I currently make just shy of 123K, and have 320K available for a down payment that is spread across savings and non-retirement investments. I also have 70K for my emergency fund.
Starter homes start around 800K; while condo/townhomes are in the range of 600-800K but with HOAs ranging from 400-1K, so they're not much better in terms of PITI.
Running some numbers, at 123K on a biweekly schedule, my gross is 10240 and take home is 6068. With zero debt and my full down payment I get a 39% DTI or 64% of take home on a 800K house. I'm never sure if the 3-4x income is based on sale price or loan amount, but this equals to about 3.5x income if based on load amount–which I've read is ok if someone has no debt. At the end of the month, I'm left with about 2100 after PITI for everything else.
As for continuing to rent, a 600-800sqft 1 bedroom is between 2100-2500 a month. If I want more breathing room, then a 1000sqft 2 bedroom is between 2900-3900 a month depending on the neighborhood. So rent will match my mortgage.
How much house can I really afford with a large down payment in HCOL?
byu/solojinwoosan inpersonalfinance
Posted by solojinwoosan
15 Comments
Unfortunately, it doesn’t look like you can afford to buy. You will be house poor. Maintenance and other home expenses will kill you. Continue to rent!
So is that $600-800K for a condo one that meets all of your wants/needs? Or is that what a studio/one bedroom starts at?
Unfortunately got to agree that it’d be hard to buy at those prices with your current income, even with that down payment. Do you have a lot of stability and growth opportunities in your career? Are you open to roommates (and is that realistic)?
>I’m left with about 2100 after PITI for everything else.
And how much are you spending on “everything else” right now?
The overall math is not in your favor, but if you have a rock-solid budget with years of historical data showing you only spend $1400 on everything else, even after the last 5 years of inflation, then *maybe* there’s a conversation to be had.
But if you’re spending $2200 per month now, or worse you have no idea how much you’re spending, the answer is an automatic no.
Without crunching hard numbers roughly 500k with the 320k down on that income with current interest rates. Your final bring home is what is really hurting your buying power.
How certain are you that you’ll stay in the area for 7-10 years? A lender will approve you for $800k given your debt to income but you should try stay in the $600k to 700k range otherwise you’ll really feel the larger expenses that come with home ownership. More expensive house = higher cost of maintenance on top of already be at your upper limit of DOI.
Continuing to rent is the best financially for your area and provides you the most flexibility, financially and lifestyle-wise.
I just ran the numbers through Bankrate’s mortgage calculator. Even if you put down the whole $320k as a downpayment (which doesn’t sound like the best idea tbh), at a 6.4% mortgage, your monthly payment would still be $3600. More than half of your take-home pay every month. That’s not including homeowner’s insurance, property tax, or HOA (if any). This does not seem like a smart financial decision at all unless you are willing to give up 50% of your take-home every month. And don’t forget, if you sell your investments for this downpayment, you’re going to have to pay capital gains tax so it won’t be a full $320k.
What are your other expenses?
2100 after PITI is not enough… that is left over for utilities, savings, home maintenance, groceries, any phone or transportation costs. You will be house poor
Sorry…you’re a renter. Home maintenance will put you under water with the figures you’ve provided.
You’ll have to play with the calculators/numbers but one piece of advice I would give is that you won’t want to dip into the full amount you have saved for the down payment.
Once you get the house there are going to be some big expenses. Depending on whether it’s a new build vs move in ready you can spend on things like window treatments ($5k+ depending on number), closets (another $5k+), deck/outdoor landscaping, etc…
Just make sure not to completely deplete your savings on the down payment alone.
From your $2100, deduct realistic estimates for electric, water, natural gas, trash, sewer.
Then estimate yard care and pest control (depending).
Now add at least $100/mo for home repairs and maintenance. That won’t be needed every month but you’ll get hit with big expenses like appliance repair or replacement, plumbing issues, furnishings, HVAC issues, roof issues, repainting, and the list goes on.
Now how much do you have for everything else?
If you put down 320K, and starter homes in your area are 800K, and you make 123K/yr, you can afford to look at houses for 800K, because you’ll be borrowing 500K, and this is about 4x your income. It is do-able. Even more so if you are single, and can rent out rooms in the house.
Why is your take home so low relative to your gross? Would rerun your income assumptions to take into consideration what your take home would be after adjusting for itemizing, would think even after benefits/ retirement savings you’re probably a few hundred low.
You can’t afford an $800k house on that salary, even with the high down payment, but as someone who lives in probably one of the top 3 priciest housing markets in the country I am skeptical that you really can’t find anything for less than that. I managed to find a place in the 500k range – it needed a little work and is 20 miles outside the city but it is also a 3bd/3ba. Can you really not find a 2/1 or 2/2 within 10 miles for 600-700k? What are your criteria/dealbreakers for a house? Does it have to be in the city center?
I think you’ll do fine with either. But considering rent is more than what you’ll pay for the mortgage I would go with the mortgage.
In my opinion if the only way you could afford monthly payments on a house is to put more than 20% down….you cant really afford that house.
Its the equivalent of a 25 year old making 40k a year buying a 60k BMW because they managed to save 50k while living with Mom and Dad. Sure…now they can make the monthly payment, but id never say they could afford that car.