Afford $1.8M on 300K?

[Anonymous]

OP: It's doable if the house is priced in Canadian dollars and your HHI is in US dollars. Otherwise, no,not doable.

[Anonymous]

Assuming you pay about 25% of your income in taxes - federal state, SSDI, etc., you net $225k after taxes. You're proposing that you pay 48% of that net in a home payment - and that's not including 401k, medical, or any other deductions.

People do that because they have to. They don't do without a very good reason, and your rationale, "We think the house is a bit small - ideally, we'd like to be in 4000sqft," doesn't come close to that.

[Anonymous]

Anonymous wrote:We have a 300Kish HHI and am living in a 2000sqft SFH in Fairfax. We think the house is a bit small - ideally, we'd like to be in 4000sqft. Homes that size in our neighborhoods of interest are running $1.6-$2M. With a 20% down payment, I'm calculating monthly PITI payments of around $9K. We're paying $3.5K right now and are saving $6K+ per month, so just from basic accounting, it looks doable. But the 6:1 house price to income ratio seems crazy and out of line with other folks opinions.

Other threads on DCUM are suggesting house price around $1M for our HHI. But we're doing that right now and have $6K left over every month going into measly 1% savings accounts ( we have maxed out 401K, HSA, 529 plans, so this is after all those things). We are debt free (besides current mortgage)

What do you guys think? Should we upgrade and basically dump all of our extra savings into a bigger house? Or is that too much house for our income?

Your math is off. Your mortgage will be closer to $10.5K.

[Anonymous]

OP you are crazy to consider this.

[Anonymous]

Anonymous wrote:

Anonymous wrote:
I have posted a couple of times already - I said that we stayed in our house and fixed it up and the extra money each month gives us flexibility, etc. It sounds like you have your mind made up and this is what you want to do. I hope that your income is straight salary and not dependent on bonuses bc if you have a bad year, you won’t be able to pay all of your expenses. I also want to add that when you look at the median income for, say, McLean, it also includes all of the condo buildings (I’m assuming). Plus you have to remember that a lot of people bought their homes years ago when prices were much lower and they may retired now but they likely have a lot of assets (which is what allows them to stay in their homes which are now worth a lot of money). I think you are assuming that all of your expenses will stay the same except for your mortgage. Have you checked the property taxes? Utilities? Landscaping costs? Put all that into your budget and see how much you have left over every month.

Op here. Good points. some responses

- I'm not keen on fixing up and/or expanding the current house beyond what's normal in the current neighborhood. If I have a 4000 sqft house in a neighborhood of 2000 sqft houses, it will be very hard to sell 5-15 years from now. I see neighborhoods in the midst of teardowns/rebuilds, and I'd rather not deal with those issues. (I think) it's better to just move into a neighborhood of 4000 sqft houses instead.

- we're civil servants, so income is just salary and pretty much steady until we retire, which we don't plan to do any time soon. so no income volatility. For those asking about college - I think there's a separate but real DCUM conversation on how much college costs should be prepaid by parents (rather than leveraging student loans ).

- our mind is certainly not made up. this arose out of a conversation where we were wondering "what do we do with the extra $6K? venture into a bear market? buy a rental property? trade-up our house? If the third option, could we possibly afford (for example) a 4000 sqft house in a Langley pyramid neighborhood with a short commute to Tysons?

- I chose the census data area ( https://data.census.gov/cedsci/profile?g=1400000US51059460100) specifically because that area has no condos/townhouses. Certainly if you include the townhouses/condos, the median HHI goes down - but I'm just using SFH HHIs as my comparison. And that's at (or just above) $200K.

- property taxes should project proportionally with the property value/size. Utilities, on the other hand, are a tossup. We're paying $300 for gas and electricity, $100 for cell and internet, and $250 quarterly for Water. Even if those doubles, that's still doable. But if it triples or quadruples, yeah that's a concern.

