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Home Budget

Home Mortgages and Home Buying Home Budget

  • Avatar WorkforFIRE 
    Participant
    Status: Physician
    Posts: 46
    Joined: 11/22/2018

    Hi All,

    First off, thank you to this forum. I posted here 6-8 months ago about buying a home vs paying off student debt (~200k). Thanks to y’all, we paid off our student loans a few months ago and are now completely debt free.

    We are in the process of buying a home in the next 6 months. Got lots of questions about the home buying process but to start – what is everyone’s thoughts of how much to spend. 1x gross income, 2x? 2.5x ?

    Also, what are your thoughts on 10/1 ARMs, 15 year fix, vs 30 year fix? It is as simple as just getting the lowest rate possible?

    Other than a home, we have no intention of taking a loan out for anything even cars.

    Thank you all again.

    #226586 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2817
    Joined: 01/03/2017

    Well done on paying those loans off! My advice for a house is to spend the least amount while making sure it has the things you want/need. Where you live has a lot to do with it. If you live in the middle of the country, you could probably get everything you want at less than 1x. If you live in the Bay Area, you probably couldn’t get it done for less than 5x.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #226587 Reply
    Avatar ZZZ 
    Participant
    Status: Spouse
    Posts: 700
    Joined: 06/18/2018

    “what is everyone’s thoughts of how much to spend. 1x gross income, 2x? 2.5x ?”

    Spend the least amount possible to get a home that will meet your families needs and reasonable desires. If a house you’ll love is only 0.5x your income, that’d be great, right? Obviously you’ll likely spend more than that, but the ‘what’s the max I can afford’ has been a road to being house poor for more than a few people.

    #226588 Reply
    Liked by wonka31
    childay childay 
    Participant
    Status: Physician
    Posts: 1009
    Joined: 01/09/2016
    Splash Refinancing Bonus

    Yes we need to know more or less where you live and what kind of income you have to give any estimate.

    #226598 Reply
    Liked by wonka31
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 697
    Joined: 03/24/2018

    Yes, the no more than 2-2.5x gross income is helpful, but as noted above some of this depends on your income and location. My mortgage was 1x, however my income is relatively high for my specialty and I like in a MCOL area. If I was in the Bay Area, I’m sure that multiple would have skyrocketed.

    #226605 Reply
    MPMD MPMD 
    Participant
    Status: Physician
    Posts: 2488
    Joined: 05/01/2017

    <2X: optimal

    2.5X: desirable ceiling no matter where you live

    3X: hard ceiling no matter where you live

    from a cash flow standpoint i can tell you that i would probably never go much above 2X.

    #226607 Reply
    Liked by StateOfMyHead
    Avatar WorkforFIRE 
    Participant
    Status: Physician
    Posts: 46
    Joined: 11/22/2018
    Earnest refinancing bonus

    Gotcha. Very helpful info.

    A little more info about our situation.
    Live in Houston, TX.
    Household income ~550-600k
    We plan to live in the city. Will not move to the suburbs where I know I can get a nice home for <1x income. But that’s just a personal thing that we want.
    The neighborhoods that are not in a flood plane are not cheap. (Relative, I know). Home in these areas are between 1-1.5mil. Good school districts is a plus so will not pay for private school.

    Any thoughts would be appreciate.

    Also, thoughts on 10/1 ARMS vs 15 year fixed vs 30 year fix. Does it make sense to just get lowest interest rate possible?

    Thanks again

    #226630 Reply
    CordMcNally CordMcNally 
    Participant
    Status: Physician
    Posts: 2817
    Joined: 01/03/2017

    The loan decision will depend on what rates you can get for each option and how long you think you’ll live there. Even with the oil boom (which may be beginning to decline), $1M-$1.5M still seems high for Houston.

    Note: I don’t live in Houston.

    “But investing isn’t about beating others at their game. It’s about controlling yourself at your own game.”
    ― Benjamin Graham, The Intelligent Investor

    #226632 Reply
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 697
    Joined: 03/24/2018

    My friend bought a house from an NFL player for like $425k in Houston. Your quote, although within your budget, seems high for that city.

    #226640 Reply
    Avatar wideopenspaces 
    Participant
    Status: Physician
    Posts: 1137
    Joined: 01/12/2016

    Honestly you can afford it so go for it. I’ll still never understand why anyone would spend that kind of money on a house in Texas but it’s called personal finance for a reason. I like the stability of a 15 or 30 yr fixed loan but would consider a 10 year arm if I was planning to pay off in 10 years. Which on your income I would.

    #226665 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1823
    Joined: 02/11/2019

    I was able to get a half a point better on a 15 over a 30 year fixed. So I went for it. I am looking to refinance to another 15 year fixed now that rates dropped. Other then the better rate I like the idea of decreased leverage when my kids are college age and in case I decide to slow down at work.

    “Never let your sense of morals prevent you from doing what is right.”

    #226683 Reply

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