Announcement

Collapse
No announcement yet.

How much house can I afford in HCOL area?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • jfoxcpacfp
    replied
    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?

    Leave a comment:


  • mamaham
    replied
    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.

    Leave a comment:


  • Tim
    replied
    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.

    Leave a comment:


  • IlliniGopher
    replied
    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.

    Leave a comment:


  • cards67
    replied
    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.

    Leave a comment:


  • Kamban
    replied
    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.

    Leave a comment:


  • FIREman
    replied
    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.

    Leave a comment:


  • Dont_know_mind
    replied
    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.

    Leave a comment:


  • Hatton
    replied
    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.

    Leave a comment:


  • White.Beard.Doc
    replied
    The cost of running the house will increase with inflation over the years. In 15 years, the cost of property taxes, utilities, and maintenance could double if there is inflation of 5% per year. I know that has not been the case in recent decades, but inflation has been more than 5% for services like home maintenance in the last couple of years. Wages are currently going through major inflation, as there is a severe shortage of workers in the US at the moment. We don't know what direction that will go, but wage inflation is going to be quite high for a while at least, and wages affect things like child care and home maintenance significantly.

    We live in a house that is in your target price range. We are mortgage free and we spend around 100k per year on property taxes, lawn/snow/home maintenance, utilities, and cleaning. I think of the net worth needed to support the house in retirement like an endowment specifically for the house. 3M in retirement savings is what we consider to be the house endowment fund that supports only the cost of the house in retirement, with no mortgage to pay. Yes, we are in a high property tax county in a high property tax state, so we have to take that into consideration. Your situation may be different.

    For me, with your income, a target price of 1.5M would be doable, maybe slightly more if you can keep your mortgage around 1M with a large down payment. Anything more than 2M, I would expect to be house poor, with the house reducing options for changes when kids come along and prolonging the years it will take to get to FI.

    What if one of you wants to cut way back on work with kids? You don't really know what having kids is like until you actually have them. Reading about it and living it are two very different things. My spouse was a high powered lawyer, she worked full time after kid #1, and debated and debated after kid #2, but ended up as a SAH parent, not working, for more than a decade. Yes, this was before work from home was an option, but we still had a nanny and the expense that goes along with that.

    Good luck with your decision. In your shoes, I might keep saving, stay put until kids come along, or buy a house that is more modest in price so that you are not a slave to the house.

    Leave a comment:


  • StarTrekDoc
    replied
    You can make the cashflow work, yes. FI/Retire 50s? That's a really hard one based on your given parameters. If you're looking at 2-3M homes; the kids simply are going to cost even in the most public school budget oriented mentality.

    Leave a comment:


  • Bellescamp
    replied
    Yeah not to pile on but I think you are underestimating the costs of raising kids in a neighborhood with multi-million dollar homes. Stuff adds up quick. There is no longer “living like a resident” in that scenario

    Leave a comment:


  • EH
    replied
    I have no idea how the math works if you think you are going to spend 150k on housing for 30 years but reach FI at 15, while paying for college costs after that point. This seems wildly optimistic. You could pretty reasonably plan on spending 2m (with your 700k down) will be much less than 150k housing. Still more than many here would spend, but certainly what you'd be spending in my vhcol area for significantly less than 3500 sf. Even with that I am highly doubtful you will be FI in 15 years. I'd plan on saving 20% gross income for now as you are behind on retirement. I also agree you are grossly underestimating kids costs and lifestyle inflation in an area with 3m houses. with 2 kids most people near me will pay 40-50k/yr for the double preschool years. After care and camps are pricy (camps are 2k/month here). Then there are the unanticipated costs - I planned on public school, yet here I am due to kid specific factors spending 30k/yr on private school - before kids I would have told you there was absolutely not a chance in the world I would do that. Add in activities, sports (crazy if they are doing the travel thing), tutoring, etc. It's easy to say you won't do any of that now, harder when you are in an expensive area where all of their friends are doing it. Vacation costs go up unless you like going to bed at 8pm with your kid (if I'm not camping I'm usually in a 2br airbnb). Food goes up or eating out does because you need convenience. You want a safer or bigger car for those kids perhaps. Someone decides they need to reduce hours to help keep up with all the kid work so income goes down. That 2-3m house needs a renovation to make it just right, or just the maintenance on it is going to be steep. If you buy that 3m dollar house you are going to be doing so at the expense of other things you may want - early retirement, travel, kids activities, less work, not having to penny pinch, etc. And unless you are planning on moving out of that 3m house in 15 years to go to a 500k condo in a lcol area I'm not sure how living in it helps you - it's not going to pay your expenses in early retirement. It's not even going to be paid off for 15 more years.

    Leave a comment:


  • wideopenspaces
    replied
    Originally posted by forgetthebananas View Post

    Thanks for the reply! Tbh nothing wrong with the current situation. We’re just thinking in the next year or so when we have kids we want to live in a larger home in the suburbs where it’s very expensive.

    an alternative is buy a starter home of maybe 1 M and see how we are in that. Then when the kid(s) get older we move into the 2-3 M home, while continuing to live like residents and hopefully the house appreciates in value so we can move into a bigger home. Haven’t really thought out that strategy though.

