{ "media_type": "text", "post_content": "Can we afford $1.3M home?\nOur household income is $240k and have $400k for down payment after selling all stocks.", "post_id": "60eef4a199951d00213c7f49", "reply_count": 196, "vote_count": 11, "bowl_id": "59064a3cb12379001006592c", "bowl_name": "Personal Investment Chatter" }

Can we afford $1.3M home? Our household income is $240k and have $400k for down payment after selling all stocks.

likehelpful
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I’m really confused on the such weird advice in the comments. Simple answer: yes but you will be A little tight, not much, with money. Let’s do math. 1) Money is cheap right now. Let’s say you get a 3.1% interest rate with 5% down (65k down). Selling 65k worth of stocks is not bad compared to 400k. Loan: $1,235,000 @ 3.1% and assume PMI is built in (yes it’s possible my friend was able to) Monthly Mortgage: $5,300 Yearly Property Tax Assuming 1.2%: $15,600 ($1,300/month) Total not including any utilities or anything else: $6,600 a month. 2) Income assumption $240k, let’s say it’s $170k after tax ($14,100/month). $14,100-$6,600 = $7,500/month left over. Technically, YES it’s possible. However rule of thumb is to keep mortgage payments under 35% -50% of income. You’re close to 46%. I would try to either find a way to increase income with the rental property you mentioned or look for cheaper house. I’m bored so I had the time to do this.

likehelpfulfunnysmart

Euro, not $! One downside to being in a dollar-based country is that you have 0 certainty of exchange rates and if you are going to make a killing, or lose your ass on the exchange rate. One only gets better over time and learn to do it in increments over time so you can dollar-cost-average. Also, it takes giant balls to plunge into a large transaction with limited knowledge of the language and people you have never met. Notwithstanding, all the issues that arise due to unpredictable construction costs and Italian laborers. They are completely unpredictable and a wild bunch.

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My partner and I just bought a “starter home” for $1.5M (very HCOL) and our combined income is similar to yours. However, we had $850k in liquid assets, less than half of which we used to fund our down payment and closing costs. I would not want to liquidate my entire portfolio to purchase a home as our investing strategies have yielded great results over the last 6 years (since beginning our careers), and frankly, those gains outweigh any sort gains we would make in real estate. We wanted to own to diversify our asset base. As well, the amount of money and headache required to maintain this house right off the bat is absurd. I would’ve much preferred renting, but it got to the point where it financially didn’t make sense to rent anymore.

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Yes, depending where you are, rents have gone up another 28% this year. In Greenwich, CT people saw $2,000 dollar a month increase just this year.

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Your tastes are too expensive for your income. If you have to sell more than 1/3rd of your stock to get the mortgage payment low enough so you can afford the monthly payments, you’re shopping way out of your league. You’re forgetting about the opportunity cost of your money. Add on property taxes and maintenance, you’re 100% going to be house poor lol

likehelpfulfunny

This whole “don’t sell” advice is driven by market euphoria and irrational exuberance. “Nothing can go wrong” psychotic indoctrination. Wait until the next crash.

You’re selling ALL of your stock portfolio for a down payment??

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Ditto!!!! Homestead is a tax-shelter better than most investment products. However, consider buying in Florida as homestead is untouchable by creditors!

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Tough talk here. You sold all of your stocks to potentially put money toward a one million dollar home?? Please take 500 bucks from that and pay a financial advisor to talk to you. I think there are some fundamental wealth building strategies that you should be learning from an expert

likefunnysmarthelpful

I would say the tough talk person is clearly wrong here. OP simply has moved his asset class from one bubble to another. The second bubble is backed by real asset, while the former is just hot air in today's economy. If you sold all your stock to buy a Lambo, you would need an advisor. But not in this case.

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If you sell off your portfolio don’t forget about the taxes that you’ll owe on the gains come next tax season… Assuming they are all long-term gains, it would be 15% minimum + 3.8% Medicare surcharge just for Fed…

likesmarthelpful

No. Selling stock to cover down payment of a house is not a smart move. You need to run the numbers to see rate of return and remember, house is an expense item.

likehelpfulfunny

I understand that and it’s part of why I say selling some stock is fine. But in the broader context I still think you’re stretching yourself too thin.

likehelpful

I was struggling with the idea of $1.2M and $500K HHI. That’s a bit much at $240K.

likehelpfulfunny

I always forget how great the VA loans are until I see other people talking about interest rates and PMI.

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Got my VA loan for 585k at 2.75 last year, refinanced at 2.25 a few months ago with no points.