Do you know how much student loans students can take out as a freshman in college? I think it is around $5,500? I believe then the parents have to borrow as parent plus. I am not an expert bc my kid is fortunate not to have to take them out. I borrowed in college and grad school and it was a pain. When I went to school, it cost a fraction of what it does now. I went to my state flagship where tuition, room and board was less than 10,000 a year. Much less. Now it is over 35,000 - in state. But you are going to have your kids leverage student loans - no problem. While they are living in a 2 million house. They will wonder why they have to take out student loans to go to a state school while they live in the most expensive suburb in the state. And not a small house that their parents moved into so they could go to a top school. No, a 4,000 square foot house and their parents make a very healthy $300,000 but needed to live in a huge house. I question your priorities but it is your money to spend how you choose.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:
I have posted a couple of times already - I said that we stayed in our house and fixed it up and the extra money each month gives us flexibility, etc. It sounds like you have your mind made up and this is what you want to do. I hope that your income is straight salary and not dependent on bonuses bc if you have a bad year, you won’t be able to pay all of your expenses. I also want to add that when you look at the median income for, say, McLean, it also includes all of the condo buildings (I’m assuming). Plus you have to remember that a lot of people bought their homes years ago when prices were much lower and they may retired now but they likely have a lot of assets (which is what allows them to stay in their homes which are now worth a lot of money). I think you are assuming that all of your expenses will stay the same except for your mortgage. Have you checked the property taxes? Utilities? Landscaping costs? Put all that into your budget and see how much you have left over every month.

Op here. Good points. some responses

- I'm not keen on fixing up and/or expanding the current house beyond what's normal in the current neighborhood. If I have a 4000 sqft house in a neighborhood of 2000 sqft houses, it will be very hard to sell 5-15 years from now. I see neighborhoods in the midst of teardowns/rebuilds, and I'd rather not deal with those issues. (I think) it's better to just move into a neighborhood of 4000 sqft houses instead.

- we're civil servants, so income is just salary and pretty much steady until we retire, which we don't plan to do any time soon. so no income volatility. For those asking about college - I think there's a separate but real DCUM conversation on how much college costs should be prepaid by parents (rather than leveraging student loans ).

- our mind is certainly not made up. this arose out of a conversation where we were wondering "what do we do with the extra $6K? venture into a bear market? buy a rental property? trade-up our house? If the third option, could we possibly afford (for example) a 4000 sqft house in a Langley pyramid neighborhood with a short commute to Tysons?

- I chose the census data area ( https://data.census.gov/cedsci/profile?g=1400000US51059460100) specifically because that area has no condos/townhouses. Certainly if you include the townhouses/condos, the median HHI goes down - but I'm just using SFH HHIs as my comparison. And that's at (or just above) $200K.

- property taxes should project proportionally with the property value/size. Utilities, on the other hand, are a tossup. We're paying $300 for gas and electricity, $100 for cell and internet, and $250 quarterly for Water. Even if those doubles, that's still doable. But if it triples or quadruples, yeah that's a concern.

Do you know how much student loans students can take out as a freshman in college? I think it is around $5,500? I believe then the parents have to borrow as parent plus. I am not an expert bc my kid is fortunate not to have to take them out. I borrowed in college and grad school and it was a pain. When I went to school, it cost a fraction of what it does now. I went to my state flagship where tuition, room and board was less than 10,000 a year. Much less. Now it is over 35,000 - in state. But you are going to have your kids leverage student loans - no problem. While they are living in a 2 million house. They will wonder why they have to take out student loans to go to a state school while they live in the most expensive suburb in the state. And not a small house that their parents moved into so they could go to a top school. No, a 4,000 square foot house and their parents make a very healthy $300,000 but needed to live in a huge house. I question your priorities but it is your money to spend how you choose.

This. If you were also prioritizing paying for your children’s college I would say to think about it, but you need to get your priorities in line. And just for a point of reference, we make close to $1M in income and are on the fence about whether we should upgrade from our current $1.2 house to a $2M one (and this is while fully funding three 529’s). No chance we would ever even consider this on less.

[Anonymous]

Anonymous wrote:OP, I live in McLean a 1.2-1.5m house neighborhood, and I can assure you the minimum HHI is 400k in mine, because every household is two income, with at least one person a doctor or lawyer or World Bank/IMF management level above.

