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Old 07-03-2016, 06:29 PM
 
Location: Atlanta, GA (Sandy Springs)
6,581 posts, read 3,168,033 times
Reputation: 4717

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I'm trying to decide if I can afford a 700k house. Income is 140k. This would be with 10% down.

Now at first you might think 700k is too much for 140k income (5x income), and that was my initial thinking as well so I was not even looking at houses in this range (and I still might buy something cheaper), but the more I thought about it, I was thinking that something in this range could actually work given the following factors.

1. I'm 32 and single and have no family expenses other than feeding myself.
2. I also have basically no other debt. The only other debt I have is a $258 student loan payment, and the total debt there is only 16k so I could pay that off too if I really needed to. The interest rate is basically zero which is the only reason I haven't paid it off as well.
3. Also, I'm not really a huge lifestyle spender (expensive trips, eating out all the time, etc), so I'm comfortable spending more of my income on a bigger house.
4. I have a stable job of 4 years.
5. My income should continue to increase. I have always gotten at least a 5% raise with my current company, and usually more. This year it was 10% and last year it was 6%.

If I do an 80/10/10 my payment should be in the range of $3000 for P&I (this is with 30 year fixed first at 3.5 and 20 year fixed second at 5.9). Taxes in my area would be around $675. I'm estimating insurance of $200 and HOA of $75 based on typical houses I've seen. That puts me around $3925 for housing. Adding in my student loan payment would put me at a DTI of around 36% which actually seems reasonable.

Last edited by atltechdude; 07-03-2016 at 06:55 PM..
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Old 07-03-2016, 06:53 PM
 
1,584 posts, read 1,041,431 times
Reputation: 3591
What's your after-everything net take home? I'm guessing roughly $7k? Including health insurance, 41k, etc.

I'm going to go against what I assume others will say, but seems doable to me.You can adjust your withholding to increase your take-home a bit to account for the mortgage interest deduction, but if you're capable of surviving on $3k all-in each month and you're otherwise still saving, I say why not.

As long as your career is the type that will continue to increase (salary, promotions, etc), like you say, then I don't see why not. Things will just be tight for the first few months while you're buying furnishings and getting the house set up the way you want it. And you're risking that you won't need a major repair until you've replenished your rainy day fund, but there's always more debt in a pinch.

I like that the property taxes are low where you are. I looked at a $700k house in NJ but the taxes+sewer+HOA were $20k/yr- considerably more than your estimate!
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Old 07-03-2016, 06:58 PM
 
Location: Atlanta, GA (Sandy Springs)
6,581 posts, read 3,168,033 times
Reputation: 4717
Yes take home will be just a bit over 7k, like 7200 probably, after I increase the exemptions for interest/property tax deductions. And yes the taxes here are considerably less than the northeast which is nice. I will still have enough to fund 401k, and save some additional each month and I can also use my stock bonuses to build up my savings again. I also plan to pay the second off faster so that I can get that paid off and then reduce my payment within a few years that way. I already have furnishings in the place that I'm renting so I will not have to come out of pocket for major expenses within the first few months unless something major breaks. I have a 35k limit in credit cards that I could use in a pinch.

Last edited by atltechdude; 07-03-2016 at 07:08 PM..
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Old 07-03-2016, 07:19 PM
 
672 posts, read 1,684,432 times
Reputation: 585
My thoughts...

WHY do you need a $700K home?

It sounds like you are in Atlanta... This ain't no Silicon Valley... I am SURE you can find a less expensive home that can suit a single guy like yourself.

Again, WHY?

You can't afford to put down a full 20% which tells me that you don't have a significant Net Worth.

You do realize that you will paying over $1300 in interest every month just to say you own a 700k home.

I can think of a heck a lot of fun things I would be able to do on over $15K per year rather than "lose" it on a house.

Are you getting a deal on this house? Like a 25% below market price on this house? I have a feeling you are probably paying market.

What if you lose your job? What if your future significant other hates the place/location? Etc. Etc.

We earn more than you and would not even consider a purchase that large... What's the point?
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Old 07-03-2016, 07:36 PM
 
Location: Atlanta, GA (Sandy Springs)
6,581 posts, read 3,168,033 times
Reputation: 4717
Quote:
Originally Posted by volk2k View Post
My thoughts...

WHY do you need a $700K home?

It sounds like you are in Atlanta... This ain't no Silicon Valley... I am SURE you can find a less expensive home that can suit a single guy like yourself.
I don't necessarily need a 700k home, like I said I may indeed get something cheaper. I'm just trying to determine a theoretical upper bound so I can have that in mind when I start seriously looking at homes.

I've spent some initial time researching and most of the houses that interest me are in the 500k to 700k range, so I was kind of considering looking in that range. I may indeed find something that I want for 500k. I was just looking for some advice from others on 700k as a kind of upper limit in case I find something that I really like in that range.

Quote:
Originally Posted by volk2k View Post
You do realize that you will paying over $1300 in interest every month just to say you own a 700k home.

