Announcement

Collapse
No announcement yet.

My house budget

Collapse
X
Collapse
First Prev Next Last
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • My house budget

    Hi guys,

    My wife and I are starting to look for a house in a HCOL area. I just wanted to get an idea of what my budget size should be to remain within reason. I am a 33 yo general dentist partner in a multi-dentist practice.

    Salary:~ 300k
    Retirement: ~100k 401k/roth IRA for spouse and I
    Downpayment: 120k saved so far
    Debt: none
    No kids yet

    Thanks!

  • #2
    by WCI recommendation; 300K x 2=600K but in HCOL you may not find something in that range so it may easily go up to 3-4 x of your salary

    Comment


    • #3
      The WCI ROT is mortgage no more than 2x salary. So 600 + your down payment of 120 = 720k

      Comment


      • #4
        Thanks, I was thinking of saving some more on my downpayment to 150k. I was looking to go somewhere between 700-800k.

        Comment


        • #5
          Originally posted by Tennis64364 View Post
          Thanks, I was thinking of saving some more on my downpayment to 150k. I was looking to go somewhere between 700-800k.
          Seems reasonable, not FIRE ideal but not crazy. See if you can pick a house that will last you ten years, into parenthood and so on.

          Comment


          • #6
            Whatever you decide tell your RE agent 100K less. Or better yet do not use an agent

            Comment


            • #7
              I think general rules are a great starting point, but I think about debt on your home a little differently, especially given how low rates are today.

              Cash flow is the biggest thing to focus on earlier in your career and not stretching it too thin based on your lifestyle, which a monthly mortgage payment is usually the biggest expense.

              I also think it’s helpful with any decisions to understand the full picture (saving for retirement, potentially a family, and future goals/expenses) and what you need to save toward those goals because that frees you up to feel “guilt free” with spending a little more in certain areas if you’re hitting those saving targets. Maybe you want a bigger house, but don’t care about cars. Or you like to travel and don’t care about your home as much. Everyone has their own preference of what they “splurge” on which is why I think focusing on cash flow is a better starting point.

              To your question on a reasonable mortgage, I’d look at what level of debt at the current interest rate you could get and feel comfortable with cash flow wise. For instance, even with an $800k mortgage at a 30 yr 3.25% rate, you’d have a $3,451/mo payment. Add that to RE taxes and insurance for a total home monthly cost. Once you know what total monthly payment you’re comfortable with cash flow wise, while still being able to hit all the other saving targets and not feeling stretched, you can add that mortgage size + a down payment and start to get an idea of what size house you’d be comfortable buying.
              Andrew Musbach, CFP® | Co-Founder & Financial Advisor at MD Wealth Management, LLC
              Financial Planning for Physicians | [email protected]

              Comment


              • #8
                In a HCOL, I'd set a hard budget at $1MM. Anything over will start to be a little uncomfortable though not unmanageable. You could always just save some more.

                Comment


                • #9
                  700-800K is perfectly reasonable. Just try to work out the numbers so that you end up with a 15 year mortgage that is no more then 25% of your take home pay per Dave Ramsey. I might be inclined to wait until you have kids before buying a house because you tend to look at everything differently when that occurs. There is a lot that you think you know but actually do not (ie childcare locations, family help, school, park locations, places for kids to go, etc).

                  Comment


                  • #10
                    Originally posted by Tennis64364 View Post
                    Hi guys,

                    My wife and I are starting to look for a house in a HCOL area. I just wanted to get an idea of what my budget size should be to remain within reason. I am a 33 yo general dentist partner in a multi-dentist practice.

                    Salary:~ 300k
                    Retirement: ~100k 401k/roth IRA for spouse and I
                    Downpayment: 120k saved so far
                    Debt: none
                    No kids yet

                    Thanks!
                    Just a note about 2 rules of thumb:
                    •Retirement savings at 20% of gross. That’s 60k per year. Are you on track?
                    • mortgage < 2x gross.

                    HCOL areas can be a challenge. In you “house fund”, you will need downpayment and some “cushion” for closing costs, and anything else you plan on doing the first year. Things like redoing “only the kitchen, master bathroom, landscaping and furniture “ can really put you in a bind. The no kids leaves a variable that really makes a difference. Home needs and schools can change drastically. Make sure what you buy meets future needs.
                    As mentioned above, budgets can be flexible. Underestimating the additional costs of ownership (mortgage is only the base) can leave you much less flexibility than desired. Once you buy, the ownership cost will come. The point is underestimating is difficult to fix on a tight budget. Try to build in savings for additional needs. Vacations, car, college, and whatever else you plan. Don’t let the house become an anchor or a purchase you plan to change. Changing houses is expensive.

