How much home can we afford?

[Anonymous]

How old are you?

How much do you already have in retirement and college savings?

[Anonymous]

Just factor the daycare costs of the 2nd child into your potential monthly budget. I know so many couples who have no children or 1 child, buy a house at the top of their price range, and then complain about not being able to afford daycare for future children. Since it sounds like you are pretty certain you want at least one more, assume your monthly daycare costs are double what they currently are.

Also - do you want to spend most of your budget on your house or do you want lots of extra income for early retirement and/or vacations? We bought considerably below what we "could" afford because we like to take a big family vacation each year ($5-6K) and we plan to be completely done with work by age 55 - so we save TONS.

Nothing wrong with doing it either way - just make sure to plan for it before you buy the house.

[Anonymous]

On the information you've given, I'd only spend what the bankers would loan you based on the smaller of your two incomes. Sorry to not join the band wagon of spenders, but 2nd kid comes along and shortly thereafter you might choose one job to end, many do even though they said they wouldn't. Or one of the jobs goes away, has happened to many. Need to know how secure your jobs are to be able to know whether your "available" income is reliably enough there that you won't just become another statistic. How stable is your marriage, that matters too. And btw, many many respected economists say housing prices have more to fall, and will fall for years, as the banks are holding many many homes back from foreclosure. How are you hurt if you simply don't buy, and don't look, for another year or two. Worst is the housing markets turns up for good and the house you have goes up and the house you would buy goes up. Oh interest rates might go up too, but that will be because one of two things happens a) the economy recovers well (and jobs become more secure) or b) because the world decides to view the US as a serious default risk.

Patience, patience.

[Anonymous]

ARMs are good for people who are thinking more in the 2-3 year range not 10 years. For 10 years, a fixed rate at a low rate is more financially sound. If you believe that you will move in the next 3 years and you have a 5 year arm, you only need to be prepared to be able to lose your downpayment or on the upside make money on appreciation. People get themselves into trouble with ARMs. They have a 5 year ARM and plan to move in 5 years. In the 4th year, they realize that they can not sell their house without putting money on the table that they don't have and they don't have enough time to save to be able to cover the increase in payments from either the ARM or a re-financed fixed rate. If they are underwater, they can't refinance to a fixed rate.

Not necessarily true - you have to do the math, not just make sweepign assumptions. The break even point for my 5 year ARM is 7 years, 8 months, assuming the maximum rate adjustments in years 6, 7 and 8. In other words, if I move at the 7 year, 7 month mark, even assuming the worst case scenario, I will have paid less in interest than if I had gotten 30-year fixed. If rates don't reset at the maximum rate (in other words, something less than worst-case scenario), the time frame gets even longer. So a 5-year ARM may make sense if you plan on moving in 7 years; a 7-year ARM may be good if you plan on moving in 10.

Of course, an important safety net is being able to afford your payment even if the mortgage resets at the maximum rate.

[Anonymous]

ARMs are good for people who are thinking more in the 2-3 year range not 10 years. For 10 years, a fixed rate at a low rate is more financially sound. If you believe that you will move in the next 3 years and you have a 5 year arm, you only need to be prepared to be able to lose your downpayment or on the upside make money on appreciation. People get themselves into trouble with ARMs. They have a 5 year ARM and plan to move in 5 years. In the 4th year, they realize that they can not sell their house without putting money on the table that they don't have and they don't have enough time to save to be able to cover the increase in payments from either the ARM or a re-financed fixed rate. If they are underwater, they can't refinance to a fixed rate.

Not necessarily true - you have to do the math, not just make sweeping assumptions. The break even point for my 5 year ARM is 7 years, 8 months, assuming the maximum rate adjustments in years 6, 7 and 8. In other words, if I move at the 7 year, 7 month mark, even assuming the worst case scenario, I will have paid less in interest than if I had gotten a 30-year fixed mortgage. If rates don't reset at the maximum rate (in other words, something less than worst-case scenario), the time frame gets even longer. So a 5-year ARM may make sense if you plan on moving in 7 years; a 7-year ARM may be good if you plan on moving in 10.

Of course, an important safety net is being able to afford your payment even if the mortgage resets at the maximum rate.

[Anonymous]

Anonymous wrote:On the information you've given, I'd only spend what the bankers would loan you based on the smaller of your two incomes. Sorry to not join the band wagon of spenders, but 2nd kid comes along and shortly thereafter you might choose one job to end, many do even though they said they wouldn't. Or one of the jobs goes away, has happened to many. Need to know how secure your jobs are to be able to know whether your "available" income is reliably enough there that you won't just become another statistic. How stable is your marriage, that matters too. And btw, many many respected economists say housing prices have more to fall, and will fall for years, as the banks are holding many many homes back from foreclosure. How are you hurt if you simply don't buy, and don't look, for another year or two. Worst is the housing markets turns up for good and the house you have goes up and the house you would buy goes up. Oh interest rates might go up too, but that will be because one of two things happens a) the economy recovers well (and jobs become more secure) or b) because the world decides to view the US as a serious default risk.

