Finance scenario question

[Tweak155]

I am not trying to pick a fight, I just have a couple of questions.

How old are you and your wife?

Do you and your wife have children? If not, do you plan on having children?

Why would you want to buy a home at the upper limit? Why not buy at the lower limit and have a buffer zone?

I'm 28 and she is 24. We will most likely have children thus want to move to the nicer area.

200k would be a walk in the park type loan, 300k is the upper limit for one of us to keep paying the mortgage if the other loses a job (while the 300k isn't much higher payment wise, it will take a lot longer to pay off).

Ultimately we expect to have it paid off within 10 years, even with kids. Five years or so without kids.

 

[Gunslinger08]

Using a 4% rate (which may be off, depending on their credit), calculating the property tax rate for Fairfax County, VA, and adding a typical amount of insurance, that works out to about $1650/month. That's perfectly doable on their current salaries, but you have other things to consider:
- How stable are their jobs and how re-employable are they? If one of them loses their job and it's in a niche market, it could get ugly.
- Do they plan to have children soon? If so, they need to consider whether one of them will be taking a break from work to stay at home, what new expenses children bring, and whether they will want to live in the current area/home with children.
- Do they plan to stay in the home for 5+ years? It doesn't seem like home prices are going to recover anytime soon, so in the short term, they probably won't have any gains in value and may actually lose some. If they're going to sell in the next few years they won't have much equity, which could require them to pay for the buyer's closing costs/agent fees/etc. out of pocket instead of from the proceeds.

 

[TXHokie]

They work in retail/service but have been steadily employed past 4 yrs riding thru the downturn so I would think they're ok. Yeah, I know, no debt except for car payment - LOL. I was more thinking of debt these days as in massive indefinite school loans or massive multiple credit card balance. He's balling in his Honda Civic so not some back breaking debt with two more yrs of payment. They have two kids but they're "grown" - one already in first year college/full ride/commuting and the other 10 yrs old, crazy smart so prob get a full ride some where too I'm sure. He called and asked me what I thought but I couldn't really tell him, the COL in that area is so much higher than where I live in Texas. That house for $320k there is prob only about worth $160k here where I am. When I visit there, everything just seem so much more expensive (gas/food). Plus I don't pay any state income tax where I live but VA does. I left that area 15yrs ago for all those reasons.

 

[Gunslinger08]

They work in retail/service but have been steadily employed past 4 yrs riding thru the downturn so I would think they're ok. Yeah, I know, no debt except for car payment - LOL. I was more thinking of debt these days as in massive indefinite school loans or massive multiple credit card balance. He's balling in his Honda Civic so not some back breaking debt with two more yrs of payment. They have two kids but they're "grown" - one already in first year college/full ride/commuting and the other 10 yrs old, crazy smart so prob get a full ride some where too I'm sure. He called and asked me what I thought but I couldn't really tell him, the COL in that area is so much higher than where I live in Texas. That house for $320k there is prob only about worth $160k here where I am. When I visit there, everything just seem so much more expensive (gas/food). Plus I don't pay any state income tax where I live but VA does. I left that area 15yrs ago for all those reasons.

Sounds like they should be okay then. If they live in the DC suburbs now, they're likely already paying rent that's near or above that mortgage payment.

 

[Texashiker]

Ultimately we expect to have it paid off within 10 years, even with kids. Five years or so without kids.

Why dont you just save your money and pay cash for a home?

 

[the DRIZZLE]

They work in retail/service but have been steadily employed past 4 yrs riding thru the downturn so I would think they're ok. Yeah, I know, no debt except for car payment - LOL. I was more thinking of debt these days as in massive indefinite school loans or massive multiple credit card balance. He's balling in his Honda Civic so not some back breaking debt with two more yrs of payment. They have two kids but they're "grown" - one already in first year college/full ride/commuting and the other 10 yrs old, crazy smart so prob get a full ride some where too I'm sure. He called and asked me what I thought but I couldn't really tell him, the COL in that area is so much higher than where I live in Texas. That house for $320k there is prob only about worth $160k here where I am. When I visit there, everything just seem so much more expensive (gas/food). Plus I don't pay any state income tax where I live but VA does. I left that area 15yrs ago for all those reasons.

One thing that no one has addressed yet is how much will they have left in liquid assets after the down payment? A nice cash pile can offset the risk of one of them loosing their jobs. The other issue is that if their kids are grown they must be at least in their mid 40's. How does this fit in with their retirement plan?

