Can we afford $500k house? (mortgage, finance, real estate) (PMI, lender, expensive)

[heresjohnnee]

Originally Posted by jghorton

There is no reason, given your income, savings and debt to income ratio - that you cannot afford a $500K home. In many parts of Florida, that's about average. (Of course, you can always spend more or less, depending on what housing is worth to you).

Thanks for the input. The median price point where I am is $229k, so it's definitely above average here; cause for careful consideration!

[Tall Traveler]

It's interesting to hear people's opinion depending on where they're from. $500K in Seattle is not a very nice house. So we think you have to pay at least that to buy a house that has all walls standing. So I say yes if you love the house and are willing to sacrifice to enjoy it, do it. Just accept that may not be a great financial move if you are not anticipating much appreciation. Although I don't think it's a great financial move, you will be able to deduct the property taxes, interest, etc. so it will lower your income base.

[heresjohnnee]

Originally Posted by reneeh63

A nice sentiment...but while their other place was practically cost-free to live ($300/mo) and they could have built up a big 401(k) at a young age, now they're getting a big fat mortgage instead...many square feet to furnish in what will likely be expensive pieces to match the style of the house...and more years of putting off real retirement savings.

We are only newly making the income so it's not as if we've been making great money all along and neglecting retirement. We put what we could into retirement and saved as much cash as we could. I think that - coupled with the 2-family that will continue to appreciate, will eventually be paid off, and provide retirement income for us - was the best we could do. I recognize fully that we are behind in retirement and need to make that a priority.

The difference between this house - which we love - and a house that would be a compromise for us is about $500/mo. In the grand scheme of things this seems like a small difference.

I'm confident now that we can afford the house. We have no kids and no big expenditures and my income is expected to continue to grow. We have more than enough wiggle room to buy the house and aggressively fund retirement.

My thinking has shifted to what it will actually look like to live in 3900sqft. The kitchen is perfect for us and we'd get a ton of use out of the formal living room with woodburning fireplace. We'd have a tv room on the 2nd floor, along with a guest bedroom and master suite - and this would also be the setup for us in a smaller house if we go that route. We'd have at least one bedroom and a full bath we'd never use. The guest bedroom wouldn't see much use either, but it's nice to have and we'd want it regardless. The formal dining room might be used a couple of times a year...but same deal in any house.

It's a lot to clean, insure, and pay tax on - but well within our means. I'm working to balance the fantasy of living in the house with the reality of paying for it. We will most likely hang tight and look for something smaller. As spectacular as the rooms and feel of the home are, we're just 2 people with no kids who don't need 5 bedrooms.

[heresjohnnee]

Originally Posted by Tall Traveler

It's interesting to hear people's opinion depending on where they're from. $500K in Seattle is not a very nice house. So we think you have to pay at least that to buy a house that has all walls standing. So I say yes if you love the house and are willing to sacrifice to enjoy it, do it. Just accept that may not be a great financial move if you are not anticipating much appreciation. Although I don't think it's a great financial move, you will be able to deduct the property taxes, interest, etc. so it will lower your income base.

By standards in my area, this house is considered a "mini-manse" and the price is way above what you have to spend in order to get a decent place. I like to think that if the house makes me happy, and I can afford it...why not have the space to enjoy and grow into? Then I start to reel myself in because I don't NEED it.

I'd be less hesitant if rates hadn't just gone up, adding about $200/mo to the payment.

[chet everett]

Originally Posted by heresjohnnee

By standards in my area, this house is considered a "mini-manse" and the price is way above what you have to spend in order to get a decent place. I like to think that if the house makes me happy, and I can afford it...why not have the space to enjoy and grow into? Then I start to reel myself in because I don't NEED it.

I'd be less hesitant if rates hadn't just gone up, adding about $200/mo to the payment.

The fact that rates may make you more hesitant is not a bad thing, you need to really make this sort of decision in the context of all the "life choices" that it entails.

For folks that truly do see owning a historic home and furnishing it as more fulfilling than other "entertainment" including travel / dining out / going to live events that has to be a decision that spouses 100% agree on and they should have a good sense of what sort of timelime they have for ownership of the home. The other major lifestyle context is about kids -- not just having your own but if moving into this home is going to mean all the neighbors have kids and such too. That is often hard to judge coming from a mult-family situation where the downsides of kids are more obvious.

That same sort of "how much is it worth" also has to be applied to your long term goals regarding work -- as others have said the retirement savings that are appropriately invested give you a definite base assets that you're able to count on. That gives you the option to stop working much earlier than trying to count on harder to predict value of rental properties -- I've gone round and round and learned that real estate is not as suitable for retirement income as some would lead you to believe. Completely understand that at certain phase of your life it can be very attractive way to get ahead of others, but over the long haul a more comprehensive understanding of all assets is necessary...