Patience, patience.

This is essentially what DH and I did. We chose a very small house in a neighborhood that we love that was far less than what we qualified for. We also know that our combined HHI will double in the fall when DH changes jobs (moving from a federal job to a private sector job in October). Our mortgage payment is one that we can comfortably swing now (and could manage with even less of an HHI) and we will be in even better place come fall. Sure, we don't have a fancy en suite master bath, but we've lived in a variety of houses and apartments over the years and don't really feel like our quality of life was improved enough to swallow the price of the luxury. That works for us.

So, we are in a position where we can put much more toward retirement that we could with a bigger mortgage, I could SAH if I choose to, we can take nice vacations, and we can save much more for college.

I am always surprised that more people don't live the way we do. Our smaller house makes our quality of life SO much better than a bigger house would. Sure, if we make significantly more, we would consider living in a bigger house, but we are not willing to sacrifce savings, living well and providing for our children.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

I am always surprised that more people don't live the way we do. Our smaller house makes our quality of life SO much better than a bigger house would. Sure, if we make significantly more, we would consider living in a bigger house, but we are not willing to sacrifce savings, living well and providing for our children.

Don't be too surprised...people have different priorities. Spending around a third of your income on housing is not dramatic by any standard, and for many people their home is the single biggest lifestyle investment. We are quite pleased with our decision to invest in a right-sized home in a location walkable to many amenities for us and our kids. This has enhanced our lifestyle substantially on a day-to-day basis.

By also buying close-in we paid a premium, but also are assured that if anything dramatic happens, it would not be difficult to sell our home. From a lifestyle and an investment/security perspective, location is probably the worst thing to trade off on. If you are concerned about market issues or job security issues, you are best off to buy in areas which are going to be most secure over the long run, and in this metro area, that is almost definitely the first-ring suburbs and NW DC.

[Anonymous]

Don't be too surprised...people have different priorities. Spending around a third of your income on housing is not dramatic by any standard, and for many people their home is the single biggest lifestyle investment. We are quite pleased with our decision to invest in a right-sized home in a location walkable to many amenities for us and our kids. This has enhanced our lifestyle substantially on a day-to-day basis.

By also buying close-in we paid a premium, but also are assured that if anything dramatic happens, it would not be difficult to sell our home. From a lifestyle and an investment/security perspective, location is probably the worst thing to trade off on. If you are concerned about market issues or job security issues, you are best off to buy in areas which are going to be most secure over the long run, and in this metro area, that is almost definitely the first-ring suburbs and NW DC.

Actually, not so much.

The best bet at the moment is anything near Ft. Belvoir, with BRAC. Houses have been FLYING off the market in that area. I only point this out do demonstrate that location perks can change in a heart beat. Pretend if a tea party candidate won the presidential election (unlikely, but just pretend) and they went ahead with their plans to downsize the federal work force by 30%, close entire agencies, and freeze federal salaries for an additional 5 years. The DC housing market would quickly start to look like Detroit.

[Anonymous]

Right, of course military personnel due to base relocation have better purchasing power than lawyers, lobbyists, and contracting executives. Trust me the latter forces go nowhere, no matter who's in power in DC- public rhetoric of tea party means little relative to the interests that call shots in this town regardless of who's in power. So long as the capital of the world's largest economy resides in this town, that's about the most stable economic foundation of any city in the US- the DC metro does not the way of Detroit unless the US collapses as a country, and sure if you want to, go ahead and plan for that contingency....

[Anonymous]

Right, of course military personnel due to base relocation have better purchasing power than lawyers, lobbyists, and contracting executives. Trust me the latter forces go nowhere, no matter who's in power in DC- public rhetoric of tea party means little relative to the interests that call shots in this town regardless of who's in power. So long as the capital of the world's largest economy resides in this town, that's about the most stable economic foundation of any city in the US- the DC metro does not the way of Detroit unless the US collapses as a country, and sure if you want to, go ahead and plan for that contingency....

You are kidding, right? Ever hear of a VA loan? Or military housing stipends?

[Anonymous]

Anonymous wrote:

Right, of course military personnel due to base relocation have better purchasing power than lawyers, lobbyists, and contracting executives. Trust me the latter forces go nowhere, no matter who's in power in DC- public rhetoric of tea party means little relative to the interests that call shots in this town regardless of who's in power. So long as the capital of the world's largest economy resides in this town, that's about the most stable economic foundation of any city in the US- the DC metro does not the way of Detroit unless the US collapses as a country, and sure if you want to, go ahead and plan for that contingency....