My perspective seems much different than everyone else’s. I think you can afford this and in my personal experience the equity gained in my house (Los Angeles) exceeded the gains I received from the stock market. I would lower your down payment to 20% to avoid PMI, but then keep the rest invested. For me and my wife, having a beautiful home that we can raise our kids in is most important, so we’re comfortable with stretching it a little so we have exactly what we want, even if that means investing less and less entertainment for a couple years until our incomes increase.

likehelpful

Completely agree.

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Tried to get a security based lines of credit against your portfolio account and use that as a down payment. Using a security base line of credit would not cased you to sell your stock.

likehelpful

Agree.

I just bought a 675k home on $290k TC and I thought I was stretching a bit

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We make $315k base + bonus and paid $700k. Just didn’t want to risk losing our jobs and aren’t expecting any inheritance so we want to ensure we can save a lot for kids college and retirement t.

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Seems fine to me, but I don’t know why you’d put so much down. Put 20% down and keep the rest of your money in the market. Yes you will have to pay jumbo loan rates, but your money in the market will have higher returns so it doesn’t seem worth it to put more down. With 20% down your monthly payment will be a bit of a stretch but it’s doable. I think many people on this app don’t live in hcol areas and don’t understand that this is just how much homes cost. Just bought a $1.585m home on $500k hhi and while it feels a bit of a stretch we are definitely happy and have no regrets.

likehelpfulfunny

I am thinking a lot to pull the trigger on this with 20% down as you said. My situation is little close call, since your HHI is almost double 500k 😊

Our HHI is just a bit higher than yours. I can’t fathom a $7k/month mortgage. Do you have kids? Daycare? Plan to? We live in a $500k house and are able to live WELL because we aren’t house-poor. I wouldn’t ever want to stretch ourselves so thin for a home when it would limit our spending (and saving) in every other area.

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Can someone inform a less-than-well-versed person why selling stocks is a bad idea? I have my down payment fund in a mix of stocks and bonds, and was planning on selling most to fund a down payment in the future. This is outside of my retirement portfolios (401k, ira) which are all maxed annually.

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Good point, mine is same scenario. This is outside 401k!

Oh wow…I make that and I was nervous about a 500k mortgage. I’d personally cut your budget in half, and invest 250k..

likesmart

Thank you good people for your inputs. Around 70% said no and 30% said I can do it I am anxious and think should hold off to pull tigger 😕

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I would not be so sure of that $70k number. I thought I'd have at least $15k a year when I first moved into my house ($280k on $130k HHI). Was not the case after things started breaking and needing very expensive repairs and replacement. "Expensive" when I was renting was anything over $100. "Cheap' since I've owned is anything under $1,000.

likehelpful

This is too much house for you. Just because you could hypothetically pull it off doesn’t mean you should.

likefunny

People posting here are making strong claims without enough information. Yes, it's a bit of a stretch for the first couple years, but what is your income outlook for the next ~10 yrs? People who are saying it's "not enough house" have made unbased assumptions about your income outlook. Secondly, the people saying that it's a bad idea to sell all of your stock have no idea what your other savings are or what your target retirement age is, so how could they possibly make that claim?

helpfullike

Of course, goals/situations change over time but doing this exercise helped me feel comfortable about my choices

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Hey OP, we are almost the same financial situation and we are also looking at the house with price from 900k to 1.3mil. Based on what I learn so far from internet and lenders, as long as the monthly payment is less than 40% of your monthly income(in which your max affordable house price is around 1.5mil), you should be fine. However you should also consider how much you will need to pay for the remodel, decorations and appliances etc. PS: we are in NJ.

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One of our salary will go in mortgage, so we are around 50%. Have to make final decision soon and not a clear mind to move forward😕

It’s crazy how everyone is brainwashed with 401K being their saving grace and one stop shop for retirement. 401K was meant to be a supplementary retirement vehicle to pension plans that many companies had back in the day. 401K shouldn’t be relied upon so heavily as it is today. Yes it’s a great vehicle, but so is real estate since paying off debt on a cash flowing property over time will always give you opportunity to refinance debt, increase equity and cash flow over time. Also you have less control over 401K. Gotta wait till you’re almost 60? Come on man!!!

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$1-2M in cashflowing real estate in retirement??? I think you’re underestimating time Time is the biggest factor in retirement. 35 years of maxing out a Roth 401k at $19500 is $2.8M of post tax retirement funds. But that numbers only $1.9M if you only have a 30 year horizon, $1.3M at 25 years. Invest early. Back door another $6k in Roth IRA a year it’s $3.7M all assuming a modest 7% average return. Leaves you $90k+ a year of post tax money for 40 years as a single, and also assuming that money stops growing..

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