Question about CC/Bethesda real estate

[Anonymous]

Op

how do you not understand your own comp structure?!

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

DP. She also pays the entire Social Security tax, so 12.4% not 6.2% of income like employees do.

Social security maxes out when you get to 160K or so.

[Anonymous]

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

Still no making sense. $18-20k/month is $216-240k/year. That would mean you are only taking home 33% of your income. I pay quarterly taxes and pay state taxes in 3 jurisdictions and I think I take home at least 60% of my high income. Are you not counting yoru yearend distribution in your total? It seems like you should be more than $30k/month.

Perhaps you need a financial advisor to help sort out what you can spend on a house.

[Anonymous]

People who live there afford it
1) They bought it when it wasn’t as expensive.
2) People put substantial down payment from sales of highly appreciated housing or stock.
If you can’t afford it i don’t know who can.

[Anonymous]

OP definitely should get someone to help with her finances. She could probably afford a $2 million house but seems to have no clue where all her money is going.

[Anonymous]

Anonymous wrote:

Current annual comp: $650K
Monthly gross income: $18-20K
28/36 rule: $5Kish / month mortgage
Current home value: $590K
Remaining mortgage: $470K
Current monthly mortgage: $2800

Where are you living now with a home value of only $590? Most people I know buying in this area are upgrading from their starter home which run $1M+ these days.

As others have said, most people aren't financing the full purchase price. They've saved cash or got in early in the market.

With only $120k in equity, CC/Bethesda does feel like a big jump. Still, you earn a lot and could swing more than $5k a month.

[Anonymous]

Thanks for the helpful replies here.

Ultimately, once again, my take home is $20K if I do not contribute to a 401(k) and $16-18K if I do. My monthly draw is somewhat variable. Quarterly distributions all go to taxes (as I’d know, my CPAs are my own accounting firm and tell me exactly what to pay), and a big chunk of my year end distribution goes to taxes. I don’t count the rest of the year end distribution for mortgage purposes because I’m not using that to pay a monthly PITI as employees typically wouldn’t count their potential year end bonus. It’s based on a lot of factors and not guaranteed. I do have cash flow spreadsheets so this is not an area of grey for me. When I contacted a mortgage lender to understand what I could qualify for, even with an 800 credit score they said 800K would be a stretch because they wouldn’t count my year end distribution either only the monthly draw.

That said, it sounds like many either had a huge down payment or family help to keep the payments down. This is helpful to understand. I have very little savings due to my divorce.

[Anonymous]

Go condo. Try to be in the Pyle/Whitman district in Bethesda.

[Anonymous]

Anonymous wrote:OP here. Hope this will clarify. As a self-employed person, my cash flow works differently than an employee. I get quarterly distributions, which are used to in its entirety to pay federal taxes, and I also lay a lot of state taxes due to individual and partnership circumstances. It’s apples to oranges to some extent, but the $18-20K is my gross monthly distribution before retirement contributions, 529, healthcare premiums), etc. Keep in mind there’s no match. That is why I used that number. Hopefully that helps.

In any event, a $10K mortgage on $20K still seems untenable?

OK, fine. I understand that, and many of us are in the same position. But how much of your income is paid by year-end distribution(s)?

[Anonymous]

Anonymous wrote:Thanks for the helpful replies here.

Ultimately, once again, my take home is $20K if I do not contribute to a 401(k) and $16-18K if I do. My monthly draw is somewhat variable. Quarterly distributions all go to taxes (as I’d know, my CPAs are my own accounting firm and tell me exactly what to pay), and a big chunk of my year end distribution goes to taxes. I don’t count the rest of the year end distribution for mortgage purposes because I’m not using that to pay a monthly PITI as employees typically wouldn’t count their potential year end bonus. It’s based on a lot of factors and not guaranteed. I do have cash flow spreadsheets so this is not an area of grey for me. When I contacted a mortgage lender to understand what I could qualify for, even with an 800 credit score they said 800K would be a stretch because they wouldn’t count my year end distribution either only the monthly draw.

