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Old 12-02-2012, 06:31 PM
 
33 posts, read 517,160 times
Reputation: 28

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I'm trying to figure out if I'm in over my head here.

Taxes are also 11k/year

Currently, my wife and I are living on just my income. She will be done school in less than a year and will start out making around 60k. We want to buy a home that we can settle into, start a family, and not move for at least 10-15 years. At 300k-400k, you really do not get much in central-north Jersey. We don't want to buy a home only to move when she starts working. I also want to take advantage of the low mortgage rates.

Here are some pertinent information about me:
-I'm 26
-I make 100k gross. I expect my salary to increase 3%-5%/yr over the next few years
-Preapproved for 480k house at 3.1%(assuming 20%down)
-I have 150k cash
-I have 40k in my 401k
-I have no debts but I will be getting a car soon
-I have monthly bills of around $800

With taxes my monthly payment would b around $2700

My biggest worry is if I lose my job in the next year. My wife won't be working yet and I will only have funds to last a few months.

If all goes well. With both our incomes we would try to pay this off in 7-10 years(or should we not with such a low rate?).

This is a HUGE decision for us. Please provide any advice you can and thanks in advance.

Last edited by jscm86; 12-02-2012 at 06:41 PM..
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Old 12-02-2012, 06:58 PM
 
Location: Pennsylvania
12,280 posts, read 4,141,857 times
Reputation: 9539
Don't even think about it. Wait until your wife finishes up school and gets a job. Second, try living below your means! In this economy I wouldn't depend on getting 3% - 5% raises. My house cost less than $100,000 and I feel like it's NEVER going to get paid off. Do you really want to become a slave to the banks and borrow $500,000? Sometimes I think the entire world is off its rocker.

Mortgage rates aren't going up anytime soon....it's supply and demand. Darn few people can get a mortgage right now --- hence the very low rates. Second, real estate prices are headed down -- baby boomers start retiring in droves in the near future and will be looking to downsize their home or get out of home ownership entirely. That means lots of homes on the market. I suggest waiting 5 years before buying anything. I'll drop my bill in the mail....
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Old 12-02-2012, 07:09 PM
 
4,072 posts, read 9,040,534 times
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What do you do for a living to have 150k in the bank and be making 6 figures at 26? You are probably too young to be a doctor or lawyer. If you get laid off, are you going to be able to find a similar paying job quickly?

I would look in the 350k range, as I think it is a much safer move. With a 150k down payment, that should be cake to pay off in 7-10 years at the salaries you mentioned. That would not be very realistic on a 500k house with kids imo.
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Old 12-02-2012, 07:33 PM
 
1,336 posts, read 2,657,916 times
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I would say it depends on how stable your job is. Almost anyone can lose their job at any time, do you have any reason to expect it?

If not, I think you are in good shape (and look at my past posts, I tend to tell people they are crazy) if you are putting 20% down (no reason to throw money away on PMI)

You seem to have a good head on your shoulders (if you save some of the $150K and since you have no debt). Just make sure that the houe will be ok if you have 2 kids. People have kids and then decide that the house it too small when they should have seen that before they bought

Also, how much of the $2700 is interest and how much in taxes? You probably will not hit AMT so they should both be dedutable (and even with the government playing with deductions, you should be fine until they need to start taking people makeing $150K instead of $250K)

Try and see what it would be like by putting $2700/month in the back (and paying your rent or whatever out of that). Also remember your utilities and related items will go up too.

The bank MIGHT not be willing to give you the loan until your wife is working, but in these times if they are going to give you a mortgage for what you are asking, they are pretty sure you can pay it.

If you can NOT afford it now, do NOT buy a smaller house just to own one. You will just be selling it in 5 years and paying 7%+ in fees.
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Old 12-02-2012, 07:47 PM
 
9,511 posts, read 14,738,816 times
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You can afford it, but you're pushing it. Depends on your tolerance for risk and your assessment of the risks. Major risks are

1) Losing your job. If you spend $100,000 on the down payment and say $30,000 on a car, you're not going to have much of a cushion. But if push comes to shove you can probably resell the thing at not too bad a loss.

2) Loss of value of the house. Mostly a problem combined with #1. In most areas around here housing values haven't recovered much since 2008, so it's unlikely but possible. What's important is not overpaying!

3) Your wife not getting a job. This will cramp your style, but since you can afford the house on your salary, it's not fatal.

4) Your job changing locations. Again, the most important thing is not overpaying.

