Can I afford a $1 million dollar house? (4%, investment, mortgage)
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Here is my situation. Looking at a house in orange county,CA.
The house is about $1 million. We can put half down, which leaves us with a $500K mortgage.
Our gross annual household income is $200K. After 10% contribution to 401K, 40% of our net income will be taken by mortgage, property taxes, HOA, home owners insurance.
Other factors, we have no other debt and have 2 young children. We live within our means and live a comfortable life style. We don't over spend nor do we penny pinch everything.
So is 40% housing expense against net income too much?
It sounds like you can probably afford it. You would want to make a detailed and somewhat conservative budget to make sure. It's generally easier to live off of 60% of $200k than 60% of $100k, but people who make more tend to spend more. I think most experts would recommend you save more than 10%, so consider increasing the savings.
You may end up being slightly house poor. Make sure you're ok with that.
It sounds like you can probably afford it. You would want to make a detailed and somewhat conservative budget to make sure. It's generally easier to live off of 60% of $200k than 60% of $100k, but people who make more tend to spend more. I think most experts would recommend you save more than 10%, so consider increasing the savings.
You may end up being slightly house poor. Make sure you're ok with that.
What exactly do you mean by house poor?
I ran some numbers and we should be able to put away another 10-15% in savings after house payments and other expenses. In addition work matches 4% of 401K contribution.
I'm kind of on the fence. 40% of net income for housing expenses seems like a lot. At the same time we are putting 50% down, which seems like it makes sense to buy.
For socal, is it normal to have housing expenses in the 40%+ range?
Without a calculator, most definitely you qualify. You will want to change your withholding to match up with your new tax deductions. Remember your 401 is pre-tax money and that is going to make those write offs really work for you.
Why in the world would you want to sink SO MUCH CASH into non-liquid asset?
While I applaud you on having $500k to consider putting toward a downpayment the potential for this CASH to better serve the longer term needs of you and your family is far better than locking it into a home.
I wonder if you might not be able to get a very similar home in the same area for perhaps $800k. That changes the multiplier for your income-to-housing from a rather scary 5::1 to a bit more tolerable 4::1, that is step in the right direction. It also shrinks the size of your ptential mortgage and/or leaves a MUCH healthier cushion in your savings...
Just because the numbers might come up "OK" on your debt to income the bigger issue is what does devoting so much of your savings and income do to your overall financial picture. To begin with, anyone with solid income and kids should absolutely consider 529 plans for college costs -- College Savings Versus Retirement Savings. Similarly it is foolish not to maintain a substantial stash of liquid savings for unexpected needs -- https://investor.vanguard.com/emergency-fund/amount
Just curious on the specs of the home. What does a cool million get you in Orange County CA?
Seriously? Really depends on the city you buy in. 18-2200 sq ft yard and a three car garage (maybe). Built anywhere from 1950/60 to 1980. There are houses in Fountain Valley off 405/Brookhurst that were selling in the 800s. Nothing special. Few in the million range. Again nothing magnificent that you think 1 mil should get you. 1 mil will get you a nice house that in any other state will run 150-350k.
As a matter of fact we're looking to move out of OC. I don't see the housing as a value here, so I'm buying out of OC. But my work takes me anywhere from LA to SD to Riverside but I'm usually on the road by 4:45 and on my way home by 2:30 so I don't get the heavy heavy traffic.
I have a few rentals in OC and my current residence will also become a rental. If I were in OPs case I would rent a house. Throw that 500k in something that works for you. There is no way I would throw 500k down on a house in OC.
Wow-- I'm selling a 2455 sq foot victorian w acre gorgeous wrap around front porch and 4 car garage w unfinished basement for 339,000. Bad news..it's in the far north suburbs of Illinois chicago area. Good news.... you could pay for it in cash and not have a house payment Mr. Millionaire.
I learned the hard way...housing does not always retain it's value much less gain value.
Wow-- I'm selling a 2455 sq foot victorian w acre gorgeous wrap around front porch and 4 car garage w unfinished basement for 339,000. Bad news..it's in the far north suburbs of Illinois chicago area. Good news.... you could pay for it in cash and not have a house payment Mr. Millionaire.
I learned the hard way...housing does not always retain it's value much less gain value.
Yup...I am a first time homeowner. I bought my home as a home not an investment. And all of the upgrades I am doing are strictly for my enjoyment not with ROI in mind. If i sell this place 10-20 years down the road and make some money then I will be thrilled.
Without a calculator, most definitely you qualify. You will want to change your withholding to match up with your new tax deductions. Remember your 401 is pre-tax money and that is going to make those write offs really work for you.
Excuse my ignorance, are you saying I should increase my 401K contribution because I have more property tax and mortgage interest to write off?
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