You are kidding, right? Ever hear of a VA loan? Or military housing stipends?

Have you ever heard of a $1M/year salary plus bonus for lobby/law partners....did you know a 25 year old associate at a major biglaw firm draws over $160k in their first year....A one-star General w/ 30 years makes less than that and sure even with many allowances it's a long way from where that 25 year old with zero years is starting. Sad but true, but the General will have his pay day when he retires and joins a contractor.

[Anonymous]

This is essentially what DH and I did. We chose a very small house in a neighborhood that we love that was far less than what we qualified for. We also know that our combined HHI will double in the fall when DH changes jobs (moving from a federal job to a private sector job in October). Our mortgage payment is one that we can comfortably swing now (and could manage with even less of an HHI) and we will be in even better place come fall. Sure, we don't have a fancy en suite master bath, but we've lived in a variety of houses and apartments over the years and don't really feel like our quality of life was improved enough to swallow the price of the luxury. That works for us.

So, we are in a position where we can put much more toward retirement that we could with a bigger mortgage, I could SAH if I choose to, we can take nice vacations, and we can save much more for college.

I am always surprised that more people don't live the way we do. Our smaller house makes our quality of life SO much better than a bigger house would. Sure, if we make significantly more, we would consider living in a bigger house, but we are not willing to sacrifce savings, living well and providing for our children.

Agreed. But some people are spenders and others are savers. My sis and her husband are total spenders. They don't save for retirement, they don't have an emergency savings account. But they do have a bangin' house and sweet cars. Not my cup of tea, but they don't have kids, so if they lose their jobs or something, they are the only ones who will suffer from their choices. They are adults and they know what they are doing.

When DH and I were shopping for houses, the bank qualified us for about double what we ended up buying. Just because we COULD afford it doesn't mean we SHOULD afford it. We want to retire young. We like to travel. We plan to pay for our children's college. If we bought at the top of our price range, those things would be a stretch.

[Anonymous]

Anonymous wrote:
Right, of course military personnel due to base relocation have better purchasing power than lawyers, lobbyists, and contracting executives. Trust me the latter forces go nowhere, no matter who's in power in DC- public rhetoric of tea party means little relative to the interests that call shots in this town regardless of who's in power. So long as the capital of the world's largest economy resides in this town, that's about the most stable economic foundation of any city in the US- the DC metro does not the way of Detroit unless the US collapses as a country, and sure if you want to, go ahead and plan for that contingency....

You are kidding, right? Ever hear of a VA loan? Or military housing stipends?

Have you ever heard of a $1M/year salary plus bonus for lobby/law partners....did you know a 25 year old associate at a major biglaw firm draws over $160k in their first year....A one-star General w/ 30 years makes less than that and sure even with many allowances it's a long way from where that 25 year old with zero years is starting. Sad but true, but the General will have his pay day when he retires and joins a contractor.

What is your point? Are you really trying to say that there are enough people earning more tahn $1M a year in the DC area that they will keep every neighborhood in DC and all the surrounding suburbs afloat? That there are soooo many of these people that they will continue to snatch up houses like hot cakes in the event of a scale down in the federal government? No one is arguing that lobbyists and lawyers have small salaries. The point is that there are a limited number of these billionaires in the area. Not enough to keep the entire realestate market afloat.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Right, of course military personnel due to base relocation have better purchasing power than lawyers, lobbyists, and contracting executives. Trust me the latter forces go nowhere, no matter who's in power in DC- public rhetoric of tea party means little relative to the interests that call shots in this town regardless of who's in power. So long as the capital of the world's largest economy resides in this town, that's about the most stable economic foundation of any city in the US- the DC metro does not the way of Detroit unless the US collapses as a country, and sure if you want to, go ahead and plan for that contingency....

You are kidding, right? Ever hear of a VA loan? Or military housing stipends?

Have you ever heard of a $1M/year salary plus bonus for lobby/law partners....did you know a 25 year old associate at a major biglaw firm draws over $160k in their first year....A one-star General w/ 30 years makes less than that and sure even with many allowances it's a long way from where that 25 year old with zero years is starting. Sad but true, but the General will have his pay day when he retires and joins a contractor.

I'm a new poster- sorry, you are way off base, the person who keeps posting. The $160k biglaw associate has NO JOB SECURITY and big loans. I graduated relatively recently and know tons of people in that situation, and they aren't buying houses or getting into big financial commitments.

There aren't enough $1M+ lobbyists/partners to absorb the higher-priced housing inventory on the market now. Just take a look or pick up a newspaper.

[Anonymous]

I think the PP point was less on law firms specifically and more on the high-income earners in the core DC metro who are not govt. workers. If anyone has been shopping for home lately in NW DC or close-in VA/MD, it really doesn't feel like that much of a buyer's market, esp. for things that are walkable to metros/amenities.