 

[rcpratt]

I'm buying a $400k home on my $45k salary. Anybody can do it!

 

[Tweak155]

Why dont you just save your money and pay cash for a home?

Thank you for questioning me about everything...

That was the original idea. But we're not finding anything we're "OK" with in the area we live in now without going into the $100's range, but that can get you houses in nicer areas. But if we spend $100k we would rather get something we don't have to "trade up" later.

The biggest thing is that now is the best time to take a loan due to interest rates being low. If we take a 15yr loan even on $175k its only about $1100 for the mortgage payment and you pay $38k in interest assuming you just keep sending the minimum check.

Over 15 yrs that is only about $2500/yr to get the house you want NOW and live there for the next 15 yrs. To me, that is a reasonable exchange. Also it is extremely likely we'll have it paid off well before then, paying more in the range of $20-$30k in interest.

That amount of money could simply be the decision between a car and a luxury car. Only in this situation, for us, it is a home or a luxury home. While I wouldn't shell that out on a luxury vehicle, a house is worth it to me.

On top of all that, the cheap house we're looking at now will likely decrease in value, whereas the new area will very likely increase, thus I'd make some of that interest back.

 

[Texashiker]

Thank you for questioning me about everything...

You are welcome.

I am 44 years old, have bought 3 homes over my past 2 marriages, and if there is one thing I have learned in life, things do not work out as planned. I lost one home, got divorced and sold the second home, and now live in my third home.

One minute everything is going great, then BAM, everything goes to hell.

Whether its a car wreck, cancer, drugs,,,, things happen in everyday life that we can not account for ahead of time.

A buddy of mine was feeling bad, went to the hospital emergency room, had a heart attack and died. He was only 39 years old.

Another buddy of mine was feeling bad, went to the doctor, test showed he had advanced pancreatic cancer. He died 2 weeks later. He was only around 55 years old.

You never know what life has in store for you.

I do not consider buying at the upper limit of your income range a sound financial investment.

Everyone likes to have a nice home, but we need to leave some buffer room for when life throws us a curve ball.

 

[Tweak155]

You are welcome.

I am 44 years old, have bought 3 homes over my past 2 marriages, and if there is one thing I have learned in life, things do not work out as planned. I lost one home, got divorced and sold the second home, and now live in my third home.

One minute everything is going great, then BAM, everything goes to hell.

Whether its a car wreck, cancer, drugs,,,, things happen in everyday life that we can not account for ahead of time.

A buddy of mine was feeling bad, went to the hospital emergency room, had a heart attack and died. He was only 39 years old.

Another buddy of mine was feeling bad, went to the doctor, test showed he had advanced pancreatic cancer. He died 2 weeks later. He was only around 55 years old.

You never know what life has in store for you.

I do not consider buying at the upper limit of your income range a sound financial investment.

Everyone likes to have a nice home, but we need to leave some buffer room for when life throws us a curve ball.

And what is my income range? I never stated it. I only stated the range of houses we were looking at. If one of us could support a $300k loan, my opinion on that may differ from someone else's of "support it". I don't mean "squeak by".

For reference, our income was over $200k last year. But paying off a $200k loan too rapidly leaves risk in itself.

While I appreciate input - input is much different than questioning my decisions. If I want advice I would have started a thread, just as the OP did or flat out ask for it. Heck, even giving advice is much better than questioning me on everything. Sure, I'll take in your previous experiences into consideration, but quit questioning my ability or my personal decisions on how I can delegate my income.

 

[Texashiker]

but quit questioning my ability or my personal decisions on how I can delegate my income.

Sounds like you are a little butt hurt.

If you make so much money, save your pennies and pay cash for your home.

 

[Tweak155]

Sounds like you are a little butt hurt.

If you make so much money, save your pennies and pay cash for your home.

How am I butt hurt? How have you even insulted me... ? I'm not sure.

I am expressing the fact that your method to delegate "advice" is no good. Your advice itself however, is sound.

And yes, I could very well save the cash and buy outright (this in fact was the original plan), but I am exploring other options. This seems to be the best currently.

*EDIT*

"This" referring to just taking a loan.

 

[dabuddha]

My brother and his fiancé/wife are planning to buy a 320k house with household income of 95k. They have no debt and one car payment. Will be putting 20% down. Where they live is just expensive in the VA/DC area. Would you think they will struggle financially? I'm thinking that's barely getting by with any left for saving. They're pretty good with money so I'm just hoping the best for them.

It's going to be tight. Cost of living in this shithole of a place is expensive too.

