I’d like some independent views please, on a financial decision my wife and I are about to make. We’re looking to buy our first/dream home and the property is valued at $1.25m. We have savings of $250k and our HHI is c$350k, with no debt. We will probably exhaust our savings on the deposit and closing costs. A $1m with mortgage at 6% with property taxes is c$8k/month. We net about $14k, we think it’s just about manageable, however keen to get your views please? More context in comment below.

Agree with MD1 above and have a different view than most others. Finding a house that could work for your family for a long time (possibly permanently) in a HCOL area is hard and can be worth the stretch, but you need to understand the risks. When I was about 32, my wife and I (pre-kids) did a similar stretch. Stopped 401-K match for over a year to quickly rebuild our liquidity, but got a great asset as a result. I am a big fan of liquidity, so might even consider the lower DP / higher rate until you build your savings back. Or maybe see if you can open a HELOC on the other property (probably after the main purchase) so that you could more easily tap that liquidity as a backup. Or do both. I you have a budget and some extra savings per month and think you can do this, I think you probably can, but spend the first year conserving as much as possible to rebuild liquidity.

First time buyers do not need to put down 20% right now. There are programs that you could tap into and do less, but that would affect your monthly payment. I also do not think that rates will stay where they are for the next several years, so hopefully you could refi at a lower rate (but don't bet on that). Sometimes you have to roll the dice, and I prefer to do this with primary real estate rather than some other investment. I do not think the housing market will crash, but it may come down in the short term a bit. Just be prepared and don't think you can time it. Also remember that repairs and maintenance on a $1M home are expensive, so be prepared, especially if it is an older home. Is your wife going to keep working after the baby is born?

That's exhausting 🙂 I wouldn't.

1) don’t dream about a house, it could easily turn into a nightmare,
2) don’t buy a house based on emotions, it’s just another piece of property. when you involve emotions, it clouds your judgement and tend to induce “escalation of commitment”, and
3) sound financial advice always says your mortgage (including insurance and property tax) should not be more than 33% of your monthly take home income. People than spend more is because of #2.

I would look at a few things:
Firstly, if this is your first home, then generally you want to try to buy "as much house as you can get" because the overhead (and logistics) of buying another one are so expensive. Thus, if you can stretch to make it work, it'd be better to do so, rather than buy a house you're not happy with (or may outgrow) and then want to upgrade within short (3-7 year period). This is primarily because you pay down interest first, so your equity grows quite slowly.

Secondly if you plan to start a family, you have to factor in whether one of you might reduce or stop working, as well as the additional child care expense. Otherwise, simply the risk of intermittent employment may be the only thing to factor in.

As to whether the house is in budget or not (relating to wiping out your savings..) I think you can probably qualify for a HELOC based on the 20% equity you'll have, and you can likely get a 100k revolving credit line for any emergencies. If you are committed to the house (and its neighborhood), the need for an emergency fund can temporarily be replaced with a HELOC credit line against your primary home. There are risks in this, but the bigger risk is buying a house, not having the HELOC imo.

When my wife and I first purchased a home, it felt like a stretch. This is entirely normal. There are costs to underbuying and risks to overbuying. Let me also be clear about the distinction between buying slightly more than you can afford now vs buying more than you need. If you legitimately have no need for a home with a large yard, then don't buy a house with a large yard. But if you need a house with 4 bedrooms and it's a stretch, you could stretch and get it now rather than trying to sell/buy in the near term.

Good luck!

I'm not sure if you and your wife are in love with this exact house or not, but if you wait a year or so I suspect home prices will go down. Obviously you run the risk of losing this exact house, so might not be applicable. Just a thought!

Based on the information provided, it seems like buying this property would put a significant strain on your finances. It's generally recommended that your monthly housing expenses (including mortgage payments, property taxes, and insurance) should not exceed 28% of your gross monthly income. In your case, the $8,000 per month in housing expenses would represent more than 50% of your gross monthly income, which is a very high amount.

SAM1, thank you very much for your views. We will go back to the drawing board to see how better to manage our down payment and craft an emergency savings plan. Unfortunately we live in a HCOL area and at a 25% take home mortgage payment, the kind of homes we would be looking at would be so far out of the city that we might not even be able to hold our jobs. Either that or we will continue to have to rent as homes of a more affordable value aren’t in the county our search is fixed on.

We appreciate the views though and will have some thinking to do.

Just because you can afford it doesn’t mean you should buy it. I think that’s pretty expensive for you all plus you would stretching yourself very thin exhausting those resources for downpayment and closing costs. Why does your first home need to be the dream home? Get yourself a starter home or something that won’t hit your pockets as hard.

