Shold we buy this or not?

[nilsandiego]

Myself and wife make combine $190K in income. Currently we rent a place (condo) which costs us $1600.

We liked a home which costs in this part of word close to $505K with property taxes close to 10K which would result in monthly payment of $2600 for mortgage+taxes+insurance ( as we are planning to put $150K) in down payment.

I did analysis of our financial situation and figure that to pay for all taxes we need to pay and after filling up 401K for both of us to max and contributing to same amount as 401K in company stock option (ESPP) our take home total income is $6.1K/month.

Currently we save close to 1800-2000 everymonth in cash after all expenses . If we buy this home , it would reduce to 800-1000. We do get tax benifit but i am considering that would go away in home expense ( tax benifit is close to 5K and i am assuming 1% of home price would be home uptake cost).

I also consider scenario where DW stop working and we have only 1 income, in that scenario with less taxes, still we can make it work with myself filling up 401K/ESPP as it is.

In all above consideration, i have assume no bonuses given out which range close to 20k-25K combine and 12k-15K for myself alone. Also, assume that whatever money i am putting as part of ESPP i would divert it to some investment vehicle for DS future college expense.


Should we buy this home or keep renting and keep collecting cash?

[LivingAlmostLarge]

What's the HOA and where is the home located? Good school district? Same where you are now? What's the commute for you? Try budgeting for 2-3 months on your income solo, back off the federal income taxes, and commit to paying $2600 in mortgage and see. Because in order for this to work easily the $190k income can't be split $95/95 right? I mean if you lose 50% income but keep the house it would be very tight.

What's the real breakdown of the income and I can probably guess taxes.

[nilsandiego]

What's the HOA and where is the home located? Good school district? Same where you are now? What's the commute for you? Try budgeting for 2-3 months on your income solo, back off the federal income taxes, and commit to paying $2600 in mortgage and see. Because in order for this to work easily the $190k income can't be split $95/95 right? I mean if you lose 50% income but keep the house it would be very tight.

What's the real breakdown of the income and I can probably guess taxes.

No HOA. Good school district ( if not best one of the best). Reduce current commute for me from 15 miles to 3-4 miles and for DW from 18 miles to 8 miles.

190K is 120/70 split.

[TBH]

What's the likelihood your DW will stop working? If that's really part of the plan, I would not buy this home until you can do so on only your income and still save adequately. To me, that means you'll still need to be able to save outside your retirement account and ESPP. I get that you will probably continue to get bonuses and you could save those, so this would probably be okay. But it does seem a bit close to the wire.

It doesn't seem like you're too far off, though. Save up a slightly larger down payment so you can get your monthly payments down a little, or find a home that costs just slightly less, and you might be okay.

If you don't have any plans for your DW to stop working, I'd probably go for it and try to get into the habit of saving her entire income for a few years so she can stop working and you'll have a big cushion.

[cashinasnap]

Well with rising price it may get difficult in few years to own a property for self, I believe it is better to crack the deal right now, by taking adequate financial help from financial institutes.

[Goldy]

All of your numbers are nearly exactly matching our current situation. We make 190k with ~30k in bonuses and after 401k, stock, HSA, etc we take home $6,500 a month. We have a smaller mortgage on a 350k house but we make double payments so our monthly payment is 2600 which is exactly what yours will be.

I wouldn't say things are super tight but it does take some effort to keep the spending in check. We did this with the understanding that my wife would continue to work because it doesn't really work out to do this on one income. If we did go to one income we would need to stop the extra house payments and maybe reduce the 401k.

I'd say that if the both of you are on the same page with budgeting I don't see any red flags.

We set up our budget to be a break even budget so if we make 6500 a month our expenses are 6500 a month (including savings). If we go over one month we need to make it up on the next month. That works well for us but I can see it not working for others. The bonus is a nice injection that we just add to our EF after we take some out for fun.

[bigdaddybus]

A couple thoughts from a guy who lives in a dual earner household with a combined salary of $192500 this yr.

1. Our base pay combined is $167,500 and that is what I budget off of. The $25K in bonus money is nice but I dont budget for it, I use it "top off" things like college funds, retirement, replenish emergency fund, pay for a fun trip to celebrate the bonuses, etc.

2. Putting $150K in cash down on the home tells me your a saver. That says a lot, and I say buy the home if you want it.

3. A good interest rate right now is 4.25%. That's not going to stay around when the Fed starts raising rates. Good to lock that in now. My first starter home in 1999 was 7.75% and was considered a great rate at the time.