 

[TXHokie]

One thing that no one has addressed yet is how much will they have left in liquid assets after the down payment? A nice cash pile can offset the risk of one of them loosing their jobs. The other issue is that if their kids are grown they must be at least in their mid 40's. How does this fit in with their retirement plan?

If it was me I wouldn't do it. Based on what I'm reading here I think they're at borderline. While it's not really over extending and will be ok in the near term, there's not a whole lot left for savings/retirement and cushions. The down payment really will wipe most of their cash pile with maybe six months expense left. And given that area, it's an older house that probably will require more maintenance.

 

[HardcoreRobot]

sounds ok to me, but there are a lot of other factors to consider

 

[Svnla]

OP, ask your relatives to run some numbers with these:

http://cgi.money.cnn.com/tools/mortgagecalc/

http://www.washingtonpost.com/real-estate/tools-calculators/mortgage-calculator.html


Don't forget other expenses besides property tax and insurance such as maint., higher utilities, repair, improvement, misc.

Also, make sure they are planning to stay for a while. Don't do it if they want to move within a few years.

 

[jagec]

Sounds like you are a little butt hurt.

If you make so much money, save your pennies and pay cash for your home.

Because paying throwaway rent for a year or two to save money, at a time when mortages are below 4%, is an idiotic waste of money?

 

[Hugo Drax]

My brother and his fiancé/wife are planning to buy a 320k house with household income of 95k. They have no debt and one car payment. Will be putting 20% down. Where they live is just expensive in the VA/DC area. Would you think they will struggle financially? I'm thinking that's barely getting by with any left for saving. They're pretty good with money so I'm just hoping the best for them.

They should have 1 year of Mortgage payments saved as a buffer and about 12-15K in addition to cover unexpected repairs/etc..

If after buying they home they cannot have the above, they are rushing and should wait till they have a proper cash buffer.

 

[Hugo Drax]

Because paying throwaway rent for a year or two to save money, at a time when mortages are below 4%, is an idiotic waste of money?

It is not that simple. If you think it is I highly recommend you take a course in Macroeconomics and a personal finance class at your local community college. Don't be ignorant.

 

[jagec]

It is not that simple. If you think it is I highly recommend you take a course in Macroeconomics and a personal finance class at your local community college. Don't be ignorant.

Stop being a condescending tool. Someone who makes over $200k a year and is looking at a house in the $200k-300k range is much better served by buying the house now, with a low-interest loan, and paying it off early while maintaining a cushion, vs. renting for a couple of years and paying cash.

 

[Texashiker]

Stop being a condescending tool. Someone who makes over $200k a year and is looking at a house in the $200k-300k range is much better served by buying the house now

Its not how much you make, its how much you spend.

I have seen people living in $500k houses that were unable to pay their $30 internet bill. I used to work for a cable modem provider in a community in Houston called Kingwood.

 

[Destiny]

Even if after paying off the house or buying it with cash... you still don't own the house/property... because if you "OWN" it no one can legally take it away from you... but stop paying property taxes and the Gov't will boot you out into the streets...

 

[jagec]

Its not how much you make, its how much you spend.

I have seen people living in $500k houses that were unable to pay their $30 internet bill. I used to work for a cable modem provider in a community in Houston called Kingwood.

Oh, I know what you mean, and I certainly approve of living within your means and not buying more house than you can afford. Right now my household income isn't far below the value of my (small) house.

But if you have enough income to buy a certain amount of house, with plenty of cushion in case of job loss/repairs/etc, it usually makes more sense to buy the house once you have enough in the bank for a down payment+a year of payments, vs. waiting until you can buy the house outright.

I agree that the idea of "throwing your money away" is overused to justify leveraging to the hilt on overpriced houses, but we're talking about someone who is going to buy a house of a certain value one way or the other, it's just a question of when.

because if you "OWN" it no one can legally take it away from you...

That hasn't been true, well, EVER.

 

[JEDI]

My brother and his fiancé/wife are planning to buy a 320k house with household income of 95k. They have no debt and one car payment. Will be putting 20% down. Where they live is just expensive in the VA/DC area. Would you think they will struggle financially? I'm thinking that's barely getting by with any left for saving. They're pretty good with money so I'm just hoping the best for them.

banks usually give mortgage at 3x income.

320k - 20% = 256k mortgage.
95k *3 = 285k banks will loan out.

they're absolutely fine.

 

[mnewsham]

I would try and find something closer to $275k, I would be more comfortable with that personally.