Budget help#2: how much house and when?

[chocolatebear11]

One of my first post was whether I should get a Tesla. I listened to you and bought a used Honda. I’m currently starting my second year in practice.

According to blogs, I should be able to afford 800k home (2x gross income). I am currently renting in low cost of living area in the south.

I would like a 4br SFH for our growing family and 800k gets us a very nice home.

here are my stats
Family of 5, currently renting apartment.

Assets:
EF of 6 months
Roth 18k
Taxable: 17k
cash 50k
Income: 400k (increase from last year)

Liabilities:
medical debt 15k
student loans - paid off
car loans - paid off

[wideopenspaces]

You're lookin good! I'd plan to get 80k for dp and do a physician loan if you don't want to wait and save up the 20% dp.

[Craigslist]

Yes. Quick question, why no 401k, employer not offer it during your first year?

[White.Beard.Doc]

How much are you saving each month and how long will it take you to have the downpayment you will need for that 800k house? Given that you are in a LCOL area, would it be possible for you to buy a very nice family home in a good school district for say, $500k?

[chocolatebear11]

How much are you saving each month and how long will it take you to have the downpayment you will need for that 800k house? Given that you are in a LCOL area, would it be possible for you to buy a very nice family home in a good school district for say, $500k?

50% saving rate. Did look at 500k homes but salary should continue to increase in the next few years, so didn’t want to look back and think what if.

[chocolatebear11]

Yes. Quick question, why no 401k, employer not offer it during your first year?

Not offered by clinic. Small private

[Random1]

savings rate 50%

does that mean that you are saving about $15000 a month , where did the money go?

[White.Beard.Doc]

You are doing great so far, but you are just getting started with the high income. You may want to live like a resident for a bit longer so that you have more in the way of reserves before pulling the trigger on the big house. Of course the new house will be nice, but with all of my gray hair, I now have the perspective and the wisdom to know that the family and I were just as happy in our small 2 room apartment when I was a med student as we are now in the 6000 square foot house with the beautiful gardens.

[wideopenspaces]

savings rate 50%

does that mean that you are saving about $15000 a month , where did the money go?

I'm guessing they paid off their SL recently.

[CordMcNally]

Pay off the medical debt.

Don’t look at what you can afford. Look at what you need plus a few things (not everything) that you want. I bet that house is lower than $800k in your area.

[Tim]

I'm guessing they paid off their SL recently.

Paying off SL is not savings nor retirement savings. Yes it did benefit his NW.
The medical debt to me is a caution flag, not a red flag.
The EF will need to be expanded and the spend rate will expand as well.
I don't see the assets reflect 20% retirement saving rate.
The 50% is bloated by counting payment of debt as savings. That is not a criticism, simply an observation.
I understand the desire to buy a house, and he can! The question is whether he should.

• I did not hear a "need" to buy a house.
• "50% saving rate is bloated, the assets aren't there.
• Did look at 500k homes but salary should continue to increase in the next few years, so didn’t want to look back and think what if." This is a want, not a need.
• If he has suitable rental he would be financially much better off delaying a home purchase. Live like a resident for the first 5 years, now that means he would use the taxable and Roth to fill his 20% retirement savings, carve out his house down payment (HYSA?) and top off investments in the taxable.
• When "what if's" turn into "what if not", it is uncomfortable for a family of 5.
• My purpose is to encourage OP to dial back the "wants" to "needs" for the housing, simply the path of Tesla vs Used Honda. That is the best path and will result in the Taxable account, load up financial capital and put it to work. With a family of 5, that will be relieve future financial pressures.
• Housing is spending, I could even see renting a house being an option to get out of the apartment.
• In his situation, he needs to be saving $80k per year for retirement. $12k in Roth and $68k in taxable and wealth whatever.

Just my 2 cents. Those $500k homes may start looking a lot better (particularly if he was going to write a check out of the taxable for another $300k). What if's are seldom worth $300k.

My take is that OP is still adjusting to the jump in income. Housing is one of the big rocks to get right.

[Fugue]

I think you can swing it but it depends on the rest of your spending needs.

$800k with 10% on a 30 yr is a payment of somewhere around $6k/mo which is almost 1/3 of your take home. If you’re not big spenders in other areas the math probably works. Let’s say you bring home $20k/mo. After 20% savings you have about 7k left over for everything else. Doable, but you have 5 kids. are you planning on saving for their college? Private school? The math becomes harder if you’re trying to save for 5 college tuition levels. What do your other fixed and variable spending look like?

I was tempted by a home in that range and ended up much happier with a less expensive purchase and smaller fixed monthly expenses. Just gives a lot of flexibility. I’d probably aim for a lower price range personally, but if this is incredibly important to you and a high priority for your family, then just go in with the understanding you may have to sacrifice a few other things.

edit: 3 kids, not 5. Read the initial post wrong.

[Tangler]

One of my first post was whether I should get a Tesla. I listened to you and bought a used Honda. I’m currently starting my second year in practice.

According to blogs, I should be able to afford 800k home (2x gross income). I am currently renting in low cost of living area in the south.

I would like a 4br SFH for our growing family and 800k gets us a very nice home.

here are my stats
Family of 5, currently renting apartment.

Assets:
EF of 6 months
Roth 18k
Taxable: 17k
cash 50k
Income: 400k (increase from last year)

Liabilities:
medical debt 15k
student loans - paid off
car loans - paid off

Great job on the Honda!!! I am driving a 2013 civic myself! Awesomeness.

House: Here is what I have learned from a few mistakes:

1. Save a decent down payment. Why? 2 reasons: 1. interest rates are now nearing a real number (5-6% is significant) 2. Putting "real" hard earned saved money towards a house makes it "hurt" and you need to feel a little pain when you buy something. Pain keeps you in check

https://www.cmu.edu/homepage/practical/2007/winter/spending-til-it-hurts.shtml

2. Patience. With rates rising I wonder if the housing market will soften and you will be able to find what you want for less than 800.

3. Figure out what you want and look slowly and carefully. What is important? Location obviously is key. Size? Yard? School district? Don't buy the most expensive house in the neighborhood.

4. Spouse? what does he/she want?

5. 800k is the max, not the required amount. Buy the lowest cost house that fits your needs.

6. Job stable? Really important. Do not want to buy a house and then move in less than 5 years. You want to be there for 5 years right?

You are so smart for renting first and driving a honda. Good luck!

[NumberWhizMD]

Agree with what a lot of others have said. Do you "need" the 800k house? When we looked in 2016, we could have qualified for a lot more. We decided to look at houses more in the 1x range first to see if it would fit what we were looking for. We have a great house in what was a similarly lower COL area with great public schools. I don't regret NOT buying more, as we have so much more extra income to do other things with. We found a house with all of the things that we wanted in a house without having to spend twice as much.

[chocolatebear11]

Thank you. We don’t need a 800k home but it would be custom built home (lcol area), but we could definitely get a home in the 650k range that we would be happy with.

Another reason why I am even considering the 800k custom home is that my income should gradually increase with partnership and significantly down the road.

we are not in a rush but something to plan for. Inventory is still low, but maybe that will change in 6 months. Thank you everyone.