Can I afford a million dollar home?

runningwiththetrolls1212 wrote:

Tired of moving and renting (and having to make new friends each time).

If I've proven anything in my life, it's that one never has to make friends.

I personally don't think you are a fool to consider it. If you know you want to stay in the general area, it makes sense to lock in to a good neighborhood now. 25+ years ago my brother bought a house in Silicon Valley at what was then the top of the market. Now the house he bought for $700K would go for $2M+.

Personally I've had 50% or more of my take home pay going to the mortgage. Probably house poor according to most experts, but I want for nothing. How does your wife feel about it?

I grew up in NYC and went to public schools (magnet programs), if your kid is reasonably bright it should work out fine...

It's impossible to predict the future.

As a general thought, I would not expect that you will have this well paying job forever.

Maybe you can hold on to it for 10 years. Maybe the bonus will go away. Nobody knows.

Buy the smallest and ugliest house in the area you want to live in. This will be also the cheapest house in that area. Make improvements along the way. Make sure you have always enough cash for that.

Most people buy into the myth that you should buy the biggest house you can afford now, because there always will be pay raises. Guess what, that is not true.

Tomorrow you might get a new boss and he doesn't like you for no good reason. Things can happen and things will happen.

If you go with the cheaper house you will have less stress along the way.

If you think you’ll be miserable in a smaller property, go for it! It’s an investment! Think of resale if you think it’s too risky. Expect several thousand/year on maintenance, remodel, appliance replacement etc.

Dave Ramsey would prefer you to buy in cash, but with today's interest rates, money is almost free!

I recently bought a beach house at 2.4% fixed for 15 years - could have paid cash, but I'm banging 11% gain on index funds alone this year.

Not sure what your college savings plans are, and I'm sure suburban NYC cost-of-living is ridiculous, but if you're going to do it, now is the time! You can always sell 20 years from now - most likely at a significant profit if suburban NYC prices don't tank.

I hope you're handy if you go for the fixer-upper. I'm sure skilled labor doesn't come cheap up there.

What are you looking for? I could give you my 2 cents on buying a house, and personal finances with kids, but there is near infinite content like that you can search for. What do you think LRC can add to this endless supply of information that you dont already know?

Thanks for taking Carranza away from Houston. He showed up in Houston and just started throwing bombs everywhere. He is a genuinely incompetent school administrator.

I would definitely buy a house in the burbs for $1 mil to get out of NYC and have solid K-12 public schools for your kids. The whole navigating the magnet thing is going to drive you insane with three kids. Kids are always moving around from magnet to magnet and then to private. Some magnets may be great schools, but your kids may end up hating it. And then some magnets may seem like the bees knees but end up being in turmoil because of a crappy principal and everyone jumping ship. Just being able to plop down in a quiet neighborhood with lots of kids playing in their front yards after school is worth it.

Also, as long as you expect to have wage growth in the future and possibly have your wife return to work, don't go too "cheap" on a home in the burbs. If you get a fixer upper, just go ahead an get it renovated before you move in and pile everything into a single mortgage. Or spend a bit more and get something that is updated. There is nothing worse than having to make expensive repairs with cash every year. You actually get a better deal with a renovation because your contractor will get you much more reasonable rates on everything than what you would be able to get doing things piecemeal and you can pay it off over 30 years and bet against inflation.

$1M is the correct amount for you. But why are you asking LetsRun people when you earn more than 99% of them? I never understand how somebody can be so smart but have to ask financial questions of people who are dumber than them.

Yes, you’ll be fine.

Can you afford to buy something for a million dollars?

Have you got a million dollars?...

I think you know the answer. Yes but it will be very uncomfortable. The down payment will basically squash 2/3rds of your liquid net worth. With a single income you are one job loss away from literal financial ruin.

If I was in your shoes I would probably want 200-300k more liquid.

You should be OK to buy as you noted in your current financial situation and I think long term if all stays the same you're going to be fine but as someone else said the one income is a bit scary and how your bonus/base income is split is also really scary as well. You always going to be able to count on that kind of bonus?

We’re having another housing and stock market bubble at the same time. Rent and see how things shake out.

Careful with that Axe wrote:

Dave Ramsey would prefer you to buy in cash, but with today's interest rates, money is almost free!

I recently bought a beach house at 2.4% fixed for 15 years - could have paid cash, but I'm banging 11% gain on index funds alone this year.

Not sure what your college savings plans are, and I'm sure suburban NYC cost-of-living is ridiculous, but if you're going to do it, now is the time! You can always sell 20 years from now - most likely at a significant profit if suburban NYC prices don't tank.

I hope you're handy if you go for the fixer-upper. I'm sure skilled labor doesn't come cheap up there.

Dave Ramsey says the PITI should be no more than 25% of your take-home pay on a 15 year (not 30) mortgage.

haha YOYO wrote:

You should be OK to buy as you noted in your current financial situation and I think long term if all stays the same you're going to be fine but as someone else said the one income is a bit scary and how your bonus/base income is split is also really scary as well. You always going to be able to count on that kind of bonus?

Literal financial ruin? I could cover mortgage payments for at least a year if that happens and then some.... (worst case)

Plus if i was renting, I would be in the same situation.... (just with my downpayment cash more liquid).

I plan to buy in a close top school district where there has generally always been demand (even in 2008-09). There are always people in the tristate area looking for a top schools for kids (more so than any area in the country). If I lose my job or have to take a lower paying job, at worst I can sell quickly and downgrade somewhere less expensive.

Sorry quoted wrong post

the media is corrupt wrote:

Dave Ramsey says the PITI should be no more than 25% of your take-home pay on a 15 year (not 30) mortgage.

I personally think 15 year mortgages arent very realistic for HCOL areas.

5k a month would be about 25% of my take home pay(if you include bonus). So during the year Im doing 50% take home pay for PITI, but then at year end I get over 100k post taxes to stock away in retirement/save for colleges/buy a new car etc. Assuming I dont get fired I could stock away significant cash still.

My base also should raise to 200k by next year so things start to get better quickly.

It's definitely doable on that income. I earn 10 to 20% more, but I pay enormous amounts to student loans monthly($5k minimum, usually more).

I purchased for just over $1 mil a year ago with 220K down. Our monthly payments is $4K, but property taxes in AZ are minimal so NY very well may be $5K per month.

Your take home on that income is probably 15K to 17K per month, so you should have plenty to spare at 5K per month.

As a side note, my last home was half the size, half the cost. I was just as happy there, and worried a lot less about money back then. Something to think about.