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Max home purchase?

Home Mortgages and Home Buying Max home purchase?

  • Avatar orthodds 
    Participant
    Status: Dentist
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    Joined: 11/07/2017

    A good rule of thumb is to limit mortgage payment to approximately 25% if income. So, a $2M home with a $600,000 down payment would result in a 15-year fixed mortgage payment, at 4.25% interest rate, of $13,181. That puts the annual mortgage payment right around 25% of income, assuming the midpoint of the income range you mentioned.

    That said, without knowledge about other cash flow demands, I am by no means endorsing such a purchase.

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    My mortgage calculator says more like 10,500/mo for 15 year and 7,200/mo for 30 year.  Are you including estimated taxes and insurance?  I would personally go with the 30 year option at roughly 4.6%.

    #186776 Reply
    Liked by Tangler
    Avatar Dont_know_mind 
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    Status: Physician
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    Joined: 11/21/2017

    What’s the max the bank will lend him ?

    #186880 Reply
    Avatar fasteddie911 
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    Status: Physician
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    Joined: 05/31/2016

    my comment is what are the going to do with all their money (no kids both working).  i would buy what will make them happy.  a 2 million dollar house comes with the equivalent 2million dollar house problems and taxes.

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    This is the perfect quote for my friend to show his wife. I totally agree. If they want it, get it, BUT get it knowing it will be a money sink, and will could slow time to retirement.

    I think he wants to work for about 5-10 years more then retire. He is in his mid 50s and he has earned it. I just don’t want him to buy a house and then hate himself, but it is his life and I am trying to answer his question (How financially stupid is this?) without telling him what to do. I like the WCI idea of moving to the midwest and being the richest people around, but he will need to figure that out. My advice is to keep renting unless he sees the “perfect” house or condo. Just as there are no called strikes in investing there are no called strikes in home purchases. There is literally a house on every corner and with the cash they have and no kids they have every option imaginable.

    Thanks for all the input.

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    I’d be more curious to hear about someone in their 50’s, earning mid-6 figures and millions in NW, still renting.  Did they just move to the area?  Have they been renting forever?  Certainly atypical of them and probably more financially astute than we might think.

    #186894 Reply
    Liked by Tangler
    Avatar Tim 
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    Status: Accountant
    Posts: 3032
    Joined: 09/18/2018

    “This is the perfect quote for my friend to show his wife. I totally agree. If they want it, get it, BUT get it knowing it will be a money sink, and will could slow time to retirement. I think he wants to work for about 5-10 years more then retire.”

    The purchase price is not an object. The real question is where does the asset fit in their retirement plans.
    Loan to payoff and ongoing tax/insur/maint. If they will be content with the ongoing expenses in retirement and plan to stay, then they can do it. If it’s a maybe on staying in retirement, I would suggest keep piling up the savings until and if they want to pay cash.
    The absence of a compelling reason and firm plans is my thoughts. Life style and retirement question really.

    #186941 Reply
    Liked by Tangler
    Avatar ginmqi 
    Participant
    Status: Physician
    Posts: 103
    Joined: 01/20/2016

    Posters smarter than me have already chimed but I wanted to provide another perspective if I may: Looking at OP’s description of that couple, it sounds like they’ve made it in life and now have a large degree of freedom to choose from in the housing market.

     

    At this point, if I were in that position, I actually don’t think the right question is: “How MUCH house CAN we afford?” But rather “What is the RIGHT home to purchase in our current life stage?”

    Obviously, aside from the ultra expensive mega mansions, (or certain VHCOL neighborhoods) the market is open season. I would want them to think about their future in terms of location, lifestyle, specific home structures, weather, etc. etc.

    #187208 Reply
    Avatar Dont_know_mind 
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    Status: Physician
    Posts: 947
    Joined: 11/21/2017

    my comment is what are the going to do with all their money (no kids both working).  i would buy what will make them happy.  a 2 million dollar house comes with the equivalent 2million dollar house problems and taxes.

    Click to expand…

    This is the perfect quote for my friend to show his wife. I totally agree. If they want it, get it, BUT get it knowing it will be a money sink, and will could slow time to retirement.

    I think he wants to work for about 5-10 years more then retire. He is in his mid 50s and he has earned it. I just don’t want him to buy a house and then hate himself, but it is his life and I am trying to answer his question (How financially stupid is this?) without telling him what to do. I like the WCI idea of moving to the midwest and being the richest people around, but he will need to figure that out. My advice is to keep renting unless he sees the “perfect” house or condo. Just as there are no called strikes in investing there are no called strikes in home purchases. There is literally a house on every corner and with the cash they have and no kids they have every option imaginable.

    Thanks for all the input.

    Click to expand…

    I’d be more curious to hear about someone in their 50’s, earning mid-6 figures and millions in NW, still renting.  Did they just move to the area?  Have they been renting forever?  Certainly atypical of them and probably more financially astute than we might think.

    Click to expand…

    I don’t know if it is financially astute. In terms of tax efficiency you are probably better off owning a house earlier and structuring the debt so it is tax deductible. If you have unlevered index funds 5M, then buy a 2M house with 1.8M debt on primary residence, you will have a large part of that 1.8M non deductible debt. Furthermore they also missed out on 500k in CGT exemption on primary residence over the last 10 years on the house, which amounts to a significant tax saving. I would say this is not very smart.

    #187268 Reply
    Liked by Tangler

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