Wife (28) and I (32) currently make ~200k. Gross is around ~16k/month. NET take home is around 11k ( post constributions 10% 401k both, 1 person max HSA, 1 person max roth IRA).
My minds working on biweekly paycheck we net around ~10200.
We live in MCOL area. Housing has cooled off a bit.
Debts-
Current house will sell for 255k on average. 4.125%.
(1700 PITI, 192k left)
Condo owe around 40k at ~8% (500/month) in different country
Car 12k left (300/month)
No other debts.
Savings- 75k in HYSA including emergency fund.
Other 401k HSA Roth around ~220k.
Expenses- On average.
Utilities 500
Roth 580
Car insurance 310
Food/restaurants/gas/memberships – 1300
Another 1000 for travel, flights, family expenses buffer.
Total expenses with debts and mortgage today is around 6200. We currently save about 3500 per month..
Now we are looking at new house 500k with ~4k-4.2k PITI.
Thinking of selling the current home and moving. Thought of renting but doesn't seem like my cup of tea.. need liquidity.
Saving 20% down will take much more time and we are already at a point where we would like a better house. Also the fact that house sales are slowed and people are offering 20k 30k less than listing.
I plan on selling the current house (net ~42/45k) and payoff debts. Then purchase this house with 5% down and ~20k emergency savings post purchase and payoffs… Will save around ~2k (biweekly considering 10k) or 3k(monthly calculations).
Does it make sense to pay that much in mortgage? Will we be house poor or will we have enough down the line if we plan on a kid..
Should we just go for a lower priced house?
Is ~40% of my take home pay too much for a mortgage.
byu/Galileo_24 inpersonalfinance
Posted by Galileo_24
28 Comments
Yes, it’s too much. You can’t afford that house.
Kids add a ton of expense. Is there potential for your salaries to go up? It sounds like you can swing it.. it’s also probably a good time to make a move based on what you’re saying
When your pay is higher than the median, if you don’t inflate your lifestyle, 40% is pretty easy.
Conversely, be clear on whether kids or layoffs would likely affect you more or less than other people. Adjust your emergency fund accordingly, and you’re good.
Not to be a naysayer but homeownership will drain you of every last dollar you have. Sounds like you already own a home so you may already know that. Expect a significant amount per year on routine maintenance, and thousands in a savings account for the unexpected. Your mortgage payment will go up, often significantly, after a year or so and often yearly as taxes and insurance go up. You may already know all of this but whenever someone asks this question I like to remind people that it’s not just the mortgage payment to consider, it’s all of it. If you can afford that payment to go up over time as well by a good amount, and for your HVAC to suddenly not work anymore and require a 13k replacement, then you are probably in a good enough spot.
Take home pay is not a good metric when you’re saving a bunch, especially pre-tax. It sounds like you’d be well under 30% gross, so it’s probably fine. It becomes more of a comfort issue with not having free cash flow, so to speak, but that’s not necessarily a finance issue itself.
Generally, if you have an emergency fund, you’re saving at least 15% of total salary, and housing is less than 30% of income, it’s financially fine to spend a high net on it. The consideration should be whether you get a new house and spend more on it, or boost and maybe max out 401k contributions.
If you have a kid, will someone need to stop working? Will your income go down? Can you still pay your mortgage on one income?
I personally wouldn’t make this move, especially with kids entering the picture. I would work hard, pay off ALL non-mortgage debt, maintain your 3-6 months of expenses emergency fund, then save up your 20% down payment. I understand this could take time, but chances are your current house is likely just fine for the short term (3-5 years) and you can buy a new house at 25-30% of your monthly income after taxes. This will offer a ton of peace not having to worry about money, especially with children. Don’t fall for that FOMO. Buy when you can afford it. Good luck! I’m sure you’ll make a great decision!
Yes that’s too much. As your second house you should be able to put 20% down.
So you’re looking at being knocked down to between $1,000 – $1,200 in savings a month? How expensive is the area/is it further from work? There may be hidden increases in costs in things like that. Also how secure are both of you in your jobs? Is there any chance of a layoff in the next 5 years? Sounds like you might go negative if you got the house and had to take a paycut without scaling back significantly.
But genuinely if you are planning on having a child with only about $1,000 to spare each month then you’ll likely be pretty pressed. Alot of people are able to make it work with less, but that doesn’t mean its comfortable. Daycare in alot of MCOL places is about what your entire savings per month would be
You know that this is the personalfinance sub, correct?
Anyone who tells you that buying a house at this point is OK is absolutely misleading you–including yourself.
This is a textbook case of lifestyle-creep and if you aren’t careful it will be your financial doom. You need to stay WAY within your means and buying another property is unwise. Learn to make the best of where you are or you’ll be trapped by your finances.
