How did you afford your $1M plus home?

[Anonymous]

Anonymous wrote:We make $280 HHI and can afford it. We save save save save save. We don't buy fancy clothes or shoes. We drive one very old car and one new but modest car. We don't go on big vacations--all we do is drive to visit family or maybe drive for a long weekend somewhere off-season. Our TV is 10 years old and is not a flat screen. We don't pay for extra cable channels we don't need. We still buy all our groceries at Whole Foods...but I only buy the 365 brands, chicken thighs instead of breasts, no fancy cheese, etc. It's seriously cheaper than if I bought similar, organic products at Giant (and even cheaper sometimes than if I bought name-brand non-organics at Giant). We also save $1K a month for our son's college fund, fully fund our 401ks, and save an additional $1 - 2k a month for retirement on top of that. Bonuses go directly into savings--we don't think of it as money that we use to "treat ourselves." We're still paying $1200/month in law school debt too! We do our own yardwork, clean our own home, and do most home repairs ourselves.

I hear people who make much less than us talk all the time talking about their new BMWs, their fancy stereo/tv systems, their 2 week all-inclusive vacations, and their new Cartier watches and, in the same breath, talk about how poor they are. Give me a f-ing break. I'm now a SAHM, but we saved almost all of this money when I was working and we were paying a ridiculous of money for our on-the-books nanny--took at least 80% of my take-home pay. I have a Cartier watch that I bought for myself when I was working my a$$ off and we used to go on crazy amazing vacations when we were newly married, big law firm associates, but once we decided we wanted to buy a home that we could raise a family in, we cut out all of the extra spending and made the home our #1 priority. I also left my big law job several years ago and was making a much smaller salary, so the bulk of our savings came from DH's job.

You CAN buy a million dollar home if you don't think of yourself as the kind of people who can afford a million dollar home. We live modestly, but after 7 years of working, we have over $600k in assets. We also lost money on the last place we sold, so we don't have that equity to rely on when we buy our next place. I have family money, but we don't touch it. We also don't live like we're poor, but we don't spend our money unwisely or use it to buy tons of "stuff."

Definitely helps that, like 11:21, we saved a ton before our two kids were born and DH is very very cautious about spending. But even with two small kids, we still save a ton of money by not spending carelessly. We could afford up to $1.2M and comfortably make our mortgage payments, but DH won't even consider it. In fact, he's hoping that the home we buy is closer to $850K than $1M so that we have some cushion.

See, personally, I would rather have some breathing room to go on a nice vacation or buy fancy cheese than have a $1 mil house!

[Anonymous]

Anonymous wrote:We make $280 HHI and can afford it. We save save save save save.

You CAN buy a million dollar home if you don't think of yourself as the kind of people who can afford a million dollar home. We live modestly, but after 7 years of working, we have over $600k in assets. We also lost money on the last place we sold, so we don't have that equity to rely on when we buy our next place. I have family money, but we don't touch it. We also don't live like we're poor, but we don't spend our money unwisely or use it to buy tons of "stuff."

Definitely helps that, like 11:21, we saved a ton before our two kids were born and DH is very very cautious about spending. But even with two small kids, we still save a ton of money by not spending carelessly. We could afford up to $1.2M and comfortably make our mortgage payments, but DH won't even consider it. In fact, he's hoping that the home we buy is closer to $850K than $1M so that we have some cushion.

I find people like you inspirational, but I'm a little confused ... are you currently in the $1M home, or that's to come in the future? What are your current housing costs or what were they while you were doing most of this saving? I'm hoping that your answer will be even higher than our current costs so I can eliminate that as an excuse for why we cannot do the same. Am I right in thinking that the way you will be affording an $850K - $1M house is because you will have a huge downpayment so your monthly carrying costs are lower? I've often thought this is something we should try - really building up savings for a downpayment. We make a $240K HHI, but after our (modest) mortgage, retirement, college savings, school loans, daycare, and other living expenses, we don't save a ton.

