Need advice if we are buying too much of a house

[wrangler05]

37M, 38F. Married, 1 kid
Combined take home: $14000 per month
401k: $150k
Roth IRA: $24k
Emergency fund: $50k
529 = $15k
House Down Payment: $170k

Expenses approx $3k per month (including Groceries, food, gas, shopping, dining, phones, Internet etc.,)
Rent + Utilities = $2k
Health Ins = $500
529 = $400
Car + Insurance = $500 (Plz don't punch me, this is my only hobby. I find lease deals and sell them back for profit. I netted $1k last year when I sold my lease after payments + insurance and I am looking at $5k profit this year after selling this lease in Feb. Will probably do this until used car market is crazy hot)
Roth = $500
Savings rate = 50%

We are looking at a new construction home priced at $600k. The estimated expenses would be:
PITI: $3500 (30 year fixed at 3% and Property taxes are high at 2.8%)
water + Sewer + electricity + Insurance = $500 (estimating a bit high)

We will be going from $2k to $4k for housing + utilities and our saving rate would go down obviously (From 50% to 35%). I am uncomfortable with a $600k house but We are in a hot metro where prices are going up every month. I am in a dilemma on what to do, rents are going up as well every month and rents are on par with mortgage payment for a similar home.

[Paper Chaser]

It seems like you've got enough monthly income to handle the mortgage, so for me it just comes down to how long you want to live there, and whether you're willing to delay retirement to pay for the house (your current savings seem low given your age and income).

It's also worth pointing out that while the "PI" in PITI will be on a predictable schedule, the "TI" will tend to increase over time so your $3500 mortgage will likely be $4000 at some point.

Make sure you're also budgeting for things needed to support the house like lawn care tools/supplies, furniture and home furnishings, etc. Many of these might be 1 time purchases instead of recurring ones, but that money has to come from somewhere.

[Dicey]

2.8% is brutal. Illinois? New Jersey? Ouch. That's never going to be comfortable. You have left out a lot of key details. How big is this house? Do you plan to have more kids? WFH? Is it centrally located? Is it built by a reputable builder? Are you sure you can get that interest rate? Could you stay the course if the property were to drop in value for a period of time? How does the price compare to existing housing in your area?

I am pro-RE and super pro-mortgage, especially in inflationary times. Depending on the answers to the above, I'd probably do it. Do not put more than 20% down.

~ $18k/year in taxes is fucking awful. And they will never be lower than they are now. Oof. That's enough to make this die-hard owner consider renting, since rents seem to be so much lower, though you might be comparing an apple to an orange.

[cool7hand]

Noting the other pieces of missing information identified above, you have the money to buy the house. I think questions like this identify where FIRE science blurs into art--meaning it's your decision how to make FIRE-guiding-principles work for you. Get a smaller house if you want to FIRE faster. Get this house if you don't.

[wrangler05]

2.8% is brutal. Illinois? New Jersey? Ouch. That's never going to be comfortable. You have left out a lot of key details. How big is this house? Do you plan to have more kids? WFH? Is it centrally located? Is it built by a reputable builder? Are you sure you can get that interest rate? Could you stay the course if the property were to drop in value for a period of time? How does the price compare to existing housing in your area?

I am pro-RE and super pro-mortgage, especially in inflationary times. Depending on the answers to the above, I'd probably do it. Do not put more than 20% down.

~ $18k/year in taxes is fucking awful. And they will never be lower than they are now. Oof. That's enough to make this die-hard owner consider renting, since rents seem to be so much lower, though you might be comparing an apple to an orange.

Austin, Texas
3k sq ft
No more kids. 1 and done.
We both work remote. Wife might have to go couple times a week and commute is 40 min one way.
Home is 30 min - 1 hr away from downtown depending on traffic.
We r buying to stay for 5 yrs atleast.
We locked in the price 6 months ago, Prices have jumped a bit lately

We would be paying almost close to what we would pay for mortgage if we rent a similar home.