I can think of a heck a lot of fun things I would be able to do on over $15K per year rather than "lose" it on a house.
Appreciation on a 700k home in the areas I am looking in will very likely be more than $15k per year, so I don't really consider it a loss. Could I find more fun ways to blow 15k? Of course. But like I said that's not really my focus.

Also, I'm not doing anything "so I can say I own" something. The houses that I want are fairly expensive mainly because I want a single family home with a big enough garage that I can have a workshop and work on my cars, but also something that is fairly close to the city center where my work is. That combination means they are fairly expensive since there is a strong focus on condos and townhouse with tiny garages in closer to the city for density reasons. I'm paying for the location more than anything else. I absolutely hate having a long commute.

Quote:
Originally Posted by volk2k View Post
Are you getting a deal on this house? Like a 25% below market price on this house? I have a feeling you are probably paying market.
Market.

Quote:
Originally Posted by volk2k View Post
What if you lose your job?
The last time I changed jobs, I had a new job within 6 days. I'm not really concerned about employment. My field is extremely in demand. And I just got a promotion this year. I have absolutely no expectation that I will lose my job, unless I show up drunk to work or something. But regardless of that, I will be focusing on rebuilding my savings after the purchase (and I will still have some, I'm not spending my entire savings on the down payment, part of the reason I only want to do 10%).

Quote:
Originally Posted by volk2k View Post
What if your future significant other hates the place/location? Etc. Etc.
Well I could always sell it in that case.

Quote:
Originally Posted by volk2k View Post
We earn more than you and would not even consider a purchase that large... What's the point?
That's ok. I appreciate the advice either way.
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Old 07-03-2016, 10:27 PM
 
Location: MID ATLANTIC
7,814 posts, read 19,046,781 times
Reputation: 8624
You're fine. Your baggage may change in the future, but as long as you can maintain savings contributions, you should be in good shape.
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Old 07-03-2016, 10:56 PM
 
Location: Phoenix AZ
6,057 posts, read 11,536,928 times
Reputation: 9629
Just a counterpoint - when we had the last crash here, there was a 7 *year* supply of homes over 500k. The median home price in the us is $200k, lots of people can buy those homes, not many can buy $700k homes, even in overheated markets. When the poop hits the fan, those with money stop buying & they can stop buying for a loooong time - no one "needs" a $700k home except in those areas where a median home is $700k.

So the next time the economy tanks (and it will in your lifetime), you can't count on "just selling the house". You need reserves and a full down payment to play in that pool.
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Old 07-04-2016, 06:14 AM
 
Location: NC
6,870 posts, read 8,454,115 times
Reputation: 14444
Try to stay at or under the price that real estate people say is easy to sell. In the Raleigh area, I've heard that number is 550K. That is not the median home value, but the one with a decent sized buyer pool.
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Old 07-04-2016, 06:36 AM
 
Location: Cary, NC
34,313 posts, read 59,633,146 times
Reputation: 33413
"Appreciation" should be considered a bonus, and not assumed as a cornerstone of the homebuying financial decision.
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Old 07-04-2016, 07:00 AM
 
Location: Where the sun likes to shine!!
20,521 posts, read 26,710,461 times
Reputation: 88559
Quote:
Originally Posted by atltechdude View Post
I'm trying to decide if I can afford a 700k house. Income is 140k. This would be with 10% down.

Now at first you might think 700k is too much for 140k income (5x income), and that was my initial thinking as well so I was not even looking at houses in this range (and I still might buy something cheaper), but the more I thought about it, I was thinking that something in this range could actually work given the following factors.

1. I'm 32 and single and have no family expenses other than feeding myself.
2. I also have basically no other debt. The only other debt I have is a $258 student loan payment, and the total debt there is only 16k so I could pay that off too if I really needed to. The interest rate is basically zero which is the only reason I haven't paid it off as well.
3. Also, I'm not really a huge lifestyle spender (expensive trips, eating out all the time, etc), so I'm comfortable spending more of my income on a bigger house.
4. I have a stable job of 4 years.
5. My income should continue to increase. I have always gotten at least a 5% raise with my current company, and usually more. This year it was 10% and last year it was 6%.

If I do an 80/10/10 my payment should be in the range of $3000 for P&I (this is with 30 year fixed first at 3.5 and 20 year fixed second at 5.9). Taxes in my area would be around $675. I'm estimating insurance of $200 and HOA of $75 based on typical houses I've seen. That puts me around $3925 for housing. Adding in my student loan payment would put me at a DTI of around 36% which actually seems reasonable.

How much do you have in cash savings after your 10% down? If you can survive a sickness or being out of work for some time then you might be able to do it. Should you? I wouldn't but I am always concerned about what ifs and my security. It doesn't mean you can't but think of a possible housing down turn. You may not get your money back.

If you do go forward with this plan make sure you get a deal…do "not" pay market price. You are young so maybe look for a less expensive home that you can update.

Good luck. Also with 20% down you don't have to pay PMI.
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