Just for fun, you should read this:
https://jlcollinsnh.com/2023/03/02/why-your-house-is-a-terrible-investment/
Tbh, with your current lifestyle you can’t afford it.
That being said- tf you own a second home for? Tf you doing spending 1300$ a month on restaurants for, you can’t cook? tf you gettin a car loan for?
Seems like you guys just love debt.
5% down is too low for a $500k house. But Im fiscally conservative. Interest on debt will snowball over time on that huge of principal. Not to mention high monthly payments which will limit your liquidity to do other things such as investing, etc.
Basically you will be house poor, which isnt a good place to be.
You can’t afford this house. After paying off your debts (car and condo) you would only be saving $800/m
The other expenses won’t change….the utilities may actually increase with a larger home.
It looks like you could possibly go from having $4k/m to 1500-2k/m left after all expenses are taken care of…..and that’s if no other unforeseen expenses arise!
Bigger house in nicer neighborhood means more pressure to keep up in nice cars etc.
Bigger house means more expensive roof, HVAC, etc.
If you are thinking about children, you want fewer expenses so you can maybe afford childcare and all the other kid expenses.
You will need more money than you need more house. Don’t overbuy.
Yes, you’ll be house poor if you decide to have a kid. Being able to afford that house would require you and your wife to keep on working. Even then, I think that money would be fairly tight at some point given the cost of housing and children.
Plan on hitting your deductible for health insurance every year when they’re young. Context my daughter has had some mild complications that we’ve hit out-of-pocket max two out of three years.
To maintain your income, you both would have to work, which would also add the added expense of childcare which you would have to do full-time, which is anywhere from $1800-$2500 per month.
On a flipside, you’re probably not going to travel as much so you can significantly decrease that portion of the budget.
All that to say, kids are expensive and I believe that would be too much house for you in your current stage of life.
No MORE than 33%. I thought that was the rule?
Your 401k contributions should be higher. Future you will regret it I think. Your expenses seem outrageous for food/eating out.
Your utilities are not going to be 500 a month in a house. There may be HOA. You will have yard maintenance. House maintenance. Furniture .
You will not have the funds to continue your current lifestyle with a payment that high.
You should consider putting more down. Your HYSA has enough to put down a larger down payment and still have a few months worth of an emergency fund. You already save enough now to build the fund back up quickly.
Are you planning to have one or more kids? My mortgage is $3,300/mo for a 20 year. I now have two kids in daycare which costs $3,400/mo. It sounds like you’re in a higher COL area so you’d likely be looking at higher childcare costs. Your mortgage alone should be fine but you will feel completely pressed for money if you end up having children and daycare expenses. My spouse and I make a similar income to you and we feel pressed with $3,300, we’ve had to reduce retirement savings while we have double daycare.
Sounds like you will be house poor and you have poor financial practices. You are in the midst of lifestyle creep it kinda sounds like. People max out their income, find a way to earn more, then start spending that too. It’s a vicious downward spiral. Stay where you are, and SAVE. Sell that other house, why even have it? And why only one maxed IRA a year? And if you have a kid? Not cheap. Stay right where you are and sell that other house is what I’d recommend.
Saving $2k a month is right on the edge of what I’d feel comfortable with… having kids will push you over the edge. It looks like you have a decent amount of discretionary spending but having to cut that is being house poor.
I probably wouldn’t buy the house.
If you could pull off a 20% down payment on the new place, you’ll save in the long run because you won’t have to pay the extra monthly PMI costs, higher interest, nor escrow tax and home owners insurance which gives you more access and control over how you save and spend those dollars. Considering all the hidden costs of a home too, I’d personally be hesitant to owe 40% of my income just for the mortgage payment. 20-30% sounds more doable knowing emergencies happen and shit breaks all the time
Homes are sitting on the market longer at least where I am. You should probably expect to get less for the house. 5% down will also leave you spending more in the long term than 10% down due to interest.
That’s not even getting into the current economy, AI etc. One of you could get laid off.
Selling the condo would potentially be easier than a house at this point. Condos are starter homes and downsizing homes after a divorce or when kids move out. They tend to sell when more expensive homes are still sitting on the market.
This isn’t a move I would make, if one of you gets sick or gets laid off this won’t work. It’s already basically a stretch even if things go perfectly.
I had a teacher who was a retired general as a kid, his thing was “plan for the worst.” You’re planning for the best and in a shaky economy. I don’t think you should do this.
If you question it the answer is YES. Anything else adding a strain on income will cripple the household and a good relationship.
You make $200k and are contributing to a Roth? Why? Will you make more than $200k in retirement?
Personally, I would not be ok with this, especially if having kids is on the table – would one of you stay home? or nanny/daycare? Either of those options could easily cost $1500+ if you are in a MCOL area, Nanny’s are more…
Yes, because you don’t live in like, San Francisco, Downtown LA, or Manhattan. 40% is going to be really dangerous.