Can we afford a house and which neighborhood? (Long Beach, Pasadena: rentals, insurance)

[leolakers]

Long-time lurker, first-time poster. My wife and I are expecting a baby and we want to buy a house.

1. What can we afford?

We're both in our early 30's. We moved to Downtown LA 10 years ago from the Philippines right after college. We are very well educated and "culturally assimilated" LOL. Go Lakers!

Currently, we are earning close to 190K because my wife just switched to part-time to prepare for the baby (Majority is from my salary anyway). I have MBA and I work in tech and currently earning 170K. My wife is a graphic designer. I expect to increase my salary to 190k-200k in the next couple of years. We both can work remotely but who knows what will be the trend after the pandemic.

Our current net worth is close to 450K. 200K in cash. 225K in retirement. 25K value of our cars. No debt. Perfect credit score.

At the moment, our current rent is $2400/month for 1 bedroom and after including all our expenses and putting down $1000/month to IRA ($500 each), we have about $4000 left to go to savings.

So I think we can put 20% down payment and buy a 750-800k house.

2. Which neighborhood?

I love LA and this is my home, over the years, I've met friends from different races with different backgrounds, most are born here (White, Mexican, Samoan, Korean, Vietnamese, Black, Indian, Mixed, and of course Filipinos) and I want to raise a kid in a very diverse city to have the same experience: learning different culture, trying different cuisines, and to have curiosity to travel to different countries etc.

So what we are looking for is a nice 4 bedroom SFH, no pool, but with a nice view of a city or a mountain or whatever from the living room or backyard. We'd like it to be a little nicer and bigger than a starter home. Preferably a neighborhood 30mins-1hour away from Downtown LA.

We are familiar with some areas, for example, we have friends who live in the foothill community of Pasadena/Arcadia/Monrovia. We also have family relatives who live in Cerritos. But those areas are really expensive. I like the foothill area because you have a view of SGV mountains, there are hiking trails, LA Arboretum etc. Pasadena is a great city and I heard they have great school districts and of course Caltech. Arcadia has a lot of Asian markets and restaurants. Monrovia and Duarte also is a close drive and has something to offer like Old Town Monrovia, Walmart (Yes I love Walmart because it's cheap), etc. Cerritos seems a nice area too with malls, and sometimes we go to a couple of Filipino restaurants there. LOL

We haven't started the search yet but I know the market is really hot right now and just by looking at listings on Zillow/Redfin and reading different forums, it seems like we are priced out of the market and we don't know which neighborhood to buy. I just feel powerless. We've been working hard and saving for 10 years and trying to be financially responsible and smart but it seems like a dream home doesn't exist.

[DKM]

This is the classic conundrum. It's one thing to be making it and getting ahead when you are in the DINK phase of life. Its another set of trade offs when you start a family. You'll have to do some hard thinking about whether commuting farther is worth owning a home in a "nice enough for your kids" area. You said you can work remote.. how about a hybrid solution? Driving 75 minutes to a job could be doable if its only 2 or 3 days a week.

You can afford more than a 750 to 800 house, so I'm not sure why you are limiting your self to that price point. Risk aversion?

I've heard Temple City and Rosemead are on the edge of areas that are up and coming in the area you seem to like. Not ideal but it can be done... There are options but you have to be realistic that you will make trade offs or not own a house within your stated commute range of DTLA.

[teqp]

Like you mentioned, Pasadena, Arcadia, Monrovia will all be out of this price range. You may want to look at Duarte as another option. Any of the other surrounding areas you will be hard pressed to get 4 bd at that price range.

This one might be an option.
https://www.redfin.com/CA/Duarte/340...0/home/8016332

Cerritos/Cypress area might give you more options for this price range. Good luck with your search!

[leolakers]

Originally Posted by DKM

This is the classic conundrum. It's one thing to be making it and getting ahead when you are in the DINK phase of life. Its another set of trade offs when you start a family. You'll have to do some hard thinking about whether commuting farther is worth owning a home in a "nice enough for your kids" area. You said you can work remote.. how about a hybrid solution? Driving 75 minutes to a job could be doable if its only 2 or 3 days a week.

Yes, I can work remote. My company is actually leaning towards making WFH permanently or maybe that hybrid approach and ask employees to go back to work 2-3 days a week. I think a 75 minute drive one way is not bad but which area would that be? Also one of the reason I want to have a 30min-1hr drive to DTLA is because my parents live there so we want to be closer especially now that they just retired.

Originally Posted by DKM

You can afford more than a 750 to 800 house, so I'm not sure why you are limiting your self to that price point. Risk aversion?

Not really risk aversion, maybe a little. I'm not worried about job security, my job is actually in demand right now in the market place and I'm not worried about depression or economy crash, if that's what you mean.

The reasons we are thinking of 750-800 price range:

1. Currently, we are at 190k after my wife switched to part-time. Let say my average salary in the next 10 years would be 200k. If that happens, depending on our situation, my wife might quit her part-time job to take care of a kid or two.

I've heard rule of thumb that the house should be 4x of your income, so 200x4 = 800. I've also heard another rule that your mortgage payment should be around 28% of your take home pay.

