. This is excluding the wife's pension, which would be a 60k annuity if she stays at her present job.

                          A 3.5M house with 20% down PITI will cost 15k/month, leaving 27.5k/month for everything else.
                          After all expenses, childcare, 529 contribution, etc. saving 12-14k/month = total savings rate of ~25%. This is excluding the pension and the fact that our retirement expenses will be much lower as a percentage of our pre-retirement expenses as once the house is paid off our costs go down by a much higher percentage. Of course, we could live a much more extravagant lifestyle elsewhere with the same income, but this is where our values are.

                          Like WCI says, you can have anything but not everything you want.

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                          • #43
                            Better hope you don't slip off that treadmill. You have it set at 12 mph and an incline of 45 degrees.

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                            • #44
                              Originally posted by Lordosis View Post
                              Better hope you don't slip off that treadmill. You have it set at 12 mph and an incline of 45 degrees.
                              You’re right. There is risk involved. If socialized medicine cuts our salaries in half we’d have to sell. Disability or life I’m insured against, but not loss of income. There is also risk in lack of diversification with so much net worth and leverage in a single asset. There is of course an upside to this, a levered appreciating asset that can be sold or left to heirs. Almost anyone who has bought in HCOL areas has been a big winner in the last 40 years unless the great recession forced you to sell, but of course past performance doesn’t guarantee future results. A doctor in a lower COL area doesn’t need to take that risk to achieve their goals. It is a more prudent/lower risk approach.

                              But you only get to live once and I’d rather take the less prudent approach, live where I want to live and be near family, knowing this makes sacrifices in other aspects of living. Such is life.

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                              • #45
                                Originally posted by TheTodd View Post

                                You’re right. There is risk involved. If socialized medicine cuts our salaries in half we’d have to sell. Disability or life I’m insured against, but not loss of income. There is also risk in lack of diversification with so much net worth and leverage in a single asset. There is of course an upside to this, a levered appreciating asset that can be sold or left to heirs. Almost anyone who has bought in HCOL areas has been a big winner in the last 40 years unless the great recession forced you to sell, but of course past performance doesn’t guarantee future results. A doctor in a lower COL area doesn’t need to take that risk to achieve their goals. It is a more prudent/lower risk approach.

                                But you only get to live once and I’d rather take the less prudent approach, live where I want to live and be near family, knowing this makes sacrifices in other aspects of living. Such is life.
                                Doesn't seem crazy to me. Post mortgage, the remainder of your salary is still about as much as my entire salary. Barring a big cut in income, you seem to have a large margin of safety.

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