[Anonymous]

11:52 here. We do buy nice things, but not every day. I also would rather have a great home for the next 10-15 years than a great $10k vacation today. And, for the record, we've taken those vacations and we've dropped $700 on one dinner, etc etc, but that was before we made a nice home our priority. And it's not just the home that we prioritize, it's our kids' college and our retirement. I don't need a $15 .25lb wedge of cheese every week or a $5 latte every day, though I do indulge in that if I want it on occasion. We focus on what we need first and it frees us up to have what we want without feeling like we're sacrificing long term goals for short term gain. I got an iPad for Christmas and a $300 spa certificate for Valentine's Day, so it's hardly like we're not enjoying ourselves! Plus, I have an infant and a 3 year old. A fancy vacation would hardly be enjoyable right now anyway. Rather wait a few years and take one when they're old enough for us all to enjoy ourselves. Really, it's abut choices. Mine aren't better than yours--they're just what we've chosen based on our goals. Your goals may be different, and that's totally fine. But don't complain that you can't buy your dream house because you spend your money in a way that doesn't make it possible.

To answer 13:30, we're buying the home this spring. We already bought and and sold a $750k home elsewhere, for which we also put down 20%. Lost about $50k when we sold, but we were moving and had to sell as our co-op rules didnt allow us to rent it out (this was in Manhattan). That sucked. This time, we'll also put 20% down for whatever we buy. Our credit is excellent, so we qualify for the cheapest mortgage rates. That keeps our totally monthly payment, with taxes, at around $4500. Our former mortgage plus HOA was $4100/month (3100 mortgage plus 1000 HOA). We pay roughly the same now for rent as for our old mortgage and we been saving the extra $1000 for the new home. DH and I kind of can't believe how much we've been able to save, but it's because we "pay ourselves first," as my very frugal and now very rich father used to say. I definitely feel like DH and I (esp working the hours he does, which used to be the same for me) deserve to treat ourselves and indulge in nice things, but isn't a beautiful home in a great school district with an easy commute a nice thing?

But 13:30, don't compare too much--you have daycare costs that we don't have (we just have $300 month preschool) and $40k less in income (that's another $20k after tax that we can save). Childcare eats away at your cash. When we had a nanny, our HHI was $400k and we live about the same now as we did when I was working and we were paying for her too. When your kids start school, you'll have more cash. Just reallocate it into savings right away!! Don't say "wow! We have another $20,000 a year to spend!" You can definitely get the house you want--it'll just take you a few more years to get there. It took us 7 years to save for this home!

[Anonymous]

"Silly" one back (or "moronic" one, according to one distinguised PP). I think some PPs have confused me with OP. (Sorry for the unwilling hickjack, OP). Some clarifications:
1) Our HHI is over $300 -- about $320K. We are not aiming for a $1M home, like PPs thought. Instead, we are aiming for a $850K home (definitely not our dream home -- we will be happy with old bathrooms and kichen--, but in the location that works best for us without making our commute to work/school a nightmare).
2) A mortgage on a $850K is about $680K (80%). So my first question is: why are PPs stating so forcefully that a HH with $320K HHI cannot afford a $680K mortgage, with no other debt (no car debt, no student debt, nothing)?
3) Besides a 401K, my spouse and I have very generous pensions and stable, solid, and good jobs.
4) I DO have savings to easily cover the 20% downpayment of about $170K. The only issue is that part of that savings come from an illiquid asset: about $120K will come from a 401K. It wil NOT be a loan that has to be paid back, thus worsening my monthly cash flow. It would be a withdrawal. I know, I know: it will decrease my nest egg. But my 401K will still have about $80K left after the withdrawal, and I am in my 30s, so I expect that it will continue to grow. Plus, as I said in "3)" we have very generous pensions, diability benefits, and the like. (I was not able to save more in other forms due to a long, sad story, so no need to be judgemental about that).
5) Planning to send kids to a German language school (about $13K a year, i.e. much much cheaper than other privates) and big part of cost will be subsidized by employer, so no much of an extra expense. This school is high priority for us because of language -- cannot just say "PPs are right! I can just send the kids to blah blah public school in cheaper neighborhood). It is VERY important for us that kids speak German -- much more than having to retire a few years later.

I am obviously aware that it is not ideal to use a 401K for a home downpayment, but that is the situation, and I don't expect to be a poor elderly person for doing so. So, why is this "moronic"?

[Anonymous]

1 million purchase price
$3200 mortgage payment (all included)
single income of $225K

No nanny or other family members to support. Large downpayment ($400K+). We lived EXTREMELY frugally for about 5 years in a cheaper city.

[Anonymous]

11:17, who lives in the 1M home in Mclean, do you mind sharing your budget?