Our household income is $450,000 and we purchased our house at $369,000 in 2019 although it’s worth closer to $525,000 now. We’re saving our dream home for when we’re in our late 30s (28M 33F) IF we ever even buy a bigger one. My point is buy something cheaper if you can. Lol

A1, how wonderfully put! That’s some food for thought for us. Our circumstances are a bit different in that we are already in our 30’s and have been renting for a whirl. I’m 36 and my wife is 31. We have spent a lot of time working hard and paying off all our debt. Both our families potentially require our support in terms of housing and care, so we want to be able to have a big enough house to accommodate anyone who needs to stay with us. Unfortunately 4 bed/3 bath homes in the area we are looks at are just too expensive. If we move further out, it will mean a huge compromise on school district and impacting our commute to work.

But I fully recognize the point you’re making and we will factor that into our decision making process. Kudos to you for being so diligent in your financial decisions!

I think your monthly mortgage should be around 4K given that is 25% of your net income. Therefore, I think your dream home will cause more of a burden at 75% of your monthly income. Plus you are saying you are going to drain a good portion of your savings. Idk, if I was you I would look to buy a smaller house.

Something that I don’t think has been mentioned yet — does your family have the ability and willingness to provide a financial safety net if needed? Many people I know are more willing to max out their budget and take on financial risks if they have a family member (parent, sibling, etc.) that could help out in an emergency. I agree with others that this budget is beyond my own risk tolerance, but you’re also posting in a place where people are generally conservative with their financial decisions. There are also intangibles to buying a house — some people want to settle down and stay out for the rest of their lives. If that’s you, you might want to stretch.

All this to say, the numbers aren’t everything here. Just something to note as you think thjngs through.

You can do this but it’ll be tight. I did something very similar. $1.1m, $300k in savings so used $260k of that on acquisition cost. HHI was $325k.

Do you have kids? That’s going to be the deciding factor. Also, house being new should really help. I put $40k into the house already and it’s been 6 months.

One thing to consider is that in the short term your income might take a hit as one of you may want to be a stay at home parent. This could be mitigated by parental leave policies. Another consideration is if your spouse decides that they want to stay at home for a longer period. In our area, it seems many spouses give up careers even when they initially said they were going back to work in 4 months.

We have a $500k hhi and our monthly payment is $6,800 and it is definitely the max I’d want to spend. I can’t imagine spending more than that on a $350k hhi. If you can really find a 4.5% interest rate in this environment so your payment is $6k or less I could maybe see it, but I don’t see how you’re getting that when the avg for a 30 yr fixed is 7%. You should wait a year even though the timing isn’t ideal with your baby on the way. Even in hcol areas there will be a minor correction.

Rule of thumb - housing costs should be 30% of net income, yours are over 50%.. that’s a bit too steep I would say

This is a stretch. Can you get a place with a built in investment property like a MIL suite?

Don’t do this, you will be way over leveraged.

Without even trying to understand your situation, you would be buying this property at just at or under peak prices. Interest rates are already high and you don't know how secure both your jobs will be in the inevitable recession we are already in. All the signals are pointing to no, don't make a big life changing purchase right now. Ride out the economy for 1-2 years. This is what I would do.

I feel like I was in a very similar situation when my hubs and I bought our house last year. We are in HCOL Seattle area. Unfortunately the market was so competitive when we bought, so we had to bid 30% over ask to purchase our house. We purchased for 1.1M and it’s an older house (about 70% remodeled). At that time though, interest rates were great and we have our 30yr mortgage at 3%, so all in our monthly payment is only 4.5k.

Last year our monthly net was about 10.5k a month, with about 40k in RSUs (those RSUs halved in value this year lol sad). I say we’re in a very similar situation because after the mortgage there was about 6k left for spending/saving, which was very manageable. Plus knowing there’s a coming bonus/rsu, we knew we’re able to build back savings. We switched jobs this year and now take home 15k/mo, with around 40k in bonus/rsu still. So we’re definitely able to add more savings.

I’ve seen a lot of people say it’s not a good time to buy. Honestly though, there is never a ‘right time’ to buy a house. It all depends on YOUR situation. Are you ready? Do you feel this is your dream home? Can you see yourself in the house for over 5 years? Will owning the house make you happy? Have you ran the numbers and does it all fit in the budget?

When we bought our house we knew the market was insane and also knew that what comes up may come down eventually (right now we could probably sell our house for only 1M to 1.05M, plus about 50k in remodeling/repairs we did, we’d be at a loss). However, we knew coming in that there’s that risk and we were prepared to stay in our house for a long time. We wanted the freedom of doing whatever we wanted on the house and not having to ask permission from a landlord or be concerned because ‘it’s someone else’s house’. We wanted to truly make our house our own.

Final thoughts: interest rates suck right now, but I’m sure your aware the fed might raise rates again this week, so act sooner rather than later. Consider asking the seller to pay for a buy down. A 2/1 buy down allows you to pay less during the first two years and hopefully you can refi to a better rate after two years. It seems that sellers are willing to pay for buy downs to make their houses more sellable. Good luck and I hope you’ll be at peace and happy with whatever you decide 🥰

You don’t want to be house rich and cash poor.