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Upgrade or wait.. another case scenario!

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  • Upgrade or wait.. another case scenario!

    Hi all,

    This forum is great! Lots of good input.


    So my scenario is that we have been in our first/current home for the past 3 years on a 7 year ARM - 3.4% - house is probably worth ~550K. 1700sqft

    Wife is currently not working, 2x kids in preschool.

    I'm salaried, ~ 340K


    We are thinking of upgrading to a home in a HCOL area.

    Now the home we are interested in is 935K-

    I've been prequalified for a loan 900000 - 3.8% 30 yr fixed; 10% down,

    In terms of the equity on our current house we'd probably get 130K to put towards the new mortgage, and have about another 100K saved.


    As much as i'd love to just get it, i feel like i should try to save more before we make this kind of jump; whereas my impulsive part of me says to just do it and figure it out afterwards.  Was thinking of aiming to save for a total of 300K to put towards reducing the loan amount.  Maybe even aim to get a non jumbo loan..

    What also annoys me of this decision is the amount of interest i'd be paying... is this something we just accept ? or is that the reason why nobody would make this decision!

    Thanks in advance for your input!

  • #2
    I'd try to put down at least $250-300K if it were me, but you wouldn't be the first doc in a HCOL to pay this much for housing.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011


    • #3
      Qs to consider:  kids in elementary school:  private or public?  Public -- is that the house you want in your school district of choice?  If private - have to consider the costs and factor that into your costs.  Also remember the elementary school kid stuff costs -- ballet/sports/events, etc.

      Is the next step house good for 5-10+ years?  Project forward through Elementary into Middle school years and probably High School.

      Also good time to gut check the job situation and potential for change there.

      ---THEN decide if jump is worth it.

      IMHO - good time to jump with rates pausing and drifting down going into the fall season -- great time to look a bargains and homes.

      IMHO where others here will disagree -- 30 yr 10% down is fine.  take full advantage of the deduction .  In fact i would try to push that prequal to a max 1M loan if it doesn't affect your rate .   in 10 years, that mortgage payment will be small compared to salary and savings compounding.



      • #4
        The school year has started, so home prices already are down a good bit.  Now could be a good time to start looking for a new house if you're so inclined.  Typically the very best time to buy a house is between Thanksgiving and Christmas.  Only motivated sellers want to keep the house in tip-top shape to show it instead of just waiting until the new year.

        I agree with StarTrekDoc about looking at what high school your new home would feed into.  If you have to pay more for a house in a good school district but the cash outlay is comparable to sending the kids to private school, then remember that you're building equity and getting favorable tax treatment on the pricier house in the good school district.  You aren't going to get a tax deduction for sending your kids to private school.

        That said, bigger houses cost more to heat, cool, furnish, decorate, etc.  The property taxes and landscaping can cost more and it can be tough to resist keeping up with the Joneses.  Millionaire Next Door and all that.


        • #5
          i have no problem with mortgage debt (leverage) in practice, but for me personally that is too much mortgage for your income to feel comfortable.  there are always tradeoffs.  That kind of debt does significantly delay your time to FI.  Lots of people make the tradeoff, but just be aware that it is there.  If you choose to take fancy Disney vacations and European trips, you keep adding time to achieving FI.  It depends on whether that is a priority for you at an early age or at a later age.

          Unless your wife would be really happy.  that's what made us get our 'doctor' house.  cause it made my wife happy.  even then, for us the doctor house was significantly less than 1x annual salary.  we don't live in hcol area however, so we had this option.

          expensive houses mean higher property tax, maintenance, etc.  you know all these things.

          good luck!



          • #6
            340k income, 900k loan. That is 2.65 times your income. No way I'd take on that big of a loan on 340k. 2x your income is as high as I'd go (and it would have to be a perfect house and I'd really have to need that house). And this is coming from someone who places a lot of value on having a very nice home. You just need a higher income to afford that house.


            • #7
              The new mortgage will create a large fixed monthly cost on your 340K income.  Sit down with your wife and understand what you will be trading to pay for the mortgage.  The money will have to come from somewhere.  Are you both ready to make the trade offs required?


              • #8
                Depends on how much you spend.  With a reasonable lifestyle, payment on a 900k house should be no problem at your income.

                Will your wife want to fill the house with expensive furniture?  Will you have to join the neighborhood country club?  How much will school cost?  Do you need to upgrade both cars to match the house?  What will property tax and insurance bills be?

                Also, your wife isn't "currently" not working, she's retired.   


                • #9
                  Yeah I have to echo that if it were me, it's too much mortgage. It will really handcuff you in the future if you were wanting to go part time for instance or wanted to reach FI earlier. Sure you can make the payments, but remember that the mortgage payments are the minimum you'll spend each month on housing. There will be utilities, taxes, repairs, upgrades, etc. I would stay well below the 2x salary guideline if it were me.


                  • #10
                    I'm confused by the post and responses.

                    Home costs $935k and you'll have $230k toward down, net of your current home sale. That sounds like a $700k loan against income of $340k. Seems utterly reasonable.


                    • #11

                      I’m confused by the post and responses.

                      Home costs $935k and you’ll have $230k toward down, net of your current home sale. That sounds like a $700k loan against income of $340k. Seems utterly reasonable.
                      Click to expand...

                      Can't speak for jws, but the impression I get is that he would be selling his current home after buying the first.  So there's going to be some lag time there.


                      • #12
                        I think this is fine if you are planning a normal length career

                        If FIREshrink is right (which was also my interpretation)a 30 year mortgage at 3.8% on 700k has a monthly payment of $3262 or a little over 39k annually or a little over 10% of your gross income and <20% of net assuming reasonable races

                        Obviously not the thing to do if you are desperate to retire at 45, but otherwise should be fine

                        In my HCOL area it is hard to find anything moderately close in with good public schools under a million.



                        • #13

                          I’m confused by the post and responses.

                          Home costs $935k and you’ll have $230k toward down, net of your current home sale. That sounds like a $700k loan against income of $340k. Seems utterly reasonable.
                          Click to expand…

                          Can’t speak for jws, but the impression I get is that he would be selling his current home after buying the first.  So there’s going to be some lag time there.
                          Click to expand...

                          If that's the case, if jws can make the payment work for awhile until the old home sells, it would be easy enough if the lender allows re-casting/re-amortizing to just pile the money from the sale of the home into the mortgage, recast the loan, and lower the monthly payment to match the amount of what would originally have been a $700k mortgage.  You just need to verify with the lender that the lender allows re-casting.


                          • #14
                            Thanks everyone for the input! Much appreciated.


                            To clarify my previous post.

                            The loan for 900 000 would be if we were unable to sell our home.


                            The second scenario would be to accumulate the downpayment to contribute 300K towards the 900k house .  mortgage would be 600 -700K.(depends on what i can save and scrounge up)


                            Also, any thoughts in taking out personal line of credit  loans to come up with the down payment?..

                            Swansong: Thanks for the suggestion of recasting.. i'm surprised the mortgage guy did not mention it.