That said, it sounds like many either had a huge down payment or family help to keep the payments down. This is helpful to understand. I have very little savings due to my divorce.

Mortgage brokers actually do count bonuses for purposes of mortgage qualification, but the person must have gotten the bonus for two years for it to count. Many employees have bonuses make up a significant part of their earnings so it would be bizarre to exclude them entirely. Of course, bonuses are supposedly never guaranteed but in many industries they basically are -- just think about all the associates who work for you. You should be counting the year end distribution in determining what you can afford (as should any mortgage broker) unless you really have reason to believe it will be zero many years.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Thanks for the helpful replies here.

Ultimately, once again, my take home is $20K if I do not contribute to a 401(k) and $16-18K if I do. My monthly draw is somewhat variable. Quarterly distributions all go to taxes (as I’d know, my CPAs are my own accounting firm and tell me exactly what to pay), and a big chunk of my year end distribution goes to taxes. I don’t count the rest of the year end distribution for mortgage purposes because I’m not using that to pay a monthly PITI as employees typically wouldn’t count their potential year end bonus. It’s based on a lot of factors and not guaranteed. I do have cash flow spreadsheets so this is not an area of grey for me. When I contacted a mortgage lender to understand what I could qualify for, even with an 800 credit score they said 800K would be a stretch because they wouldn’t count my year end distribution either only the monthly draw.

That said, it sounds like many either had a huge down payment or family help to keep the payments down. This is helpful to understand. I have very little savings due to my divorce.

Mortgage brokers actually do count bonuses for purposes of mortgage qualification, but the person must have gotten the bonus for two years for it to count. Many employees have bonuses make up a significant part of their earnings so it would be bizarre to exclude them entirely. Of course, bonuses are supposedly never guaranteed but in many industries they basically are -- just think about all the associates who work for you. You should be counting the year end distribution in determining what you can afford (as should any mortgage broker) unless you really have reason to believe it will be zero many years.

Agreed. You need to talk to another broker. My firm writes a letter whenever I apply for a loan that says my full comp from last year (in your case 650k) that is used to qualify for a loan at that income.

I think the bigger thing to be concerned about is you have a lot of money leaking to places where you don’t know where it’s going. I make upper six figures (850-950k) and I take home about half of my gross. That includes 401k, health insurance, extra FICA employer taxes, etc. For you, that would be 25-30k, not 20k. What I’m trying to tell you is that 19-20k/month is EXTREMELY unusual on 650k gross and you need to figure out where the extra 100k+ a year (post-tax) is going. You owe it to yourself and your kids in case something is awry with your finances that you’re not aware of.

[Anonymous]

Anonymous wrote:Thanks for the helpful replies here.

Ultimately, once again, my take home is $20K if I do not contribute to a 401(k) and $16-18K if I do. My monthly draw is somewhat variable. Quarterly distributions all go to taxes (as I’d know, my CPAs are my own accounting firm and tell me exactly what to pay), and a big chunk of my year end distribution goes to taxes. I don’t count the rest of the year end distribution for mortgage purposes because I’m not using that to pay a monthly PITI as employees typically wouldn’t count their potential year end bonus. It’s based on a lot of factors and not guaranteed. I do have cash flow spreadsheets so this is not an area of grey for me. When I contacted a mortgage lender to understand what I could qualify for, even with an 800 credit score they said 800K would be a stretch because they wouldn’t count my year end distribution either only the monthly draw.

That said, it sounds like many either had a huge down payment or family help to keep the payments down. This is helpful to understand. I have very little savings due to my divorce.

Oh, come on. It's not the same as a year-end bonus. Yes, the amount is variable, but you can conservatively estimate it. As another PP said, you are wondering how you can afford these places on $650k in HHI, but are only figuring maybe $450k in income in your calculations. And before you say I don't understand, I do. I understand perfectly, as do many other people here. In fact, there's probably not a message board in the country with more law firm partners on it than this one.

[Anonymous]

We bought a nice but older house on a busy road. That is how we did it.

[Anonymous]

OP, get a better mortgage broker. You should actually be going to Citi private client because they give the best mortgages for people in biglaw.