[annabanana123]

It sounds huge but if you can afford it and love it then do it. I would first calculate all of your expenses versus your monthly take home and figure out what mortgage you can comfortably afford while saving for retirement and a rainy day fund and if it falls in that range and you love it go for it. Also consider the increased utility costs for a house that size and with older homes your heating/cooling bills can be particularly high due to lack of insulation.

I know you said it's a lot to clean...I'd look into hiring a cleaning service if you don't have one. Otherwise you'll be spending a lot of time cleaning that much space. Seems like with your income you'd be able to swing that. Just food for thought.

[Tall Traveler]

Originally Posted by heresjohnnee

By standards in my area, this house is considered a "mini-manse" and the price is way above what you have to spend in order to get a decent place. I like to think that if the house makes me happy, and I can afford it...why not have the space to enjoy and grow into? Then I start to reel myself in because I don't NEED it.

I'd be less hesitant if rates hadn't just gone up, adding about $200/mo to the payment.

I think that if you're worried abut $200/mo extra due to mortgage bump, don't do it.....you don't want to feel strained so that you can't enjoy other aspects of your life. You also may well see significant increases in your property taxes over time.

[cayennev8]

Originally Posted by heresjohnnee

We've always been financially conservative people who live well within our means. We've lived in a 2-family flat, which we own, for 8 years where our tenant has been paying all but $300/mo of our mortgage. So taking on any size mortgage feels unfamiliar to us. We've worked hard to make sure we're in a good position for our next move and don't want to make a bad choice. When we move out of the 2-family, we'll keep it and it will provide positive cash flow.

We're in our late 30's, no kids (or plans for them) and very little debt. The house we want is bigger than we need but we can really see ourselves living there for many years to come. It doesn't have good schools working in favor of resale value, but it's in a stable area. I know we don't NEED the number of bedrooms or square footage. I know taxes and insurance will cost us more. It's definitely a WANT situation for us and we're ok with that as long as we're not taking on unmanageable debt.

Combined income is $175K and mine is expected to continue to rise (by at least $30k next year).
The house is $500k and we'd put 20% down.
Financed amount would be $400k.
Taxes $5200/yr, Insurance 1900/yr.

TOTAL DEBT
PITI would be $2550/mo (4.25% 30yr conventional fixed)
Cars total $500/mo
Credit cards $100/mo (paid to zero each month)
2-family PITI $1069/mo, income $19,000/yr (after we rent out our unit)

We are preapproved with our lender already.

We have about $160k in savings, and $85k in retirement.

Do we take the plunge before rates go up higher? Buy less house and focus on retirement savings? It seems that we can afford the house, it's just hard to tell whether we're being reasonable since we're coming from the perspective of living dirt cheap in our investment property! We could certainly buy less and save more but aren't sure whether it's critical to do so.

Thoughts?

How old are you?

[cayennev8]

TOTAL DEBT
PITI would be $2550/mo (4.25% 30yr conventional fixed)
Cars total $500/mo
Credit cards $100/mo (paid to zero each month)
2-family PITI $1069/mo, income $19,000/yr (after we rent out our unit)

We are preapproved with our lender already.

We have about $160k in savings, and $85k in retirement.

Do we take the plunge before rates go up higher? Buy less house and focus on retirement savings? It seems that we can afford the house, it's just hard to tell whether we're being reasonable since we're coming from the perspective of living dirt cheap in our investment property! We could certainly buy less and save more but aren't sure whether it's critical to do so.

Thoughts?[/quote]

Sorry, didn't read your post very well. Personally, I would buy down and save more. You'll have the house paid off by the time you retire but then it will be too big to care for and you'll less cash in your retirement account. It doesn't sound like you are in love with the house which is why I'm thinking this way. If you can;t live without it and MUST have it, then go for it.

[TwinbrookNine]

As a rule of thumb, your mortgage + insurance should be no more than 25 - 30% of your take home pay. It's an old rule that has proven itself - it has held up in a variety of economic scenarios. With low interest rates I'd say you're close to affording it. Just remember, you have to heat and cool all that space. Wrong bunch in Washington, and those costs could double overnight. That's the one thing I'd think about.


You are at an age when "pushing the envelope" (buying as big as you can) is a good idea. If something happens, you're still young enough to go to plan "B" and if all goes right, 25 years from now, that place theoretically could be a good nest egg.


I was overly conservative when purchasing real estate when I was your age (similar circumstances) and I lost retirement nest egg money on account of it. Just make sure that income is in a reliable industry that'll be there for the next 25 years.