4. My home PITI is $1880 and I could swing a bigger payment but I like having a low payment compared to income.....that might have a lot to do with the fact we have 4 kids and that comes with a lot of expenses.

[nilsandiego]

I can see most of the people's view here that it should be ok. Here is my line of thinking.

1. DW likes her job as of now and she is not planning to quit in near future (unless unforeseeable circumstances (read layoff!).

Currently out of gross pay we save $17.5K in each 401K and $17.5K in ESPP ( ESPP in turn return close to 10% more) on day of vesting after taxes). I think i can maintain this saving.

Above this savings we are able to stack close to 2K in saving right now living in $1600 condo . If we buy a home that amount i see reducing to close to $1K , here assumption is tax benifit of owning home would allow us to maintain home expenses ( so essentially end game is no tax benefit).

So our current saving rate is 40% of our gross pay and if we buy this home , it would be 32.5% not considering there is some equity built up in home as we are loosing benefit of $150K down payment which could be in theory could have been invested and harvested gain.

my concern is , may be 32% saving rate is too low?.

[TBH]

my concern is , may be 32% saving rate is too low?.

A 32% savings rate is still very good.

Keep in mind that you'll have a 32% savings rate not including your bonuses. It's likely that you'll continue to get SOME bonuses, yes? So 32% is a pretty conservative estimate of your savings rate.

Also, you may be able to edge your savings rate back up to 40% over time if you save raises etc.

I think as long as DW has no immediate plans to quit, you should go for it. And I do think she'll be able to quit in the future if she wants, or you'll be able to weather a layoff easily. It's just that it would be easier to adjust to home ownership with both incomes.

Good luck! I hope it works out for you.

[HappySaver]

How much will you have left over in savings after you put down $150k? You should still have at least an 8 month fund left over. Also, will you need buy furniture or do any renovations when you move in? Should also factor that in as well.

Assuming you've planned for those things, you may be ok, but the payment is bordering on too large for comfort.

I'll mention one possible strategy which is out there but has worked out well for us (we didn't quite plan for it but it worked out this way):

Take out a slightly lower 1st mortgage thus reducing the long-term payment. Then, take out a second loan for the difference (not too large - maybe 10% of the home value) that you can funnel extra cash into and pay off quickly in 1-2 years time. You will have a 70% LTV ratio so you should be able to qualify for a good rate.

We took out a HELOC for the amount over our principal loan (which we capped at $417k). We did this only because we will be able to pay it off quickly before rates rise and we have a sufficient separate EF. We are locked into a 1.99% intro rate on it for one year. So even if/when rates go up, we're protected for this year, and we're paying far less on it than on the principal mortgage (which is at 3.5%). This could work as a short-term strategy if you have the option and can pay it off fast.

[autoxer]

So our current saving rate is 40% of our gross pay and if we buy this home , it would be 32.5% not considering there is some equity built up in home as we are loosing benefit of $150K down payment which could be in theory could have been invested and harvested gain.

my concern is , may be 32% saving rate is too low?.

What are you saving for? If you can try to clarify your long term goals, it'll be easier to make this decision. Are you planning to stay in this home for 10+ years? Are you going to retire when you become financially independent? You can run some numbers to figure out if buying this house will delay your financial independence and then decide if it is adding enough value to your life to make that delay palatable.

[nilsandiego]

What are you saving for? If you can try to clarify your long term goals, it'll be easier to make this decision. Are you planning to stay in this home for 10+ years? Are you going to retire when you become financially independent? You can run some numbers to figure out if buying this house will delay your financial independence and then decide if it is adding enough value to your life to make that delay palatable.

saving goals are 2.

1. Retirement savings
2.savings for education of DS.

early retirement is not in my mind. I don't see reason to early retire but that may not be true for DW.

[autoxer]

saving goals are 2.

1. Retirement savings
2.savings for education of DS.

early retirement is not in my mind. I don't see reason to early retire but that may not be true for DW.

If you intend to work from age 20 - 65, then a savings rate of 15% will probably give you a comfortable retirement.

[LivingAlmostLarge]

With two incomes no problem. With the income split not being very differential it's probably important to keep on working. If you wanted to move up into a house and not a condo that might also be an issue in the future.

[nilsandiego]

With two incomes no problem. With the income split not being very differential it's probably important to keep on working. If you wanted to move up into a house and not a condo that might also be an issue in the future.

Agree, with single income, it would be tight. I don't see us moving up into a house ladder .Contrary we are still debating this house may be bigger than we need, we live happy life but no mean splurging on anything ( food/cloth/travel) and this down payment $150K is making us reconsider everything up to the point downsizing from current condo