Reply to Afford $1.8M on 300K?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]I haven’t followed the entire thread, but has OP indicated how much savings they have? One option is to make a large down payment to make the monthly payments affordable. Our HHI is $225k and we will probably buy at $1.5 million but we have very substantial savings due to being frugal, investing wisely, and having no kids. So we will put at least 50% down and still have plenty of investments and savings left (at least seven figures left). I guess based on the comments here we will be viewed as the poors in our new neighborhood when we buy but who cares. [/quote]

Op here - I haven't said much about my savings because I didn't think it was relevant to the conversation - I would say my finances are similar to yours. Probably around $1M in fairly liquid assets. Others on this thread have opined that smaller mortgage are better, and i still don't understand why.  In your case, you are paying down 50% in order reduce monthly payments.  Can I ask why you don't consider downing 20% and separately investing the other $450K (~ 1.5M * .3)?  If a bank is willing to lend me an extra $450K for tax advantaged and (relatively) low interest rates, why wouldn't I do that?  Or do you imagine that you can't find investment opportunities that garner greater than 3.5 (or 4 or 4.5%) ROI?  If no such opportunity arises, I don't see why you couldn't use the $450K to reduce your mortgage principal later on.  If the monthly payment @ a 20% DP becomes too large, you also could use the $450K to recast the mortgage to lower the monthly payments later on.

I'm asking because (as others on this thread have surmised), I'm financially illiterate and I'd like to crowd-source some ideas.

Thanks in advance

[/quote]

You raise a good point, and I have thought about this. I have used some calculators, and I think the max mortgage we will qualify for is about $900K. But you're right, I think it does make sense to get the biggest mortgage possible if you have substantial savings, knowing that you can fall back on those savings if needed. So maybe our down payment would be $600K (with that $900K mortgage) instead of $750K. If we qualified for a bigger mortgage, I think we'd be fine going for it, and investing anything we don't have to put into the house.

At the end of the day, I think you personally know what works for you, but I don't agree with all the posters acting like you need to be making $1 million to afford a $1.8 million house. I have no qualms about doing $1.5 million on a $225K income, but I know my spending habits and savings rate. I do everything I want to do in life -- good vacations, play lots of sports, have lots of hobbies -- but I don't blow through tons of money to do it. I think that's where there can be big differences -- I have friends who make way more than I do but spend so much on cars, staying at hotels like the Four Seasons, eating at the fanciest restaurants, buying all their groceries at Whole Foods, buying pricey sports tickets, etc. Those types of things don't interest me, but I have nothing against people who spend their money that way. We all have different priorities, and so when some posters write that they can only afford an $750K house on a $300K salary, then perhaps they've simply chosen to prioritize spending their discretionary funds in different ways. If you're careful with your money -- and it sounds like you are -- I could easily see how that $1.8 million house is doable.[/quote]

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