If you move to the neighborhood of 1.6-1.8, which is your target price range, min HHI is at least 500k. If you look at census data on median HHI of McLean and Great Falls, it’s above 300k, counting on all the condo and townhouses.

So OP, you will be the poorest on your street. People will not look upon you because that’s none of their business. It will be a struggle for yourself.

No way. I am so sorry, but not the poorest on the street. Two feds here and there are many like us. We live in a million dollar home in Great Falls and it is fine. Geesh!

Also - it is a wonderful area. Lots of community events. Small town feel. I love it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP, I live in McLean a 1.2-1.5m house neighborhood, and I can assure you the minimum HHI is 400k in mine, because every household is two income, with at least one person a doctor or lawyer or World Bank/IMF management level above.

If you move to the neighborhood of 1.6-1.8, which is your target price range, min HHI is at least 500k. If you look at census data on median HHI of McLean and Great Falls, it’s above 300k, counting on all the condo and townhouses.

So OP, you will be the poorest on your street. People will not look upon you because that’s none of their business. It will be a struggle for yourself.

No way. I am so sorry, but not the poorest on the street. Two feds here and there are many like us. We live in a million dollar home in Great Falls and it is fine. Geesh!

Also - it is a wonderful area. Lots of community events. Small town feel. I love it.

You don’t feel poor because you live in a million dollar neighborhood. But OP with similar income wants to live in 2 million dollar neighborhood. So they will be the poorest on their street, not you.

[Anonymous]

We were in similar situation. We sold our TH in Fairfax and bought a SFH in McLean, with 2.6% rate. With the current rate it makes a huge difference on monthly PITI. In addition to 529 and 401k contribution, we also have a good amount $ invested in stocks and sitting in saving account for future college spending/emergency fund, so we felt more comfortable spending more on the mortgage. Plus our job is secure and salary will keep growing

[Anonymous]

If you can afford it, you can afford it. No need to have all that extra cash sitting in a savings account.

The problem is risk. If you put all your extra cash into your primary home, what happens if one of you unexpectedly has to take time off work or cut back to part time? If your income unexpectedly drops and you suddenly need to reduce expenses it’d be better to have your cash in an investment property or other investment rather than in a primary home that leaves little money left over each month.

[Anonymous]

Anonymous wrote:If you can afford it, you can afford it. No need to have all that extra cash sitting in a savings account.

The problem is risk. If you put all your extra cash into your primary home, what happens if one of you unexpectedly has to take time off work or cut back to part time? If your income unexpectedly drops and you suddenly need to reduce expenses it’d be better to have your cash in an investment property or other investment rather than in a primary home that leaves little money left over each month.

I said it upthread, but this is what gets me. Op is too risk-averse to put money in the stock market when it's down, but is considering committing to a mortgage that leaves no wiggle room in their budget at all. It's like risk whiplash.

Not to mention potentially leaving the kids on the hook to cover a significant portion of their own college costs, which ignores how the cost of college has basically risen at multiples the rate of inflation for the last few decades. I don't understand having so much money that you'd consider buying a $2million house just to have someplace to put your cash, but not pay for college for your kids. It makes no sense.

[Anonymous]

You never responded on how many kids you have or how old they are. Kids activities become very expensive as they get older. Especially in the areas you mentioned. $6k to cover all that is not realistic.

[Anonymous]

Not having wiggle room in your budget is no fun. There's both unexpected expenses with a house plus just not having money for fun things like trips or summer camp.

Don't do it. A bigger house isn't worth cuts and risk everywhere else.

[Anonymous]

What do you think will happen with interest rates? They have been at historical lows. You need to do some stress testing at the extremes.

I assure you your expenses will shoot up in a bigger house. It happened to us.

[Anonymous]

Anonymous wrote:What do you think will happen with interest rates? They have been at historical lows. You need to do some stress testing at the extremes.

I assure you your expenses will shoot up in a bigger house. It happened to us.

Interest rates are through the roof right now. Not only would OP be overspending but her mortgage would be ridiculous due to the 6%

This is why everyone refinanced a year ago