HHI 200K - how much house can/should we afford

[Anonymous]

Anonymous wrote:

Anonymous wrote:You can comfortably afford 750 with 2000 down. Be aware that a lot of DCUM posters are extraordinarily conservative about debt. You can try every financial calculator online and they will all say this is on the conservative side of your affordability.

So what?

OP, you need to be under $600K if you want to have any emergency cushion.

I don't think this is true at all. If you really want to have an emergency cushion, then put down exactly 20% and keep an extra 50k in the bank-- it might would cost you an extra $250 a month, but give you more flexibility.

[Anonymous]

We have the same HHI, same downpayment, and one 4 YO with one year left of daycare. Our max is $650k, which doesn't get us where we'd like to be. So, we're just sitting tight in our townhouse for now. At some point, we'll need to figure out what compromises we're willing to make.

[Anonymous]

Op here. I was raised to be fiscally conservative. However, a couple of things are driving us to look in those neighborhoods at that price point. 1) homes in silver spring and taka park that feed into the really good schools there aren't that much cheaper and tend to be older requiring more maintenance - so costlier down the road 2) homes in BCC and WJ are newer, have held or appreciated inspite of the downturn and could be a better overall investment despite the upfront sticker shock.

We currently live/rent in Silver Spring, our oldest goes to a wonderful public elementary school, with middling middle school, and know some awesome people here. So the tug to stay is also strong

[Anonymous]

I agree with PPs that have said DCUM posters tend to be overly conservative and would recommend you look elsewhere or do your own calculations to see what YOU are comfortable with - not that PPs are wrong or bad, but there are just so many variables and such a wide range of comfort levels it's hard to get advise here.

FWIW, our HHI is a little higher than yours (about 260K) and we have a 700k mortgage (yes, this is our mortgage, house was more like $1M). We are fully funding 401ks, saving for the kids college (we have 2), have an emergency cushion of about $50k and between one in daycare for one more year and aftercare for the other our monthly childcare expense is about 1700. We have no other debt (car and student loans paid off) and are living very comfortably... go out to dinner often, take modest vacations, fly to visit family out of state twice a year, etc...

[Anonymous]

How stable are your jobs? I'd throw that into the equation and then probably stay on the low end if you can find something liveable at that price.

[Anonymous]

Those "how much house can I afford?" calculators are ridiculous and should be ignored. According to most of them, OP can afford a $1.2m house, and $800k would be on the "conservative" side.

[Anonymous]

Thanks PPs. Lots of food for thought. We have university positions with tenure. So jobs are stable. Income unlikely to fluctuate much up or down. We have money approx 250 k in the market and could as someone suggested just put 20% down to keep a buffer. 750k just seems like so much money for a roof and walls! I guess not in this area

[Anonymous]

Anonymous wrote:Thanks PPs. Lots of food for thought. We have university positions with tenure. So jobs are stable. Income unlikely to fluctuate much up or down. We have money approx 250 k in the market and could as someone suggested just put 20% down to keep a buffer. 750k just seems like so much money for a roof and walls! I guess not in this area

You are mostly paying for the land

[Anonymous]

We were in a similar position. Although we could have afforded a small house in Bethesda, we chose to buy in Silver Spring. My kids went to high school in the Northeast Consortium (Springbrook, Blake, Paint Branch) and got into very good colleges. They are now in their early and mid-20s, employed in jobs in their chosen fields, paying their own rent (not living in my basement!) and self supporting. I've talked to them about it and they think they benefitted from going to schools with very diverse populations. They know they benefitted by the fact that we were able to save enough money for their college education that they did not need to take out any loans.

If we had moved to Bethesda (which we seriously considered) I think there would have been more pressure on us to spend money on fancier clothes, technology, extra-curricular activities, etc. as they were growing up. Additionally, we would have paid more for housing. We certainly would have saved less money.

You can get a very good house in the Northeast Consortium area for $500,000. All the high schools offer A.P. classes and everything else your child needs to get into a good college. It is Montgomery County! Top students from these high schools get into Ivy League and similar colleges every year. Yes, there are fewer kids going to the top colleges than from BCC or Walter Johnson, but I think that may make it easier for your kid (assuming he or she is a top student) to stand out and get accepted. There is a limit to the number of students that any college is going to take from a given high school.

My house is almost paid off, my husband and I are maximizing our contributions to our retirement accounts, we have significant savings outside of retirement accounts, and our kids won't have to worry about supporting us when we get old. There are lots of benefits to living below your means. If you haven't read it, I recommend "The Millionaire Nextdoor." The book is somewhat out of date but the basic message still applies. I don't think anyone looking at us and where we live would think that our net worth is as high as it is and that is fine with me.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You can comfortably afford 750 with 2000 down. Be aware that a lot of DCUM posters are extraordinarily conservative about debt. You can try every financial calculator online and they will all say this is on the conservative side of your affordability.

So what?

OP, you need to be under $600K if you want to have any emergency cushion.

"So what?" is because these calculators already build in an emergency cushion and are designed by people with actual understanding of finance.

[Anonymous]

Anonymous wrote:What are you spending to rent? I would think a $550k mortgage would run you about $3500-4000 (with taxes and interest but before the tax deduction), which I would think is doable on 200k of income.

Not necessarily.

The interest rate can make a huge difference.

For example, a $600K house purchased this summer during the very low interest rates of 3.25% would be just over $3000/month, including tax, interest and insurance.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:You can comfortably afford 750 with 2000 down. Be aware that a lot of DCUM posters are extraordinarily conservative about debt. You can try every financial calculator online and they will all say this is on the conservative side of your affordability.

So what?

OP, you need to be under $600K if you want to have any emergency cushion.

"So what?" is because these calculators already build in an emergency cushion and are designed by people with actual understanding of finance.

$750K with a $200K down payment, assuming 4% interest, is about $3400/mo.

$3400/mo for mortgage
$1500/mo for childcare

That's $4900/mo right there before cash savings, retirement investments, health insurance premiums, food, utilities, transportation needs....

But what PPs have said is correct -- everyone's threshold for what percentage of take-home they are willing to spend on mortgage is different.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What are you spending to rent? I would think a $550k mortgage would run you about $3500-4000 (with taxes and interest but before the tax deduction), which I would think is doable on 200k of income.

Not necessarily.

The interest rate can make a huge difference.

For example, a $600K house purchased this summer during the very low interest rates of 3.25% would be just over $3000/month, including tax, interest and insurance.

yes, thanks for pointing out the obvious. That calculation assumed OP was getting an interest rate that is available now-- in the range of 4.6%

[Anonymous]

Anonymous wrote:But what PPs have said is correct -- everyone's threshold for what percentage of take-home they are willing to spend on mortgage is different.

Right. I would have no problem spending $4900 a month of a 200K HHI for the first year after I purchase the house (the childcare cost is going away in one year, I think?), if it was a house I was happy with. Particularly when there is a large tax benefit to the mortgage during the first few years of the loan and where home-ownership is one component of a long-term savings strategy.

[Anonymous]

We make exactly 200k, have a mortgage payment of $2,400, day care and after care bill of $1500 total, and we would never be comfortable paying more than $2400, much less $4,900. Not if we want to keep maxing out our 401ks and deal with house improvements and live a little.