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I’m more risk averse than you, but wanted to share my situation. It might give you perspective.
I take home 14k/month after 401k max and everything else taken out.
- No kids in daycare
- No debt (cars paid for)
- Wife doesn’t work outside the home and could get a job quickly in an emergency (would probably make 75k)
- 6 months emergency fund
- 150k in equity in current home
- 50k in cash for additional down payment
We’re looking at houses ~800k max and that needs to be move-in ready. We might stretch to 900k for a forever home situation.
Thinking about any more than that makes me physically ill.
Keep up with the joneses at your peril. Never fall in love with a house. See it as a utility. Delayed gratification is hard but when your investments (not white collar salary) can afford you a million dollar home, go for it.
Way too much in my opinion. Between your home, day care, and car payment, almost 70% of your take home is gone. Add in other bills and that’s probably another 10%. Now you’re at 80% of take home and you havent accounted for any food, baby supplies, medical, etc… I don’t see much room to save at this budget and you need to be saving as a homeowner to keep up with maintenance. I’m sure you could get by but why make yourself house poor when you don’t need to
My house cost essentially the same as yours with a slightly lower monthly PITI. My household income is about double yours. I would not recommend you spend that much. Life happens all the time and it's expensive, don't risk the roof over your head.
First I'll say I'm sympathetic to it being difficult to find a house at certain price levels and at a lower monthly cost given the market. I've been there and it's a struggle to realize that despite making a really high income you can't afford a house with seemingly basic comforts like x amount of bedrooms, a somewhat updated kitchen, or a good school district. As you begin chipping away at your budget, at some point you begin compromising on house features to the extent it no longer makes sense to buy that cheaper house.
On a generic level, I'd say reduce your monthly PITI by $1k - $2k at a minimum.
I'm a big believer that the appropriate price level is deeply personal. I'd recommend working backwards - what are your necessary expenses each month? Is the house in a place where you need two vehicles? What's your minimum food budget? Don't forget the utilities and maintenance that will come with the size house you want to purchase.
Once expenses are tallied, figure out what you want to save each month. So many compromise on retirement savings or on children's education. Saving for your retirement should be an essential expense and removing the future burden of loans on children is possibly the best gift you can give them outside of being an amazing and present parent.
Operate on the assumption that whatever's left is the monthly payment you can work with. If it's not realistic, see if there are any expenses you're ok with cutting to bring that number up.
Hope this is somewhat helpful and best of luck finding something. Housing in many areas of this country has gotten absurd.
Do not do this. My spouse and I are above 400k with a 1 year old and made this mistake. You will be so house poor it will be debilitating. The baby has unforeseen expenses and you’ll not want to regret buying and spending on quality of life improvising things. Buy a fancy house later.
We’re $600k HHI DINK, we just bought a new home for $895K. We have good cash flow from two other properties and an adequate emergency fund for all expenses (9 months) and this new purchase at 5% conventional fixed still stresses us out. I would not recommend what you’re proposing.
If one of you loses your job can you still make the bills?
You can’t own a home and have a kid without a 6+ mo emergency fund post purchase.
Update: decided to listen to the folks here saying that we shouldn’t do that house. We’re in NJ (not California) but in the areas we are looking (milburn, summit, westfield, etc) it’s a somewhat similar mentality.
It’s a bit crushing as my wife especially loved that house, but i agree with folks here that if it’s a break-even vs go negative question each month with little to no emergency fund, that it seems like a poor decision that will get us in over our heads very quickly.
We’re going to restart our search with lower priced properties. I doubt we’ll be able to truly get it to a point folks would find reasonable here, but there’s a lot of room downward from there.
Subject Expert
My contract is closer to 300k + 800k for a good sized house on a 2 acre lot.
Seems like different parts of the US have different opinions on this. In California, I think this would be considered fine by most. Maybe other parts of the country would think that you'll be house broke (I don't think you would be), but it's kind of the only way to buy here.
I’d strongly consider the equity position of the property and the appreciation rate.
We decided we just wouldn’t be able to keep costs down enough - we’re targeting $1M as a max now. Still probably too high but in the areas we want i just don’t think we’re gonna do better at any base level of comfort acceptable to us.
Update - we’ve lowered our max to $1M. Still probably too high honestly but in the areas we want, i don’t think were going to find for much less, at least in conditions acceptable to us.
Well we are currently doing that, but it’s not really a great option either. Rent is up 50% in our area and we’ve had a child and gotten a dog since moving to the apt we’re in. And bigger apartments will be a premium even over that 50%. So, if it’s going to be $6k+ then might as well go towards some form of equity.
For many reasons, some form of house is preferable.
Annual bonus is at $60-70k but of course isn’t guaranteed.
Subject Expert
Are you expecting significant raises or are you relatively maxed out for the foreseeable future? Is your monthly take home after maxing your 401k?
Subject Expert
I would run your budget to hit all of your savings goals and then you can make the determination if you should buy the house or not.
Coach
Seems like that would be less than 28% of your total income.
Coach
Way too much
Absolutely do not do this.
Just based on the info you shared, the numbers look tight, plus the uncertain economy right now, i would agree with most here that it’s not a wise financial decision to buy that expensive of a house. You can always upgrade later when your HHI increases.
My take home is 12.5k and my house is 525k and mortgage incl hoa is 4.3k
Waaaay too much house. $450k HHI here. Bought a $900k house with monthly expenses of $4k, and that feels high. Baby on the way
You must live in Cali. I am not sure how y’all pay those mortgage rates. I have 3 houses and pay that a month.
My advise is buy cheaper if you can and sacrifice. I have kids and they cost. Be comfortable but don’t be broke on housing.
If you could rent for 4k a month that is Bette than the mortgage. The savings alone is 222k over 5 years renting while your kid is small. And nothing to worry about.
Mentor
No. Your other expenses are fairly high with car and kid. Don’t be cash poor.