                    Comment


                    • #11
                      What is the argument against a house 4x your salary if you are a)able to save 20% gross and b) total monthly expenditure on mortgate is less than 28% gross.

                      These are a couple rules I've seen, but then I see individuals who meet both criteria and are still told getting a house 4x salary is crazy. What am I missing?

                      Comment


                      • #12
                        Originally posted by clozareal View Post
                        What is the argument against a house 4x your salary if you are a)able to save 20% gross and b) total monthly expenditure on mortgate is less than 28% gross.

                        These are a couple rules I've seen, but then I see individuals who meet both criteria and are still told getting a house 4x salary is crazy. What am I missing?
                        I'm not near as conservative as folks above. I think you can easily go 3x your salary for a home. Maybe even super stretch for 3.5x salary, if you knew exactly what you were buying (like a brand new home) without extensive unknown maintenance costs. Of course just be super aware you might be house poor, meaning you won't have as much money to invest in vacations, stuff, kids, retirement. If your a homebody and/or have inexpensive hobbies then Id say go for the big house. No problem being house poor when you spend 95% of your time there.

                        Especially with rates being 2.5%. That's IMO basically what inflation is going to be, so alot of upsides in holding assets right now like a big house. Just my opinion.

                        Comment


                        • #13
                          Originally posted by Jack_Sparrow View Post

                          I'm not near as conservative as folks above. I think you can easily go 3x your salary for a home. Maybe even super stretch for 3.5x salary, if you knew exactly what you were buying (like a brand new home) without extensive unknown maintenance costs. Of course just be super aware you might be house poor, meaning you won't have as much money to invest in vacations, stuff, kids, retirement. If your a homebody and/or have inexpensive hobbies then Id say go for the big house. No problem being house poor when you spend 95% of your time there.

                          Especially with rates being 2.5%. That's IMO basically what inflation is going to be, so alot of upsides in holding assets right now like a big house. Just my opinion.
                          Thats a good perspective. This is the conversation my wife and I are having. We don't want a big house (nor can we afford one where we are looking), but being a walk or short bike ride to the beach is huge for us as we spend most of our time there. This puts us in the position to look at 2-2.5k square foot homes in the 2M range. If total salary is 550k, this home will likely be roughly 4x our income. I've tried running the numbers and after all savings, debts, recurring expenses, groceries, etc. we should have about 3.5k left each month to do whatever we want with. I really don't know if this is considered house poor or not, but it seems like a fair amount for "entertainment".

                          Comment


                          • #14
                            Originally posted by clozareal View Post
                            What is the argument against a house 4x your salary if you are a)able to save 20% gross and b) total monthly expenditure on mortgate is less than 28% gross.

                            These are a couple rules I've seen, but then I see individuals who meet both criteria and are still told getting a house 4x salary is crazy. What am I missing?
                            I think the absolute #1 rule of WCI is to save 20% for retirement. As long as you are doing that and have no student loans (or any other non-mortgage debt) you are free to spend the rest on whatever you want. If that's a house then that is perfectly fine. Just make sure you know yourself, and realize, for instance, a bigger house payment means less money for cars (if you're a car guy/gal) or less money for vacations (if you're a vacation person) or 529/college or private schooling, or retiring at a later date, etc.

                            personally, when we bought our house (while we still had ~$180k in student loans) we put 10% down only, 10% was a HELOC, and the 80% mortgage was 3x our combined salary at the time. Fast forward 7 years and the HELOC and student loans are gone, the current mortgage balance is now 1.6x our salary, due to lower balance and higher salaries. We still plan to pay it all off after ~18 years total and I think if we really wanted to we could early retire sometime between age 50-55. So going for 3x obviously didn't/won't hurt us in the long run.

                            Comment


                            • #15
                              Originally posted by JBME View Post

                              I think the absolute #1 rule of WCI is to save 20% for retirement. As long as you are doing that and have no student loans (or any other non-mortgage debt) you are free to spend the rest on whatever you want. If that's a house then that is perfectly fine. Just make sure you know yourself, and realize, for instance, a bigger house payment means less money for cars (if you're a car guy/gal) or less money for vacations (if you're a vacation person) or 529/college or private schooling, or retiring at a later date, etc.

                              personally, when we bought our house (while we still had ~$180k in student loans) we put 10% down only, 10% was a HELOC, and the 80% mortgage was 3x our combined salary at the time. Fast forward 7 years and the HELOC and student loans are gone, the current mortgage balance is now 1.6x our salary, due to lower balance and higher salaries. We still plan to pay it all off after ~18 years total and I think if we really wanted to we could early retire sometime between age 50-55. So going for 3x obviously didn't/won't hurt us in the long run.
                              How much higher income? That obviously potentially changes the equation significantly.

                              Comment

                              Working...
                              X