See the previous poster for details, but here is how I look at it.

Your total payment is PITI (principal, interest, taxes and insurance). On our 4k mortgage, we have another 700 in taxes and insurance.

Basically, the way the deductions work is that although I pay PITI each month, so 4700, I get a refund at the end of the year worth about 700 each month. So instead of comparing 4700 (my monthly payment) to rental cost, I should actually be comparing 4k to rental cost. The taxes and insurance are refunded to me.

Anonymous wrote:OP here. To the pp who brought up the tax deduction angle: we are sort of clueless on that benefit. How much 'savings' are we talking about, back of envelope?

OK, some rough calculations, say you buy a $500,000 house and put $75K down. That leaves you with a mortgage of $425,000. Let's assume a 30 year mortgage at 4.125% (what my credit union is currently advertising). For simplicity, say your annual real estate taxes will be about $5000.

Ignoring escrow payments and PMI, your monthly mortgage payment would be $2059 (with escrow probably closer to $2600). In the first year of your mortgage, almost all of that $2059 is paying off interest, not principal. So, plugging those numbers into an amortization table shows you that in the first year, about $1450 of each payment is just towards interest. So you're paying a total of $17,400 in interest the first year. Which is tax deductible. As is the $5000 in real estate taxes.

So, now you have a $22,400 tax deduction you can take. If you were itemizing deductions before, this is just an addition to whatever you were deducting. If you weren't itemizing and just using the standard deduction before, you will now also add in state tax, charitable contributions, any personal property tax, etc. The standard deduction for married filing jointly is $12,200--so you can see that it clearly makes sense to itemize now. I'm going to assume you weren't itemizing before? I'm guessing between DC taxes and some other things you'd probably have at least another $10,000 or so in deductions. So, adding all of that together--you have $32,400 in deductions--or about $20,000 more than you had when you were just using the standard deduction.

Your combined income is $158K, with deductions, etc, your marginal federal tax rate is 25%. I think the DC marginal tax rate is 8.5%. Add those together, and you get 33.5%. Multiply that by $20,000 and your tax savings are $6700 a year, or $558 a month.

This is all a little bit of guess work since I don't know exactly what your tax situation is, what you were deducting before, and I'm ignoring things like health savings accounts, childcare deductions, etc that could all play into it. If you were already itemizing, your tax savings would actually be a little higher (closer to $600).

So, if your mortgage payment is $2600, your effective payment after you consider tax savings is more like $2000 or $2050. In other words, if your rent is $2000--your mortgage paying power with no change to your bottom line, is about $2550.

Anonymous wrote:My wife and I have rented in the West End for the past 8 years. Since that time we've had a child and hope to have another one in the not too distant future. In other words, we're outgrowing our apartment and are considering the need to live in a larger space.

We like the DC area and would like to stay, but we're pricing out houses in the area and it's clear that it's going to be tough if not impossible to do so. My wife and I make a combined income of approximately $158K, and according to most house-affordability calculations that results in being able to afford $375K houses. This figure, as you know, does not go far in the area.

We are still left wondering how people afford homes in this area. We thought about what others have done and eventually compiled a list which comprise what we've called 'the seven paths to DC-area home ownership' (in no particular order):
1. Command a massive dual-income salary
2. Willing to live far outside the beltway/endure a long commute
3. Willing to live in an undesirable area (poor housing stock, bad schools, no nearby amenities, high crime rate, etc.)
4. Have saved up a down payment over a very long time
5. Willing to be extremely 'house poor' (>35-40% of income going to mortgage service)
6. Get help from family (inheritance, or have gotten help from family for other costs (ex. parents paying for college) which allowed saving for down payment)
7. Bought pre-boom (and have since enjoyed incredible appreciation)

Of course, some folks have taken multiple and overlapping approaches, and there's also the chance we're missing some.

At the end of the day we recognize that we are much better off than most and count our lucky stars each day that we have what we do. We recognize we are truly fortunate. And we don't want this post to be construed as a 'woe is us' lament. However, it's disheartening that mid-career professional families can scarcely afford the area.

I would like to hear about those of you who want to buy in the area eventually and face similar circumstances as us. Which path to home ownership are you planning to take?

We took path #3. Bought when we were 24. Now, 10 years later, house is worth double what it was then. Schools are still terrible, but my equity is awesome, and I'll take it out when we need a place near good schools.

We're both 32, 2 kids, happened to meet in college and marry right after we graduated, which I get is probably somewhat rare in this area. Parents paid for grad school (we had loans from undergrad), so I feel lucky for that.