[Anonymous]

OP, our HHI is a little higher than yours ($480K total plus bonuses - last year probably had another $30K in bonsues) and we just bought a $1M house last year without selling our previous home (we currently rent it out at about cost each month).

We also have an expensive nanny (pay her $50k/year), and even own a boat (monthly payments on it, plus expenses, is about $1K/month). I feel like we want for very little as well. Admittedly, having an extra $100K on top of your income helps pay for things like the boat, but I'm having a hard time understanding why you can't afford a $!M mortgage or can't save the money for a downpayment (we paid 15% in cash plus closing costs out of our savings - since we didn't sell our other house, we didn't use our equity in that home to pay for our new house).

I guess we don't spend lavishly on things like clothes, jewelry, vacations, cars, etc., but I don't feel like we want for much either. We still save pretty well - maybe not as much as I'd like, but well over 10% of our salary each year (in addition to 401K).

How much exactly are you spending each month supporting family? How expensive is your nanny? Can you look into an au pair or live in instead (especially if you move to a larger house)? I feel like $400K HHI should be enough to afford a $6K/month mortgage (this is at least what ours is on our $1M house). Even assuming you only net 65% of your salary, you'd still bring in over $21K a MONTH off a $400K salary. So, where is the $$$ going?

[Anonymous]

Anonymous wrote:"Silly" one back (or "moronic" one, according to one distinguised PP). I think some PPs have confused me with OP. (Sorry for the unwilling hickjack, OP). Some clarifications:
1) Our HHI is over $300 -- about $320K. We are not aiming for a $1M home, like PPs thought. Instead, we are aiming for a $850K home (definitely not our dream home -- we will be happy with old bathrooms and kichen--, but in the location that works best for us without making our commute to work/school a nightmare).
2) A mortgage on a $850K is about $680K (80%). So my first question is: why are PPs stating so forcefully that a HH with $320K HHI cannot afford a $680K mortgage, with no other debt (no car debt, no student debt, nothing)?
3) Besides a 401K, my spouse and I have very generous pensions and stable, solid, and good jobs.
4) I DO have savings to easily cover the 20% downpayment of about $170K. The only issue is that part of that savings come from an illiquid asset: about $120K will come from a 401K. It wil NOT be a loan that has to be paid back, thus worsening my monthly cash flow. It would be a withdrawal. I know, I know: it will decrease my nest egg. But my 401K will still have about $80K left after the withdrawal, and I am in my 30s, so I expect that it will continue to grow. Plus, as I said in "3)" we have very generous pensions, diability benefits, and the like. (I was not able to save more in other forms due to a long, sad story, so no need to be judgemental about that).
5) Planning to send kids to a German language school (about $13K a year, i.e. much much cheaper than other privates) and big part of cost will be subsidized by employer, so no much of an extra expense. This school is high priority for us because of language -- cannot just say "PPs are right! I can just send the kids to blah blah public school in cheaper neighborhood). It is VERY important for us that kids speak German -- much more than having to retire a few years later.

I am obviously aware that it is not ideal to use a 401K for a home downpayment, but that is the situation, and I don't expect to be a poor elderly person for doing so. So, why is this "moronic"?

It is "moronic" because retirement is not savings. Retirement is retirement. You would withdraw >50% of your retirement savings to use for the downpayment.

You should be able to afford such a house on your income, assuming that you save for a downpayment. But you have not so saved. Instead, you intend to raid most of your retirement account. Not savings, retirement.

You have $50K for a downpayment. Not $170K. Therefore you cannot afford the house.

How old are you? $80K isn't much to have in a retirement account, whether you are 31 or 39.

[Anonymous]

"It is VERY important for us that kids speak German -- much more than having to retire a few years later."

WTF?

[Anonymous]

11:56 - THIS.

OP, there is no magic answer. Maybe this forum should be changed to "how do I keep up with the Joneses even though I have nothing in common with them?" No matter how much you want it to, the money is not going to magically appear.

You sound overly concerned with what you think the next guy is doing.

I saved a ton before we got married. You would be shocked and amused at the assumptions I have heard. "Her family must have money..." "his family must have money..." Nope. It is called old fashioned saving. What a concept!

