Odd (good) financial situation starting residency - how much house to buy?

[EH]

Also really not clear on how you will afford 3k/month living expenses in addition to a huge mortgage on a resident's salary. Your living expenses are only going to go up when you have kids, so not sure where all of that money is going to come from. Given you are starting out from a good place, I would want to continue to live within my means and start paying into retirement rather than spending all of our net worth to buy a very expensive house now.

[Hatton]

Agreed your situation is better than most people who post who are just starting residency.  I am always cautious about houses because it is so easy to lose money on the transaction.  The house price seems high to me.  You may be in a really high COLA however.  It seems wiser to me to buy a larger house after you have kids.  You also want to make sure your wife likes her residency program as well.

[Allonblack]

How much appreciation is there on your 300k house? I believe there is a tax advantage to selling and buying a new house, rather than selling a house and investing it.

 

As for what you can afford, I just plugged in making 50k a year combined in NJ (You didn't mention a state so I just picked one.) Your take home would be 39700 a year. If you continue to spend 3k a month on non-housing related expenses you will have 3700 A year for mortgage.  Did you mean 750K post-residency? Or do you plan on using the 300k not only as a downpayment, but also as a source to pay off your mortgage cost? If so that won't happen. They're not going to lend you 750k on a 50 k a year income regardless of how much of a stockpile you have. What happens if you blow it all on cocaine and roulette? (I've had this issue with landlords, they consider a job safer than savings for paying rent) Even if you could find someone to lend you the money, you're playing with fire.

So what can you afford? Going by the conventional wisdom that 15% of your gross can go to mortgage. If you put down 200k you can afford a 300k house. If you put down 300k, you can afford a 380000 dollar house. I wouldn't do either of the above, but there you go.

[awesomesauce]

I agree that we got VERY lucky with our first house.

 

That said, I will be giving up my job when she starts residency (we need to move, and my job is not telecommute-able), I'm exceptionally handy with maintenance issues and home improvement, and she already has the PhD. Our desire is to upgrade homes, have me stay home and take care of cooking/cleaning/maintenance/kids, and she'll only have to deal with residency (and pregnancy). If we decide against kids, I'll try to find a new job, but we'd like to not need to rely on my employment to make the mortgage payments.

In light of that, is $600 or $700k on an ARM unreasonable?

I've found this to be a difficult to answer question, as most of the financial advice for residents is aimed at those with ~$300k debt. We're in the odd situation of having a ~$400k net worth, starting residency.

[Hatton]

I would not commit 750k to a house at this point.  I would max out your 401ks, backdoor roths, and maybe even a taxable account.  Your wife is 5 years out from making 300k.  Presumably she will try to juggle residency and pregnancy.  You also have a high paying job.  You got lucky with your first house.  I think it would be very hard to deal with home maintenance issues, residency, working on a PHD, and a pregnancy at the same time. There is plenty of time to buy a house when things are more certain with your job situation.

[awesomesauce]

Good questions, thanks. Yes, we are in a sable, committed marriage. I mention living expenses because it seems like we spend about $3k/mo on all non-housing related expenses, which seems a little high (but, whatever - we enjoy good food). SO is not planning an academic career - she is going into a sub-specialty where average starting salaries hover around $300k.

[Hatton]

Are you and SO planning to marry at some point?  What do you mean by we spend a lot on living expenses?  Is the SO planning an academic career?

[awesomesauce]

Long time lurker of these forums, coming to ask for some advice/perspective as my significant other is starting MS4 and beginning to think about residency:

We have gotten lucky in that I worked in a high-paying job while SO was in medical school. We outright own a house, worth ~$300k, in a hot (seller-friendly) housing market. No debt at all (student or otherwise). About $50k in savings and another $50k in retirement accounts. Being 30, we're probably a bit behind on retirement savings, but we are debt-averse and wanted to pay off the mortgage.

We'd like for me to stay home with (future, potential) children while SO is looking at a combined residency/fellowship program (SO is an MD/PhD) that will take 5 years. So assuming my income is zero, but we have this pile of at least $300k in cash on-hand (once we sell this house), and SO is making a resident's salary, how much house could we reasonably afford to buy?

I know that buying a house in residency is generally "bad", but we really hate renting, and will likely be in the same place for 5 years. Also, we tend to spend quite a lot on living expenses.

My calculations lead me to think that we could afford about $750k on a 5/1 ARM.

Any thoughts on that, or other sage advice about our financial situation as we begin this rocky ride?