With that said, we both got jobs after college, selected a cheap apartment near one of our jobs in DC. We also valued being the city, raising our kids in a more urban area, and public transportation. Was not willing to move out to the burbs, and still are not to a degree. Saved like crazy.

Bought a cheap condo in a good rental area (right by a Metro). Was a not-so-great area when we bought it, but it was inexpensive and we had heard rumblings about development there because of it's proximity to the Metro and the Capitol. Saved like crazy. Had one kid. Stayed in tiny crappy condo. Had second kid. Stayed in tiny crappy condo for another year, during which we lowered our 401K savings to the minimum required for matching and saved that too.

Purchased ugly but relatively updated brick 1,400 square foot house that most DCUM-ers would never live in in downtown Silver Spring - we were not willing to go totally suburban, wanted an area where we would send our kids to elementary at least, wanted three bedrooms but didn't need big or new. Got a 30-year mortgage with the intent of refinancing to a 15-year in a few years because we thought our incomes might go up.

They did, refinanced. Husband got a job in SS, I commute on the Metro to DC. We feel like we are exactly where we want to be.

Things we didn't compromise on: being in the city or in an otherwise not-suburban area, refused to have more than one car so commutes had to work, needed elementary school in our final home, couldn't take on a fixer upper.

Things we did "compromise" on (though these are things we don't care about anyway): smaller, older house, more mortgage than we thought we'd be comfortable with (it's worked out fine)


So based on our experience, I would recommend the following if you are truly interested in owning a home and your jobs are staying where they are:

1. Find out where the rental markets are in Fairfax and buy a townhome there at below your budget. Think of it in terms of what YOU would want to rent - usually access to public transportation, not huge, updated or at least easy to update yourselves. Stay put for a few years and make it work. if you have a second kid, you will have no time to think about anything else anyway, so just focus on that. Save everything you can.

2. After you come out of that phase and the second kid is about a year or so old and your first kid is starting K soon, re-evaluate your budget and your job situations and stretch just a bit to buy your next-10-years home. You don't need fancy or big - you need liveable, has a good elementary school, and something that aligns with your priorities. Try your absolute best to keep your rental property.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

We're speaking about the last 8 years while OP has been renting. 2008 would be the bottom of the market for that 8 year stretch.

Note what you say: "Incomes didn't triple." Exactly. Except if you believe everyone on this board, prices are just going to keep going up and up and up.

They won't.

Again: Op, wait this out.

Horrible advice. I'm not a DC real estate hyper but over the long term, DC will continue to gentrify. Why would this trend stop now? It's like rolling boulder gaining more steam. DC prices suck, but it's kinda like double Dutch: at some point you gotta just jump in or accept it is not going to happen for you. And move back to your preferred place where homes are reasonably priced. No doubt there will be a little bubble bursting elsewhere when cheap money is less cheap but not in DC. You think it's going to become less safe and schools will become less good?

Ah, now that is a red flag. The whole 'this time is different' and. 'Prices may drop somewhere else but not here'. Everyone everywhere said that during the bubble.

And to answer your question , yes DC and it's metro could get a lot less safe and the schools worse. Look at Meng on capital hill and the cuts to fairfax school budget. If that continues, this area is not a place people will put down roots.

fairfax schools will never go down, they will cut the less affluent parts first.

Anonymous wrote:OP here again. 17:24 just crushed me! As I was reading it though it DID clarify something for me - it is about choices. Just not in the way they presented it.

First off, our rent is really low for the area... less than I'd like to share here so thats been a big factor in staying put. And we like the area - its an easy bike commute to work for me. But its not like we live here just to be close to restaurants and bars (that we rarely frequent anymore).

The trouble is that we have one foot in the DC world and one foot in the FFX world (DW's job). A move to FFX to rent in the meantime would be trading one bad commute for another without much upside on the savings front.

Getting back to my point - for us the choice is looking like spending a greater portion on housing and deferring savings for retirement and college until the kids are in school.

So yes I see how we could afford more than $375k, but I'd be lying if I said going up to $500k+ wouldnt make me crazy anxious.

Op, that post was the best advice you could get. Take it. Go find an area near your wife's job and buy. This is about taking a risk (a calculated one) vs taking the easier, more comfortable route. You sound wedded to the idea of YOUR short commute (what about your wife?) and your location. That's fine, but if you stick with that, you'll be renting forever. Ps, it doesn't matter how cheap your rent is: paying rent is throwing money away.

OP, I think you might just not be a buyer. You have the mentality of a renter. You don't seem to understand the basic financial realities of home ownership (tax deductions, investing in home vs. saving for college, etc.).