    I just replied to someone else about the part time situations that may come up. We really don’t see the income dropping below 500k, we both have pretty great work life balance. Maybe it will drop towards 450k, but even then with 20% for retirement on after
    Tax income, minus again MAX of 150k for housing costs, and subtracting tax in a no state income tax state, it comes out to 90k left over for transportation/food/miscellaneous spending/more money for kids (529, their activities etc.).

    Kids will be brought up in public school. But for college, if they can get into a good private school, we’ll try to support them 100% through. If they can’t get into a good private school, then it’s the state school for them. We aren’t paying for them to attend some random college for 60k a year…sorry kid and sorry if that offends people. In state tuition at a solid state school is what the kid’s gonna get.

    Our parents will be in the area as well and they can help financially/with home stuff/help in general with the kids. Both sets are willing and able, and we want them to interact with the kids. Also- we should receive a somewhat sizable inheritance, anything less than 500k combined I would be surprised. Anything greater than 1.5 M we would also be surprised, just the other end of the spectrum.

    in terms of our investments- it’s simple. 100% stocks and into SPY and QQQ. We will never change that strategy.

    you’re right- maybe one/both of us will have to work until 65…it’s just idk. With my numbers if we save let’s say 80k a year…after 15ish years that will be 1.2 M. With investments growing, the total $ of those investments will be around 2 M I think. I mean with 1.5-2 M around 50 years old with a ~3 Million dollar home value…shouldn’t We be close to done? Again maybe I’m really underestimating how my expenditures may explode as the kid grows older or if we suddenly go on huge spending sprees lol.

    another alternative is just live in a lower COL part of the country lol…that way can get rhe ~3k sq ft home without paying 2-3 M
    I just don't think you understand how quickly you're going to go through 90k. To give you an idea, we have 2 kids (5 and 13), doing public school and we own 1 2008 corolla. We spend 13k/ month which includes 3.5k on 2 mortgages and 3k on the nanny. So other spending comes down to 6.5k/month. And my husband and I are not out spending a lot of money on ourselves, buying luxury anything. That monthly amount does not include any vacations or summer camps or bigger home projects or even our yearly gym membership and earthquake insurance or 529 contributions. And we are in a mcol area where both mortgages together were about 700k. So you think you'll be able to cover vacations, childcare, 529 contributions, probably 2 nicer cars than we own, home maintenance/cleaning/landscaping a 2M-3M home and all day to day spending with 7.5k/month? I think you are kidding yourselves. I understand that people raise kids on less but if you're living in an area where everyone owns a several million dollar home, it's not going to be easy.

    Leave a comment:


  • Anne
    replied
    Originally posted by forgetthebananas View Post



    I just replied to someone else about the part time situations that may come up. We really don’t see the income dropping below 500k, we both have pretty great work life balance. Maybe it will drop towards 450k, but even then with 20% for retirement on after
    Tax income, minus again MAX of 150k for housing costs, and subtracting tax in a no state income tax state, it comes out to 90k left over for transportation/food/miscellaneous spending/more money for kids (529, their activities etc.).

    Kids will be brought up in public school. But for college, if they can get into a good private school, we’ll try to support them 100% through. If they can’t get into a good private school, then it’s the state school for them. We aren’t paying for them to attend some random college for 60k a year…sorry kid and sorry if that offends people. In state tuition at a solid state school is what the kid’s gonna get.

    Our parents will be in the area as well and they can help financially/with home stuff/help in general with the kids. Both sets are willing and able, and we want them to interact with the kids. Also- we should receive a somewhat sizable inheritance, anything less than 500k combined I would be surprised. Anything greater than 1.5 M we would also be surprised, just the other end of the spectrum.

    you’re right- maybe one/both of us will have to work until 65…it’s just idk. With my numbers if we save let’s say 80k a year…after 15ish years that will be 1.2 M. With investments growing, the total $ of those investments will be around 2 M I think. I mean with 1.5-2 M around 50 years old with a ~3 Million dollar home value…shouldn’t We be close to done? Again maybe I’m really underestimating how my expenditures may explode as the kid grows older or if we suddenly go on huge spending sprees M
    1. 1.5-2 million when you have a 3 million dollar house and the associated maintenance/taxes is not going to be nearly enough. Not to mention you said 30 year mortgage and this is 15 years away…so will still have 15 years at that point. Unless you mean sell the house and markedly downsize at that point…which is much easier to say now than do at that point
    2. Don’t underestimate the effect of living in a nice neighborhood in a nice part of a nice area of the country on your spending habits
    3. Kids are going to cost more than you think
    4. 80 k out of 550k is not enough unless you are Doogie Howser aged. 20% if normal doctor age, more if late start or want to RE
    5. Don’t underestimate the chance that your career satisfaction/desire to do something else might change with time. Hopefully it won’t, but still a chance
    6. If you are looking at a 500k to 1.5 million dollar inheritance don’t underestimate the chance that some or all of those parents may need it for long term care and you end up with much less.

    You can buy this house but everything has to work in your favor, you will have less spending and life choice flexibility, and more financial stressors than someone who makes 500k+/year needs to have. I wouldn’t go higher than the 2x income rule for the mortgage which if you use that entire down payment (which personally I would rather invest some of that now) puts you around 1.8 million

    Leave a comment:

Working...
X