Can we afford a $450k house on our income in Seattle? (for sale, insurance)

[cocoa123]

Hello! We are first home buyers and have been looking for a house in NW Seattle area. We just found a house we really like, but we are not sure if we can afford it and we would like to hear your opinion.

This house is $450k and our household income is $120k. We only have around 5% for down payment, but we might not have to pay mortgage insurance.

We are a family of three, husband, wife and a baby coming this year + a dog.

We don't have any debt right now, but I'm sure having a baby will be expensive and we have to include higher electric/gas/water bills, trash, general home maintenance cost etc. in our monthly cash flow plan for owning a house.

When we first started looking for houses, our budget was around $350k, but it was quite hard to find anything in "ok" condition except for townhomes in that area in that price range, so we are now deciding if we can stretch our budget and buy a house we like.

Do you think a $450k house is affordable for us at all? Or should we stay in our $350k budget and get a townhome for now? What would you do?

[Hemlock140]

I know people with 2 kids making only $100k that have bought homes in the $400-500k range and are doing just fine. It depends on what other debts you have, such as car payments and student loans. Remember that you are likely to have property taxes over $5,000/year, and childcare may be $2,000/month.

[Ira500]

There's "afford" and there's "afford". With your income and no debt, a lender will likely say you're qualified to buy a 500-550 thousand dollar house, but that doesn't mean it's the wisest thing to do. What's your lifestyle like now? Are you saving money with a lower housing cost? Are you going to have to give up many of the things you are used to in order to make the mortgage payments?
You have choices beyond what you stated. You can rent. Because house prices are so high around here, lots of people happily rent. Or you can buy in an area with less expensive homes.
When you mentioned the "no mortgage insurance" with 5% down, were you referring to the Washington State Housing Finance Commission's class that qualifies you to get their loan at a slightly higher interest rate but no mortgage insurance? It's a useful class, and free, if you haven't taken it. Offered all over the state, and frequently.
Finally, it sounds like you don't really want a townhome. Could you be happy in one?

[Molli]

Originally Posted by cocoa123

Hello! We are first home buyers and have been looking for a house in NW Seattle area. We just found a house we really like, but we are not sure if we can afford it and we would like to hear your opinion.

This house is $450k and our household income is $120k. We only have around 5% for down payment, but we might not have to pay mortgage insurance.

We are a family of three, husband, wife and a baby coming this year + a dog.

We don't have any debt right now, but I'm sure having a baby will be expensive and we have to include higher electric/gas/water bills, trash, general home maintenance cost etc. in our monthly cash flow plan for owning a house.

When we first started looking for houses, our budget was around $350k, but it was quite hard to find anything in "ok" condition except for townhomes in that area in that price range, so we are now deciding if we can stretch our budget and buy a house we like.

Do you think a $450k house is affordable for us at all? Or should we stay in our $350k budget and get a townhome for now? What would you do?

No. Stay within your budget. A baby will put a stress on your marriage. A home you cannot afford is going to put a HUGE stress on your marriage. You are young. Buy something you can afford and still be able to sock away some cash for a rainy day. Maybe one day you can move into a home in this price range. And stop looking at homes for sale that are not within your budget.

[rzzz]

It also depends on if you will be making more money in the future, or if you've plateaued in salary. Another thing to consider is whether or not the house will greatly appreciate in value.

I passed up on a $500K house I really liked in Berkeley in the late 90s because I only barely made enough to qualify. This ended up being a mistake, as now I make 3x as much money and the house is worth $1.9M.

[cocaseco]

Originally Posted by cocoa123

Hello! We are first home buyers and have been looking for a house in NW Seattle area. We just found a house we really like, but we are not sure if we can afford it and we would like to hear your opinion.

This house is $450k and our household income is $120k. We only have around 5% for down payment, but we might not have to pay mortgage insurance.

We are a family of three, husband, wife and a baby coming this year + a dog.

We don't have any debt right now, but I'm sure having a baby will be expensive and we have to include higher electric/gas/water bills, trash, general home maintenance cost etc. in our monthly cash flow plan for owning a house.

When we first started looking for houses, our budget was around $350k, but it was quite hard to find anything in "ok" condition except for townhomes in that area in that price range, so we are now deciding if we can stretch our budget and buy a house we like.