Perhaps you should simply continue to rent.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

We're speaking about the last 8 years while OP has been renting. 2008 would be the bottom of the market for that 8 year stretch.

Note what you say: "Incomes didn't triple." Exactly. Except if you believe everyone on this board, prices are just going to keep going up and up and up.

They won't.

Again: Op, wait this out.

Horrible advice. I'm not a DC real estate hyper but over the long term, DC will continue to gentrify. Why would this trend stop now? It's like rolling boulder gaining more steam. DC prices suck, but it's kinda like double Dutch: at some point you gotta just jump in or accept it is not going to happen for you. And move back to your preferred place where homes are reasonably priced. No doubt there will be a little bubble bursting elsewhere when cheap money is less cheap but not in DC. You think it's going to become less safe and schools will become less good?

Ah, now that is a red flag. The whole 'this time is different' and. 'Prices may drop somewhere else but not here'. Everyone everywhere said that during the bubble.

And to answer your question , yes DC and it's metro could get a lot less safe and the schools worse. Look at Meng on capital hill and the cuts to fairfax school budget. If that continues, this area is not a place people will put down roots.

Anonymous wrote:For one thing, 17:24, one works in Faifax and the other downtown. Not sure why your first squawky paragraph was necessary.

And for you to have bought a fixer-upper in Palisades over 10 years ago when it was considered way out there - and to have made a $1M profit? Yeah, you were in the right place in the right time, benefiting from external factors you had no control over.

Just stop. Please. You have no useful insight to bring to this thread.

+1

Another person who won the lottery who thinks their Donald Trump.

And you had good points regarding FFX vs DC but remember DC has rent control so it could actually have been wiser to stay in their cheap downtown rental. FFX is not Pg, so not necessarily mad savings, and wife enjoyed reverse commute.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

We're speaking about the last 8 years while OP has been renting. 2008 would be the bottom of the market for that 8 year stretch.

Note what you say: "Incomes didn't triple." Exactly. Except if you believe everyone on this board, prices are just going to keep going up and up and up.

They won't.

Again: Op, wait this out.

Horrible advice. I'm not a DC real estate hyper but over the long term, DC will continue to gentrify. Why would this trend stop now? It's like rolling boulder gaining more steam. DC prices suck, but it's kinda like double Dutch: at some point you gotta just jump in or accept it is not going to happen for you. And move back to your preferred place where homes are reasonably priced. No doubt there will be a little bubble bursting elsewhere when cheap money is less cheap but not in DC. You think it's going to become less safe and schools will become less good?

The thing is 17:24 could have done all those same things, sacrifices, etc. and lost $100K instead of making money. To me, owning a home is not so important that I am willing to give up life experiences, time with family, a community that I enjoy, etc., especially because home ownership has risks as well.

OP here again. 17:24 just crushed me! As I was reading it though it DID clarify something for me - it is about choices. Just not in the way they presented it.

First off, our rent is really low for the area... less than I'd like to share here so thats been a big factor in staying put. And we like the area - its an easy bike commute to work for me. But its not like we live here just to be close to restaurants and bars (that we rarely frequent anymore).

The trouble is that we have one foot in the DC world and one foot in the FFX world (DW's job). A move to FFX to rent in the meantime would be trading one bad commute for another without much upside on the savings front.

Getting back to my point - for us the choice is looking like spending a greater portion on housing and deferring savings for retirement and college until the kids are in school.

So yes I see how we could afford more than $375k, but I'd be lying if I said going up to $500k+ wouldnt make me crazy anxious.

OP here. To the pp who brought up the tax deduction angle: we are sort of clueless on that benefit. How much 'savings' are we talking about, back of envelope?

My income tripled

Anonymous wrote:

Anonymous wrote:I'm confused why you would rent for 8 years when we had a nice market bottom in 2008/2009. Why not buy then?

Now you're trying to buy something at the top of the market again. I'd wait.

Market bottom? Prices inside the beltway basically tripled over the 2000s, and in 2008/2009 they dropped like at most 10%...

Incomes didn't triple, so that 10% really didn't provide any help in affordability (and banks weren't lending, so good luck as first time home buyer).

Geez, OP, you should have expected the Fed would pump up housing and assets with QE, everyone knew that...

We're speaking about the last 8 years while OP has been renting. 2008 would be the bottom of the market for that 8 year stretch.

Note what you say: "Incomes didn't triple." Exactly. Except if you believe everyone on this board, prices are just going to keep going up and up and up.

They won't.

Again: Op, wait this out.