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Rent is ~$50k per year ($4.16k /month), but houses are $1.5m?
Rent makes sense at the current mortgage rates. Go invest your $600k. If you can find 8% returns, you’re basically living for free. That $600k down on a $1.5M house would still yield a payment way above the $4.1k per month you’re paying in rent, and that money gets locked up.
Invest your money and your wealth will grow faster than buying in the Bay Area.
Second this. 7% of 1.2m loan means 84k of interest payment a year, even when part of it is tax deductible, it is still the same as paying rent. Also, I heard there is a risk of a major earthquake in the Bay in the next 30 years or so and home insurance doesn't cover earthquakes here. I'm also in the Bay but will not be buying here. I'll buy an investment real estate somewhere else.
Where do you live? I can't imagine decent homes having to be 1.5m+
SF/bay area
The interest rates a year ago with good credit was around 3% or less. Now it’s around 7%. Your student loan debt will be counted in your debt to income ratio. Putting $300k down on a house that is 1.5m is only 20%. It’s only going to save you from having to pay mortgage insurance. Depending on the lender, you may be required to pay more than a 20% down payment due to the size of the loan. I would try to pay off my student loans first and keep an eye on the interest rates before committing. 7% is too high.
We are a little above $300k and we are looking at spending $600- $700k on our next house. Currently spending about 48k on rent now. Also in Tampa so that makes a big difference.
Just went back and looked at my income from when I was in a similar place. Income was a bit lower, but house was also around $1.1. I think you could do this, but it would stretch you for a bit. Key things here: How likely is your income to increase and by how much? Looking at affordability based on current income is for people whose income is stable. I would model it out for the next 10 years. I would also include other expenses that you may not have today (childcare, eduation...). In HCOL areas, sometimes the house prices look high because people build in the expectation of future appreciation and rent increases. So you can't just do what some people are doing here and look at rent vs. house cost today - you need to think about the future. If you buy, your house costs can be relatively fixed (esp w/prop 13 in CA). If you rent, you run with the market. Historically, the buy decision has been good in places like the Bay Area, but no guarantees about the future. If you think the market will stay strong w/increasing rents and prices, I would prioritize the house over loan paydown. Hope that is helpful.
PM1 - that is a fair point. Just checked (I have old spreadsheets - 5.375%. Like I said, my approach has been to model it out. It's not hard - put your PITI payments plus maintenance and repairs in excel, your income, income taxes, other expenses and see if you can afford it. I don't know what will happen going forward. In my HCOL, prices have seemed way to high since I bought my first place over 20 years ago. And always went up. And until recently, rates kept going down so you could also take your payments down over time (both due to rates and re-amortization). My area isn't OP's, and the rent to price ratio here is a bit better - $50K a year rent here, I would say equates to $1.3ish home price. But OP could be a bit off or his area a bit different.