Do you think a $450k house is affordable for us at all? Or should we stay in our $350k budget and get a townhome for now? What would you do?

I'd expand my search parameters and find a home in the $350 range that might be a little further out. You don't have to go too far to find that either. There are a lot of nice homes in that range. If you buy the $450 house you will be having a tough road the next 10 years and if anything happens, it could all be gone.

[flyingsaucermom]

You might be able to technically afford it, but run the risk of being "house poor". A high risk, actually. The way you are presenting the information is imput vs output, a real rationalized, quantitative look, but what you need to consider (along with most people) are the qualitative values and experiences that affect financial choices.

If you only have about $25k for the downpayment, how much is that going to leave you for an emergency? Ideally you want 6-9 months worth of living expenses. (Admittedly we didn't have ours yet when we bought, but we had at least $30k leftover.) One thing I have learned from moving 10x in 10 years and buying a home 2x in the last 5 is that you move in and want to make the space all your own. You'll probably want to paint, update a faucet or a fixture something, buy furniture.. etc.. even little things add up quickly. Our first home was a 1947 cape code that was in okay shape, but we really benefited from a new furnace, chimney work and sliding door our second year... we went over $15+ on these technically unneeded things... and then we moved here and didn't even get to enjoy our upgrades (and it was worth it!). What do you normally do when you move? Do you shop... at all?

Secondly, you didn't mention who's working now, who'll be working when baby comes, if one baby will hopefully lead to two babies in the coming 2-5 years, etc. Babies can actually be incredibly cheap compared to preschoolers and up. You can get everything used if you want, even free if you start looking early, but it's experiences that will cost you later: mom and me classes, art classes, swim lessons, preschool... and college education... how much, if any, do you plan to save for that. We're putting away $500 a month per child into 529's.. that's $1000 a month.. 1/3 of our savings (not including 401k). What kind of experiences do you want to give your children?

Also, where are you from and where does your family live? Do you like to travel? Do you need to travel? If seeing family means traveling across the country (in our case, internationally) then your budget gets even tighter. We allocate $8k a year for travel and it's often not enough. We don't afford sleepaway camps for the kids.

What kind of lifestyle do you enjoy? Enjoy eating out... at all? Do you have a sport that involves particular products (cycling, climbing).

Yes, technically I'm sure you'll find someone to loan you a mortgage, but again, I think it is unwise.

Our income was above $150k and we bought a $350k condo and we had $130k down payment. We don't have to worry about seeing our families, we don't have to worry about college, we don't have to worry about painting the house or buying a nice sofa. We don't have to worry about eating out. We enjoy watching our money grow every month. We could have bought a $500 home, but it wasn't worth it to us. Think hard about it, it might not be worth it to you either. And congrats on the baby!

[eskercurve]

Technically you will be able to afford it.

Realistically, you won't want to do it. You won't be able to save up enough for retirement and having a kid will add at least $1500 / month in expenses.

[Jalhop]

Stay in your $350k budget and get a townhome for now. The kid is about $300K if you'll be sending him/her to college. You need to save for that, plus for retirement.

[Garfunkle524]

We’re first-time homebuyers so take my post with a grain of salt. However, we are in a comparable situation so I thought I’d share our approach thus far. We are a bit more conservative than what you’re presenting in almost every aspect. Our combined income is a bit higher, no baby for a couple years, our house budget is going to end up right around 400k and we’re putting at least 20% down while keeping a bit of a cushion in the bank. Our only debt is a couple student loans that are quickly diminishing.

Even after all this, I still worry a little about our finances. Maybe it’s just the way I was raised (my parents were horrible with money and we never had any money for anything) but I’m pushing us to be as conservative as we can be. In this area even financially conservative people spend a bunch on housing because prices are so high. I don’t worry too much about the first year or two, I do worry about when little humans come along in a couple years though. My wife and I make about the same money so when she cuts back her hours we’ll feel a little stretched until my individual income catches up. Still, I think we’ll be ok.

In your case you’re stretching more than we are. You’d still probably be ok but it throws up some red flags for someone like me who has been trained from birth to never put myself in a financial rut. I’ve seen what it does to families and marriages and it ain’t pretty.