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.
It's a lot to wrestle with -- and you probably live in a HCOL area. That being said, my rule of house buying at higher income levels is no more than 3 to 4x annual salary, IF you want to be free financially. Some people are comfortable with owing on a house forever --I am not. But with the idea of financial freedom, it means borrowing less -- with the intent to eventually not have to owe anything, or manage a low debt burden for the advantages of debt without the risk of a cash crunch if the markets go against you.
You didn't mention what size down payment you're making, which would be a factor. I would for sure steer clear of an interest only or ARM when rates are so low. Lock in at 30 years and forget it -- you can always pay more if you want to pay it off faster.
We're in a time of extreme uncertainty. It's anybody's guess as to whether housing costs are going to rise significantly or crash. The markets would have you believe today that they're going to rise significantly, but the next 6 months could shift that view, quite a lot. Its a time when we're seeing both inflation and deflation at the same time, depending on what goods you're looking at. Crazy.
To put my money where my mouth is, I've recently purchased a home (mid-covid-crisis). I did a lot of research and managed to spend around 3x my salary (borrowing only 1x). This way I have plenty of cash flow to manage an up or down market, but still benefit from overall market appreciation (if it happens), inflation (if it happens, making debt easier to carry) and tax deductible mortgage interest.
All that to say, I think you're pretty close to the sweet spot, if you believe that your job is likely to continue, even if things get considerably worse economically. My only caution is that 1.75M would make it a outsize portion of your net worth... so you'll definitely need to work for quite awhile to FIRE, if that's your goal.
Hope that's helpful! My two bits...