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Quick Question regarding upcoming personal residence (nearly $2M purchase)

Started by Jpfire1, August 21, 2020, 07:41:27 PM

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Jpfire1

I hope all is well. My wife and I are in the process of potentially buying our first home. We have 2 children and are interested in a relatively affluent suburb in the Northeast where we have various family members. I simply wanted to know what you thought was a reasonable and acceptable amount to spend on a house/housing expenses. My wife and I are both in the advertising industry and make approximately $420Kish gross combined. Additionally, we have saved over $2.5M in savings, of which $2Mish is in taxable accounts. These assets are predominantly in equities.
We would expect to have relatively modest growth in our income.

We were thinking of spending around 1.75M with approx 1.2% property taxes. Additionally, we are open to an interest only mortgage option to make the payments more manageable or a 10/1 Arm.  Do you think that is reasonable or too much money to spend on a house. Any feedback would be greatly appreciated! Thanks.

titlewealth

It really depends on your full financial picture. With $420k in income you can afford the payments but what other expenses do you have? how does the mortgage impact your retirement plan and financial goals? Keep in mind that the bigger the house, the more the maintenance costs will be. Another thing too is the more affluent the neighborhood the more your kids will demand, the more schools will demand, and basically everything becomes more expensive. Just remember to budget for all of that.
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Jpfire1

Thanks for the quick response and great points, all very helpful. It is hard to prognosticate what our expenses will be like years from now. Outside of housing expenses, our biggest expense would likely be daycare. We have 1 child currently in daycare, which costs around $24K annually and it is likely we will have 2 kids in daycare at the same time for around a 1 year period. Once daycare concludes, we will be utilizing public schools completely. Outside of that, our credit card bills are likely $3K or so for the bulk of other expenses, yet imagine that will go up as we incur other expenses in the future. I have always been able to save a very large (north of 60% of our net income for a decade) amount given we have rented in an affordable manner. We need more space and housing seems to be the 1 area i am willing to splurge on bc we are home bodies and most of our activities center around walking around town/neighborhood as a family. There is no question this will be a financially destructive decision as my housing expenses are likely to go up at a minimum, by $5Kish monthly, not including princ. payments. That additional $60K compounded over 25 years at 6.5% annually would be well over $3M, but I have to live somewhere and my housing expenses need to go up either way. I am not worried about the other expenses associated with being in a wealthy area as we are both really low key and don't care too much about the other items etc.

I am not sure about my retirement goals as being able to work out of the city for the bulk of my time in the future will make my job far much manageable moving forward. Additionally, with 2 young kids, I can't imagine retiring until they are at least out of school. While we did not inherit any money, there is an expectation that a chunk of college costs for our kids will likely be covered by one of our parents, which also takes some pressure off of us, albeit hard to know how much etc.

I just feel really conflicted about all of this and want to make sure i am not overreaching too much given my whole life has been defined by making relatively financially solid decisions. Additionally, I do not anticipate much, if at all, appreciation as demographically the affluent NE suburbs  continue to lose folks. For reference, some of the houses in the neighborhood we are looking at are down 20-30% over the last 15-20 years.






couchfi

I made a similar decision a year ago (1 child, home was a little over $2m, income 600-700k combined but with SF/CA taxes). Here are some pros and cons 1 year in:

Pros: mainly huge improvements to quality of life
* The neighborhood is more child friendly with several day cares/preschools to chose from and parks nearby
* Lower crime neighborhood means we actually get to enjoy walking around with our child (we came from a high crime neighborhood)
* Home price has been stable since we bought it, the condo market is down a lot, but larger homes in better neighborhoods have held steady or even slightly up due to more people working from home.
* A larger home means our child has more space to run around, and we even have a guest room which has been great help for when other family members visit and help with child care.
* The guest room is now my office since covid has allowed me to work from home so we're not crammed in our living room

Cons:
* biggest thing is that if we knew covid was coming (who would?) we probably would have moved somewhere lower cost since there's no point to be close to public transportation when our employer is letting us work remotely indefinitely. Paying $1.4m in Fremont or Walnut Creek for a similar sized or even larger home would have given us many of those benefits + better and guaranteed school district for the future.
* Larger home has a lot more up keep! Our cleaning fees have increased from $120 to $200, I've spent a lot of time and money on tools restoring my lawn (~$700) and keeping rust away from my railings, repairing a small leak in some craw space under the stairs to the entrance...and I'm now considering throwing down $10k for solar since the federal credits are going to completely expire in a couple years and I don't like how pg&e has been managing california's power grid.

So far, our expenses last year are about $60k higher than last year (not counting a $15k reduction in travel expenses this year), and $50k of that is from an increase in the mortgage payment/property taxes.

If you're close to family and you have young children, imo the quality of life improvements that come with being surrounded by family is worth it. You can't buy family with money.