Assuming your wife does get the job, paying the house off should not be a priority; there are likely better investments.
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Old 12-02-2012, 07:47 PM
 
33 posts, read 517,160 times
Reputation: 28
Quote:
Originally Posted by BeerGeek40 View Post
Don't even think about it. Wait until your wife finishes up school and gets a job. Second, try living below your means! In this economy I wouldn't depend on getting 3% - 5% raises. My house cost less than $100,000 and I feel like it's NEVER going to get paid off. Do you really want to become a slave to the banks and borrow $500,000? Sometimes I think the entire world is off its rocker.

Mortgage rates aren't going up anytime soon....it's supply and demand. Darn few people can get a mortgage right now --- hence the very low rates. Second, real estate prices are headed down -- baby boomers start retiring in droves in the near future and will be looking to downsize their home or get out of home ownership entirely. That means lots of homes on the market. I suggest waiting 5 years before buying anything. I'll drop my bill in the mail....
Thanks but I can't find anything for 300k that's even worth looking at. At 3.12% I honestly don't feel like I'm being slave to a bank.
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Old 12-02-2012, 07:50 PM
 
33 posts, read 517,160 times
Reputation: 28
Quote:
Originally Posted by GiantRutgersfan View Post
What do you do for a living to have 150k in the bank and be making 6 figures at 26? You are probably too young to be a doctor or lawyer. If you get laid off, are you going to be able to find a similar paying job quickly?

I would look in the 350k range, as I think it is a much safer move. With a 150k down payment, that should be cake to pay off in 7-10 years at the salaries you mentioned. That would not be very realistic on a 500k house with kids imo.
Should really be 130k+ if I wasn't a slacker with getting my designation.

I agree 350k is much safer but I cannot find anything that I like in that price range. We have no kids for the time being
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Old 12-02-2012, 07:57 PM
 
33 posts, read 517,160 times
Reputation: 28
Quote:
Originally Posted by sonofagunk View Post
I would say it depends on how stable your job is. Almost anyone can lose their job at any time, do you have any reason to expect it?

If not, I think you are in good shape (and look at my past posts, I tend to tell people they are crazy) if you are putting 20% down (no reason to throw money away on PMI)

You seem to have a good head on your shoulders (if you save some of the $150K and since you have no debt). Just make sure that the houe will be ok if you have 2 kids. People have kids and then decide that the house it too small when they should have seen that before they bought

Also, how much of the $2700 is interest and how much in taxes? You probably will not hit AMT so they should both be dedutable (and even with the government playing with deductions, you should be fine until they need to start taking people makeing $150K instead of $250K)

Try and see what it would be like by putting $2700/month in the back (and paying your rent or whatever out of that). Also remember your utilities and related items will go up too.

The bank MIGHT not be willing to give you the loan until your wife is working, but in these times if they are going to give you a mortgage for what you are asking, they are pretty sure you can pay it.

If you can NOT afford it now, do NOT buy a smaller house just to own one. You will just be selling it in 5 years and paying 7%+ in fees.
I honestly don't have any reason to think I might lose my job. But these things do kinda happen out of the blue sometimes. It's a risk I think I'm willing to take as I should be able to cover at least 6 months since I would be able to borrow from my 401k(last resort of course)

Of the 2700, 1k taxes and 1700 mortgage payment

The last amount I got pre approved for was 450k and they guy says there's room to go higher if I want.

Buying a smaller house just to own one is EXACTLY what I'm trying to avoid.
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Old 12-02-2012, 08:05 PM
 
33 posts, read 517,160 times
Reputation: 28
Quote:
Originally Posted by nybbler View Post
You can afford it, but you're pushing it. Depends on your tolerance for risk and your assessment of the risks. Major risks are

1) Losing your job. If you spend $100,000 on the down payment and say $30,000 on a car, you're not going to have much of a cushion. But if push comes to shove you can probably resell the thing at not too bad a loss.

2) Loss of value of the house. Mostly a problem combined with #1. In most areas around here housing values haven't recovered much since 2008, so it's unlikely but possible. What's important is not overpaying!

3) Your wife not getting a job. This will cramp your style, but since you can afford the house on your salary, it's not fatal.

4) Your job changing locations. Again, the most important thing is not overpaying.

Assuming your wife does get the job, paying the house off should not be a priority; there are likely better investments.


Homes in development sold this year for 460k,490k,535k, and 570k.

I'm looking to lease something with 0 down in the meantime. Will not buy.
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Old 12-02-2012, 08:26 PM
 
Location: NJ
23,964 posts, read 30,093,361 times
Reputation: 15900
i definitely wouldnt do 500k at 100k gross salary.

id keep it under 400k. you may not be able to get a lot for that, but the reality is that you cant afford a lot.
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