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How much house can I afford in HCOL area?

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  • #16
    I think you should wait until you actually have kids before undertaking a big mortgage in anticipation of their needs. Life has a way of throwing in curveballs. I would buy a more reasonably priced house now and reassess your needs in 5 years or so. Invest most of the down payment money and grow your retirement funds.

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    • #17
      Although there are transactional costs, it can work out better to buy something more affordable earlier.
      The first house I bought was 300k, then 600k, then 1.2M then 2.5M. You could probably skip to 1.2M, but yeah, it's a bit to digest a 2.5M purchase on your net worth. Our household income was around 1M, net worth around 5-7M when we bought the 2.5M house. I still found it quite stressful.

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      • #18
        I'd say reconsider the notion of a "starter home" no matter what, it is your first home. After you experience home ownership for several years you may find your needs/wants shift. I relate to this a bit because we purchased what we thought was our "forever home" at the time...Suburbs... and it was a bonus that its LCOL, somewhat geo-arbitrage. It felt like a win-win because it was under budget, newer construction, and seemed like a home we'd stay in. 5 years later, our priorities have shifted and we will be looking to move to something potentially smaller, requiring less maintenance, and in a more city, walkable neighborhood, as we have discovered we are definitely NOT suburb people. Thankfully, the value has gone up, but I'm glad we have been sitting in this house for the past 5 years, building net worth and then realizing we wanted something different as opposed to sitting in the 1mi+ house for the past 5 years with less net worth and greater housing expenses.

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        • #19
          I am not sure what a starter home means to you but here was our situation.

          About 19 years ago we bought a home for under 200K - decent 3 bedroom in a middle class neighborhood when pretty much any new attending was buying in one of those golf course doctor community home that cost 750K+. Our home was to be one we would live for 5 years, save money and then build a new home.

          We liked the starter home so much that we stayed for 17 years. Because we had no peer pressure from other physicians to spend, spend, spend we were able to save a lot. We enjoyed talking to the average citizen rather than a snobbish physician when we went for our daily walk.We got to know what we liked and did not like in a home. So when the time came to build, we spent almost 8X our initial amount on a new build that we were able to cash flow.

          So buy a $1.5-2M max home, live for 5+ years before you decide to upgrade your home. You will not only find what you want in a home but will also know what it costs to rear children. Living like a resident sounds good to say when you are DINK but will be a 180 degree turn when 2 kids arrive.

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          • #20
            Seattle? UW is a fantastic state school. Anyways, $3M house is a bit too rich even for me, and I live in HCOL area and think 3x salary is perfectly fine. Personally I think I would be ok with a house value maybe up to 4x my salary. That's house value, not mortgage. Putting that much downpayment to bring mortgage down just wouldn't sit well with me. I know some who stretch their housing budget in HCOL areas but that's too aggressive for my taste. Even if the numbers look do-able, it seems like it's cutting it too tight. Unfortunately that's how HCOL areas go. I would love to live in a bigger, nicer house closer to work but that's just not in the budget, but that's the price for living someplace desirable. I think $2M would be more reasonable and I'd still wait until kid comes along.

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            • #21
              I have to make some recs because it's like talking to a past self. I am 37 and what I did in my first 5 years has totally shaped my independence now, I am 8 years in my staff job.

              I made the mistake of thinking you need a house before the kid. Absolutely not. Not until your kid is like 1-2 do you really need the space. Also, do not underestimate how much it costs to raise a family. At baseline, our daycare/preK was $2000-2200/mo living in a midwestern city. If you truly want to balance spending, housing, and financial independence -- what you do now is critically important. Even with a large down payment, you are going to be overextending yourself buying a $2-3 mm house. I didn't catch your age, but I would think about investing some of that $700K and buying a less expensive house in a few years once you have your child would be my recommendation. Housing costs are rising but don't let FOMO drive your decision and lock you into a home.

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              • #22
                Housing is an expense.
                Aligning you expense with income is important.
                A reality check is to finance for 15 years.
                Can you keep 20%-30% of gross total housing and have it paid off by retirement?
                ROT mortgage at or less than 2x gross comp.
                Run the numbers and I think you are over mortgage and your annual housing ROT’s.

                So many unknowns that this makes no sense without a very significant need.

                Oh, the 30 yr was to make it affordable I guess. That is a dead end.

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                • #23
                  Math doesn’t change just because you live in a HCOL area. Many posts on here asking the same question as if the math doesn’t apply to them.

                  I agree w others, don’t buy a house until you have kids. Your needs change so much.

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                  • #24
                    Originally posted by forgetthebananas View Post

                    Thanks for the reply! After subtracting tax, and 20% of that 550k, and also subtracting 150k for the housing expense, we still have -140k left over. Forgot to mention we’re in a no income tax state. My wife is WFH as a SWE, and realistically we can’t see her income dropping below 100-120k even if she goes part time (SWE is chill…should have done it myself), though can climb to potentially 175k+. And my income won’t realistically drop below 350k, this is accounting for if I go somewhat part time or sell out of the group’s weekend call shifts. that’s why we’re thinking the low end of our combined income is 500k. If we change it from 550k to 500k, then we’ll have 110k left over.

                    Should add that the 20% of the 550k is AFTER tax 20%, not pre-tax 20%. If it were pre-tax, then we would have around 70-80k left over.

                    idk…110k seems like enough for us to live reasonably. Wife and I definitely spend within the means, are still living like residents, and I don’t see us spending more than 50k of that on ourselves + transportation/food/some travel/weird potential purchases. That leaves about 60-90k a year on 1-2 kids (hopefully lol), with a bit into their 529s and activities.

                    Do these calculations make sense? Maybe I’m just tying to convince myself lol…or you are correct in that I should go for a house closer to 2 M instead of 3 M. Thanks again! Any thoughts are again greatly appreciated…definitely think I’ve found a solid community to learn from here.
                    SWE = Software Engineer?
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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