[Anonymous]

Anonymous wrote:"Silly" one back (or "moronic" one, according to one distinguised PP). I think some PPs have confused me with OP. (Sorry for the unwilling hickjack, OP). Some clarifications:
1) Our HHI is over $300 -- about $320K. We are not aiming for a $1M home, like PPs thought. Instead, we are aiming for a $850K home (definitely not our dream home -- we will be happy with old bathrooms and kichen--, but in the location that works best for us without making our commute to work/school a nightmare).
2) A mortgage on a $850K is about $680K (80%). So my first question is: why are PPs stating so forcefully that a HH with $320K HHI cannot afford a $680K mortgage, with no other debt (no car debt, no student debt, nothing)?
3) Besides a 401K, my spouse and I have very generous pensions and stable, solid, and good jobs.
4) I DO have savings to easily cover the 20% downpayment of about $170K. The only issue is that part of that savings come from an illiquid asset: about $120K will come from a 401K. It wil NOT be a loan that has to be paid back, thus worsening my monthly cash flow. It would be a withdrawal. I know, I know: it will decrease my nest egg. But my 401K will still have about $80K left after the withdrawal, and I am in my 30s, so I expect that it will continue to grow. Plus, as I said in "3)" we have very generous pensions, diability benefits, and the like. (I was not able to save more in other forms due to a long, sad story, so no need to be judgemental about that).
5) Planning to send kids to a German language school (about $13K a year, i.e. much much cheaper than other privates) and big part of cost will be subsidized by employer, so no much of an extra expense. This school is high priority for us because of language -- cannot just say "PPs are right! I can just send the kids to blah blah public school in cheaper neighborhood). It is VERY important for us that kids speak German -- much more than having to retire a few years later.

I am obviously aware that it is not ideal to use a 401K for a home downpayment, but that is the situation, and I don't expect to be a poor elderly person for doing so. So, why is this "moronic"?

I don't know the answer to this, but I thought the tax consequences for taking money out of your 401K were pretty horrible (e.g., you have to pay taxes on that amount as income b/c you weren't taxed on it in the first place). Perhaps there is an exception for taking money out of your 401K for purposes of a house down payment, but I know people who have taken money out of their 401K and got completely hammered at tax time.

[Anonymous]

We have a very expensive home in another city because we cannot sell it. We started in DC. We bought our first house in 1998, made about $150 and moved to another house in 2002 and doubled our value. We were able to put down 20% to buy a large home in another city. Unfortunately, we cannot sell that house and moved back to DC where we CANNOT afford a $1M house. We had to buy a cheaper home b/c all of our money is caught up in the first house.

Plus, back in the early 2000s, there were many more financing options than there are today. You could do a no money down interest only loan and get into an expensive home. Those products no longer exist.

[Anonymous]

PP here. I was curious so looked into the tax consequences. Accordingly to eHow (admittedly not the end all be all), if you take a permanent withdrawal from your 401K, you likely will pay both income taxes on it plus a 10% penalty.

So for the poster planning on taking $120K out of her 401K for a house, I hope you have $50K lying around to pay for income taxes and penalty for that amount. B/c it seems like even if you can take it out as a "hardship", you still get effed from a tax standpoint.

[Anonymous]

I took money out of my 401(K) for a down payment, but it was a loan, not a disbursement. The money never even touched my hands. I am still paying it back via direct deposit. The only penalty is that the repayment money is post-tax, not pretax, but since I don't pay taxes, it's hardly relevant.

Before you all begin frothing at the mouth, the amount I took out was 6K. But without it, I wouldn't have been able to afford my first condo. I have since moved out, bought another house with DH and the condo is blissfully rented out.

[Anonymous]

OP again. We take home about 19k (after paying into healthcare costs which are high for our firm, 401k, etc). Nanny is 3500/month. Family help is about 2k/month now but that will go up in time. We've also had to bail out the parents from a foreclosure and pick up emergency health expenses so all of those things took a toll early on and ate up money we could have saved. Also, we weren't as disciplined about savings until the last few years (paid for our own modest wedding etc). Student loans from college are 1k/month. Hoping we find a house eventually that has room for an au pair so we can cut way down on childcare costs. For those who have incomes similar to ours, thanks so much for posting your budgets. We know we can cut down in some areas but there aren't huge areas of excess (lavish vacations, jewelry, fancy clothes, cars, etc).
I'd like to put together a larger downpayment (wait until we can save enough) rather than raising our monthly cost if possible. It just seems excessive to spend more than 4500/month. We realize our HHI income is high now so it worries me to take on even more monthly expense.