|
Your available funds for down payment makes or breaks this deal, so let's take a look. The general loaners rule says you should not pay more than 28% of your monthly gross salary in mortgage payments (including principal, interest, home-owners insurance and taxes), which in your case equates to about $9916. That's what most banks would be comfortable with. If you're 100% debt free (no auto payments, student loans and what have you) you can stretch this to 36%, leaving you with $12750 for monthly mortgage payments. These numbers are for a 30 years mortgage at a fixed 7% interest (not likely to get anything below that this day and age), $3000 property taxes, and standard home purchase fees including inspection etc.
Now, if you have $250000 in your savings account for a down payment & you're debt free, you should be able to afford a house worth $2.08M. If you have $500000 you can get up to $2.35M, and if you have a million in the bank for a down payment you can afford a $2.83M home.
I ran these numbers through a tax deduction calculator. To borrow $1M means you'll be making $2.4M in total payments. The total amount you'll be paying in interest over 30 years is $1,4M (!) - so that's the rough cost of your loan. The total tax benefit would be $488,281.
Most homes south of Sunset Blvd (the more affordable area of BH) are in the $1.8-3M range.
I think it's fairly obvious that a $1M+ loan is a very bad idea. From a purely economical perspective I believe the smartest thing you'd do is to sell whatever you're sitting on right now. Then rent a fairly cheap place in a decent area until the prices have come all the way down to where they should be (roughly 25% of today's values, accounting for 3% inflation a year). This should happen within 3-4 years. Meanwhile live frugally, invest what you have in the bank wisely (across multiple options), and save every dime you can. After 3 years the prices will have come down and you'll have much more money in the bank. Let's say you manage to save 2/3rds of your income and invest all of it in a safe 5% yield. Then you'll have over $600K in the bank, home prices will have come down and you'll have 3 years of high salary history (which will grant you more freedom and better deals with banks). If you want to get into a house right now (which I would strongly advise against), don't stretch above a $1.6M house. Plan wisely! Good luck.
|