2. Personally I just hate any kind of debts. I know mortgage is different and most people cannot pay cash for a house so we will do the same and take 30 years but we are planning to pay it off early hopefully in 15-20 years.

3. $800,000 seems a lot to me, maybe because I still have this old mentality and I haven't accepted reality yet. When I first moved here, we got nothing and we literally started from the bottom. Back then in 2010, you can get a nice house for 500k (I understand that was maybe once in a lifetime opportunity because of the housing market crash), so I have this model in my head that I should spend 500-600 for a house.

4. Baby expenses, raising a kid, saving for college are all unknown to me, we want to be conservative and not be "house poor".

5. We also want to buy more properties after buying a home, maybe couple houses in Las Vegas for investment/rental or whatever.

That being said, what do you think we can afford?

Originally Posted by teqp

Good luck with your search!

Thanks!

[DKM]

You can afford 1 million. That's enough to get you into decent enough house and (this will be really important soon) a good school district. A good local elementary school has a huge influence on your kids development and also will mean you live among neighbors of similar mindset about priorities in life. Buy as much house as you can, the rentals and what not can come later after you build up some equity. Low mortgage rates, tax advantages and inflation will all work to your advantage as time goes by.

I also recommend looking into houses that need some work. You can slowly upgrade and fix up an older home that gets you into a better area. This also doubles as an equity builder.

[HB2HSV]

Originally Posted by leolakers

Also one of the reason I want to have a 30min-1hr drive to DTLA is because my parents live there so we want to be closer especially now that they just retired.

It all depends on when you will be visiting them. If it's during the weekday rush hour it's one thing, if it's during the weekend when the traffic is much lighter it's another.

The reasons we are thinking of 750-800 price range:

1. Currently, we are at 190k after my wife switched to part-time. Let say my average salary in the next 10 years would be 200k. If that happens, depending on our situation, my wife might quit her part-time job to take care of a kid or two.

I've heard rule of thumb that the house should be 4x of your income, so 200x4 = 800. I've also heard another rule that your mortgage payment should be around 28% of your take home pay.

2. Personally I just hate any kind of debts. I know mortgage is different and most people cannot pay cash for a house so we will do the same and take 30 years but we are planning to pay it off early hopefully in 15-20 years.

3. $800,000 seems a lot to me, maybe because I still have this old mentality and I haven't accepted reality yet. When I first moved here, we got nothing and we literally started from the bottom. Back then in 2010, you can get a nice house for 500k (I understand that was maybe once in a lifetime opportunity because of the housing market crash), so I have this model in my head that I should spend 500-600 for a house.

4. Baby expenses, raising a kid, saving for college are all unknown to me, we want to be conservative and not be "house poor".

5. We also want to buy more properties after buying a home, maybe couple houses in Las Vegas for investment/rental or whatever.

That being said, what do you think we can afford?

Thanks!

OK here're some numbers for you. Assuming a 3% 30 yr fixed mortgage,

If you buy a $800K house, assuming a 20% down payment, your monthly payment will be about $3,675/mo including P&I, property tax and HO insurance. That's is equivalent of 23% of your Debt to Income (DTI) ratio if you're making $190K/yr and no other debts.

If you buy a $1M house, same assumption as above, your monthly payment will be $4,567/mo. That's an equivalent of DTI = 29%.

You can borrow upto a DTI of 45%. More if it's FHA loan.

So clearly you can afford a $1M house. Now whether you want to spend that much is upto you & the DW to decide. That decision should include location, school district for your children, and ease of commute to DTLA, qualify for future rental property loans, etc.

Lastly, have you consider the Long Beach area? It is diversified like you desired and you can find 4/3 SFR for under $800K.

[CA4Now]

Originally Posted by teqp

Like you mentioned, Pasadena, Arcadia, Monrovia will all be out of this price range. You may want to look at Duarte as another option. Any of the other surrounding areas you will be hard pressed to get 4 bd at that price range.

Duarte has a mediocre public school system.

Originally Posted by leolakers

Baby expenses, raising a kid, saving for college are all unknown to me, we want to be conservative and not be "house poor".

You're smart to consider this.

[kwr]

Originally Posted by HB2HSV

If you buy a $1M house, same assumption as above, your monthly payment will be $4,567/mo. That's an equivalent of DTI = 29%.

You can borrow upto a DTI of 45%. More if it's FHA loan.

So clearly you can afford a $1M house. Now whether you want to spend that much is upto you & the DW to decide.

A $1M house with a 20% down payment absorbs all of their cash. That’s craziness...house poor. Not much money left after a 401k contribution, payroll taxes, re-building savings, etc.

[HB2HSV]

Originally Posted by kwr

A $1M house with a 20% down payment absorbs all of their cash. That’s craziness...house poor. Not much money left after a 401k contribution, payroll taxes, re-building savings, etc.

I said that decision is for the OP and DW to decide. You must be the DW.

[CA4Now]

Originally Posted by HB2HSV

I said that decision is for the OP and DW to decide. You must be the DW.

And maybe you're the realtor or the loan officer.