Can I afford this much house? Home purchase question

[disneysteve]

I am very conservative and very frugal with my money.

Cash (ATM): $300
Groceries: $300
Lunch: $200
Entertainment (eating out/going out on weekends/various entertainment things): $250

You are spending $500 plus part of your entertainment budget on food for one person. Do you realize that is more than many people spend to feed their entire families? If you could cut this down to perhaps $250 total, you would free up at least $250 that could then go to other things such as that possible condo purchase.

I also wonder where that $300 cash is going every month. That's a substantial amount of money to be unaccounted for.

Rather than looking to decrease retirement savings, I'd be looking to tighten up the budget to "find" the extra money there.

I would not cut retirement savings to buy an expensive condo. You earn 52K and should save 15% for retirement, which is $650. You are currently doing $675 so that's right where it belongs. I also totally agree with kork. You need to calculate everything based on your current income, not some future anticipated increases. If you can't afford it today, don't do it. The future is not guaranteed in any way.

[recentcollegegrad]

Thanks for your responses. I've considered all of the above, here are my thoughts on many points you've all mentioned:

1. I wouldn't put more than 20% down. There is no point in doing that just to lower my monthly payment by $100-400. I'd rather leave that money invested (opportunity cost) and then withdraw over time for any additional money I need for the monthly payments.

2. I am also viewing this as an investment. While I can't predict the future, I can comfortably say that I probably won't live in this condo for my whole life or even more than 5-8 years. I've actually thought about renting still, because if I were to move in 3 years then it might not be worth buying. HOWEVER if I do move I will rent the unit out. So I don't think it makes a difference either way. The building is very sound financially and in a popular location and does not prohibit renting units out.

3. There may be many months when I don't even have to withdraw from my brokerage account/investments. I think some months I may need to (maybe in the summer or around the holidays when I tend to spend more), but I think other months I may be fine.

4. I had a "pay review" (ironically) at work the other day and my manager said to expect at least a CPI cost of living raise in 2013, which she said would at least be 3%, and that we may get more than that based on HR's market analysis for my job. So the numbers work even more in my favor. All of my "calculations" have been using my salary, but keep in mind I also receive approximately a $4,000 yearly bonus which is about $300 a month if I wanted to spread it out for purpose of my monthly payments.

5. In my opinion, it really comes down to buying something I genuinely like and take a small bit of risk (financially), continue renting, or buy something under my price range that I may not like as much. If I look at it from an investment standpoint, it makes most sense to buy the more "attractive" (expensive) unit because it would be way more marketable if I were to rent it out.

[snarkfinance]

Well, it seems as if your mind is made up.

[YLTL_Dan]

Our biggest problem is spending based on future assumptions; you should spend based on what you have today.

I use the very conservative rule of only spending 2x annual gross income on a house. Granted, this may not be applicable in some more expensive cities, but it's a good strategy to keep control of your money. You can add your down payment to the top of this amount - so you'd have $114k to spend plus your down payment.

You've received some very good information from other posters, I hope you're open minded in this process!

[JoeP]

I agree with the "red flags" post from MonkeyMama, and much of the input from others.

You should really consider that retirement money and brokerage accounts as off limits, and focus on making ends meet with your current salary. If it cannot be done following the 3x income rule, then don't do it.