Can we afford $500k house? (mortgage, finance, real estate) (interest rate, preapproved, properties)

[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).

[reneeh63]

Originally Posted by heresjohnnee

We're in our late 30's, no kids (or plans for them) and very little debt.

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?

Late 30's with that kind of income and only $85k in retirement funds?...sure, $160k in savings but what is that getting you as a return? I think you need to max out your retirement accounts.

You clearly know you don't need the house...perhaps because you've been "depriving" yourself up until now you think you deserve it? BTW, preapproval means nothing - they WANT to loan you just as much as you're able to take on, whether you need it or not and whether it makes you house-poor.

[JustMike77]

Originally Posted by heresjohnnee

This house is just an exceptional example of turn of the century construction, amazing details, high ceilings, big mantles...I could go on. The foot print of the house makes for a very large common area rooms which we'd get a lot of use out of. It's 3900 sqft and each room is very spacious. It just has a feel that would be difficult to find elsewhere at this price. Trouble is, there are 2 bedrooms and a bathroom we honestly don't need. I could make a home office out of one of them.

Realistically, we should probably by a 3br for $380k or so. Maybe we just have a bad case of house fever.

Realistically, you could both be dead by New Years. I have appraised over 16,000 homes and I can walk in the door and tell whether this is a house that is LOVED versus "just a house". I support your decision to purchase the home you REALLY WANT. Too many (most) people simply consider the investment angle when choosing a house, but the smart ones find a HOME. How many years are you willing to live in the 3 bedroom house that you clearly don't want? How many 6% sales commissions and moving costs are you willing to pay as you "move up" ? I say buy the home you LOVE, you are lucky to have found it at all. Welcome home.

[amil23]

To me, half a million dollars to keep the rain off my head is TOO MUCH money. I realize I am way in the minority now days but that is my opinion... I certainly don't have any opinion about what others do but you asked for perspective.

[reneeh63]

Originally Posted by JustMike77

Realistically, you could both be dead by New Years. I have appraised over 16,000 homes and I can walk in the door and tell whether this is a house that is LOVED versus "just a house". I support your decision to purchase the home you REALLY WANT. Too many (most) people simply consider the investment angle when choosing a house, but the smart ones find a HOME. How many years are you willing to live in the 3 bedroom house that you clearly don't want? How many 6% sales commissions and moving costs are you willing to pay as you "move up" ? I say buy the home you LOVE, you are lucky to have found it at all. Welcome home.

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.

[WestieJeff]

You guys have the income to buy the house, but you're way short on retirement savings. The two family place will hopefully be retirement income, but at your expense and income level, unless you recently graduated, you should have 250-350k in retirement savings already.

[aslowdodge]

Unless I missed it. I'd like to know the numbers on the 2-family flat, What do you owe, what's it worth, and what would be the cash flow . You mortgage isn't bad compared to your income and the rental income should really help.
Based in you numbers I'd say go for it barring anything I don't know like a $2200 a month crack habit or something.
You savings will drop from $160K to 60K and you retirement is weak. But You have time to catch up.

[hbdwihdh378y9]

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?

LOL -- you are ridiculously overqualified to buy a $500k house.

[Lockdev]

You can easily afford it, but the bigger question is, should you?

Also, why only 85k in retirement? You're behind the curve for your age.

You're getting caught in the typical American "I want more than I have for no good reason" rat-race mentality.

If it were me, I'd stay where I was at, and put that money every month towards retirement. I have known too many people that have had to work into their late 60s because they let their desire for more get the best of them.

[JanND]

Originally Posted by CGab

I understand the home is more of a want than a need, but I can't comprehend having a home that size for two people. At any rate if you have no debt but what you listed I think you could easily afford it; however, for the amount of income you make your retirement savings is extremely low! Personally if it was me I would buy a smaller least expensive home and sock more away for retirement.


Also as others have said, with a home that big, you will most likely resell it to a family later. If schools are bad, you will have a hard time selling! Typically if schools are bad, the area is bad a well!

This is very good advice.

I would suggest looking at a great house, in a great area....It may not be as grand as the one you want.....But, as you age the size of the house will become cumbersome and the resale will be problematic at any point due in the future to the marginalized school area.

You have been very smart up until now, do not change that strategy going forward. Put the difference in the monthly house payment you save by being more realistic about the home you choose to buy....into your retirement.....I guarantee that you will be happy that you did.