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Talk to a mortgage broker or two. Take whatever number they say you can afford and reduce it by 20%. Also, look into what your HOA dues would be. Every $100 of monthly dues will reduce what you can afford by around $50k.
Cash offers aren’t a bad idea and can be more competitive due to lack of requirements to close. But you really need to know what you’re doing to take full advantage of them.
I like the 30/30/3 rule from Financial Samurai
1. Spend no more than 30% gross monthly income on your mortgage
2. Have at least 30% saved up and liquid/semi-liquid for down payment. You may only put down 20% but should have the 30% available.
3. Limit your home purchase to 3x your annual gross income.
The formula works in that it outputs a number that is the limit of what you should buy. You may not like the output lol.
Get qualified with a Lender and you'll know what price range to look at. Most of the time the qualification letter will last 3-6 months.
If you can afford it, cash is king. By a distance.
Well you can’t trust a lender to tell you what you can afford. Throw in a loss of an income into the equation so you can tread water for 6-12 months. Keep an emergency fund ready. You could also pay 50% down and keep the payment cheaper.
If house prices correct and they are outside historical norms currently, above median price is the most affected. Below median price is least affected. Any correction will be regional. I’d be more inclined to invest into a market with strong fundamentals/jobs. Currently it’s about 50% cheaper to rent in most markets, but every market is unique. So a case could be made that it’s a renters market currently and doesn’t make much sense to buy. Nothing wrong with being a renter. It’s cheaper and you have freedom to move if needed. You don’t have to own to meet some milestone in life.
By paying all cash you are saying I can’t do better than 7% in the market. Historical data doesn’t really support that. VOO etf beats that consistently. The other reason which is more attractive to me is a reduction of risk. I want to build a strong foundation so we never have to worry about a place to live. Where the math gets weird is the amortization schedule. How much of your payment goes to principal vs interest. On a home loan it’s mostly interest in the beginning, refinancing makes it even worse and resets the loan to mostly interest. It’s not uncommon at these rates to pay 500k for a home and you pay 900k in total. It is better to do a 15 year loan, but most people don’t because they live far beyond their means. A mortgage really zaps your ability to generate wealth off compounding. A primary home isn’t a great investment. Real estate is only a good investment when someone else pays the payment and interest. I’ve owned many homes, own 4 now. I’m staging capital for better deals that may never come. If they don’t come I’ll stay in the stock market.
Also townhomes don’t typically appreciate like single family homes. The HOA fees can offset appreciation making it worse than renting. It all really depends on the property. I wouldn’t personally buy one unless it was a seasonal home.
How much are you comfortable spending on housing each month?
How much are you comfortable putting down / locking up into equity up front?
The Zillow mortgage app has some cool affordability and payment calculators that you can play around with
With that income, you can qualify for about $1.5MM.
That said, EA1 has made some excellent points, well worth considering - esp. as you think about opportunity cost, etc. Do also keep in mind that most folks change homes every 5-7 years. So, unless this is your final, dream home that you’ll keep even after the kids are flown the nest, I wouldn’t do all cash. I’d do the minimum down and then a 7/1 or 10/1 interest only ARM.
You’ll be able to maximize cash flow, invest the difference and, hopefully, get better returns than the historical 3-5% gain that residential real estate has provided (not factoring the last 3 years which have been somewhat nuts).
Better still, use the cash to invest in business and create a passive income stream. If interested to learn more, DM me.
What can one of you afford, the one making the lower salary?
Never buy a home on both salaries, especially in a market where people are being laid off without finding jobs for months.
Be conservative. Even in HCOL on 200K assuming the lower makes that, you can find something for 600k.
If in HCOL put 3.0% down and you all can put extra on the principal each month if it behooves you. If in a HCOL with duplexes, look into that. I’m doing that in DC, and am managing on far less than 460.
It’s possible.
3% down and pay PMI? No thanks.
If you are making that much money annually, can you pay cash? Also why don’t you have investment properties?
Done well in the stock market and don't have interest in managing properties
Monthly payment should not exceed 25% of your take home pay
😂 I don’t think anyone enjoys the payment side of “enjoyment” expenses. You might buy nice cars or have 3 kids. I might buy a nicer house in an area I want to live in.
I agree the rules of thumbs can be helpful (especially when starting out) but I think in the income range OP is talking about they become a bit arbitrary. Housing can move more into a luxury good than just shelter at that point depending on goals/priorities.
You should talk to a no nonsense lender who will go in your purse to see what you can afford and what options will suit you best, dm for info