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While everyone seems focused on pure finances, your motive for looking at a $500K townhome is probably more important. Are you thinking return on investment, location, amenities, schools or ??
While you can probably stretch things to swing the purchase, you will likely be in a much better position in 2-years after converting $10K per year in daycare expenses, to your mortgage. But, again, the real issue is: are other considerations compelling you to move now (or are you getting a super-special deal on the townhome?).
I am torn over whether I can afford a $500,000 townhouse with a $230 HOA. It is more than 4 times my gross pay. My income is roughly $120k. Take home pay is about $7000 after 401k, tax and other deductions. If I buy a $500,000 3 bd townhome, mortgage, tax, HOA and insurance will cost me about $2,700 a month that leaves me with $4,300 a month. I have a $200 car payment and no other debts. Should I do it? $2,700 a month seems too high but renting is also so expensive right now. A two bedroom apartment in decent area costs $1,900 a month. I am a single father of a toddler. Right now pre-school costs $800 a month. It will be two years before she can go to Kindergarten.
How much cash do you have? How much are you putting down?
I have to agree with the masses on this one. If your gross is $120k, your mortgage limit should be $360,000. Unless you have $140k to put down (almost 30%), you aren't there yet.
Another way to look at it is that your total housing cost should not exceed 1/3 of your take-home. I have serious reservations that you can get away with mortgage, insurance and taxes for $2,700/month on a $500,000 townhouse. HOAs, maintenance and utilities have to get factored into that number, and those all tend to go up - never down. I think your housing costs will be somewhere well north of $3,000 per month, which is approaching 50% of your take home pay. One astute observer earlier noted that two months of no income and you are officially in a pickle. I concur.
Sorry; I advocate renting (or a smaller house) for you. Take the time to save some money and play with your growing daughter.
In California these prices are not insane to California... To everywhere else they are stooopidly insane...
The house in my area run around $600,000 up to 3 or 4 million... And the lower priced houses are nothing special.. 2200 sq ft maybe.. No backyards to speak of... just insane pricing...
Now if I was to go to the ghetto type areas, the price would drop to about $350,000 to $500,000, but I would not want to live there... AND still stooopidly high prices...
It's important to factor in not on the payment amount, but whether you have enough of a rainy day fund to continue to make the payments if something happened (through no fault of your own) that halted your 120K income. Would you be able to keep up the payments for 3...6...12 months?
Also, as a side note, as others have pointed out the California housing market is an anomaly compared with much of the US, as are typical incomes. 120K in most of the US would be considered wealthy, or at least a very good upper-middle income salary. In many places where the housing prices are much lower than the OP's 500K townhome, salaries for even professional positions don't pay anywhere close to 120K, and sometimes less than 50K.
Why not take the difference between your rent and your proposed mortgage costs and park that money in the bank. Every month. No cheating. You will see if that you can live with that, and you'll be working on establishing a nice rainy day fund and down payment.
Ask in the California forum. I think that people who don't live in expensive housing areas just don't get it.
That's considered expensive? The example house was listed at $499K 4 months ago and just now sold for $470K.
Sounds like those guys have it good down there. $500K town homes and preschool that only costs $800/mo? And the public schools are good??? That's insanely low, especially for the preschool.
If you can buy a 2 family townhouse in that range, that would probably be a better option. Then you could rely on rental income to help pay mortgage.
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