[wrangler05]

Noting the other pieces of missing information identified above, you have the money to buy the house. I think questions like this identify where FIRE science blurs into art--meaning it's your decision how to make FIRE-guiding-principles work for you. Get a smaller house if you want to FIRE faster. Get this house if you don't.

You caught me. That's exactly what my dilemma is - to FIRE early or buy this home.

[Dicey]

2.8% is brutal. Illinois? New Jersey? Ouch. That's never going to be comfortable. You have left out a lot of key details. How big is this house? Do you plan to have more kids? WFH? Is it centrally located? Is it built by a reputable builder? Are you sure you can get that interest rate? Could you stay the course if the property were to drop in value for a period of time? How does the price compare to existing housing in your area?

I am pro-RE and super pro-mortgage, especially in inflationary times. Depending on the answers to the above, I'd probably do it. Do not put more than 20% down.

~ $18k/year in taxes is fucking awful. And they will never be lower than they are now. Oof. That's enough to make this die-hard owner consider renting, since rents seem to be so much lower, though you might be comparing an apple to an orange.

Austin, Texas
3k sq ft
No more kids. 1 and done.
We both work remote. Wife might have to go couple times a week and commute is 40 min one way.
Home is 30 min - 1 hr away from downtown depending on traffic.
We r buying to stay for 5 yrs atleast.
We locked in the price 6 months ago, Prices have jumped a bit lately

We would be paying almost close to what we would pay for mortgage if we rent a similar home.

I vote YES. 3k sf in Texas is not considered a huge house, 'cuz everything's bigger in Texas, right? BTW, Texas was my third guess. I knew it was bad, but I didn't realize how bad.  My $1M+ house in CA "only" costs $13k per year in property taxes.

[wrangler05]

2.8% is brutal. Illinois? New Jersey? Ouch. That's never going to be comfortable. You have left out a lot of key details. How big is this house? Do you plan to have more kids? WFH? Is it centrally located? Is it built by a reputable builder? Are you sure you can get that interest rate? Could you stay the course if the property were to drop in value for a period of time? How does the price compare to existing housing in your area?

I am pro-RE and super pro-mortgage, especially in inflationary times. Depending on the answers to the above, I'd probably do it. Do not put more than 20% down.

~ $18k/year in taxes is fucking awful. And they will never be lower than they are now. Oof. That's enough to make this die-hard owner consider renting, since rents seem to be so much lower, though you might be comparing an apple to an orange.

Austin, Texas
3k sq ft
No more kids. 1 and done.
We both work remote. Wife might have to go couple times a week and commute is 40 min one way.
Home is 30 min - 1 hr away from downtown depending on traffic.
We r buying to stay for 5 yrs atleast.
We locked in the price 6 months ago, Prices have jumped a bit lately

We would be paying almost close to what we would pay for mortgage if we rent a similar home.

I vote YES. 3k sf in Texas is not considered a huge house, 'cuz everything's bigger in Texas, right? BTW, Texas was my third guess. I knew it was bad, but I didn't realize how bad.  My $1M+ house in CA "only" costs $13k per year in property taxes.

It's probably flush when you add state tax in CA vs no state tax in TX

[uniwelder]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

[charis]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

Yes, that sounds crazy to me, sorry.

[reeshau]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

+1.  Like everything with a house, the costs go on and on.  Have to furnish that extra space, too.

We have 3, and 2,450 sq ft means luxuries like a game room, home office, and guest bedroom.  What other rooms are you adding?

Also, for TX orientation, our Zillow'd $440k house has had property taxes jump to $5,500 / yr this year.  Your number was shocking to me.

To be fair, losing the basement from Up North was brutal.  We are still learning how to store seasonal decorations and other things not often used.  And we have much we don't trust to the detached garage in the humid summer heat.

[WSUCoug1994]

FWIW - personal finance is personal - we upgraded our house 6 years ago when we moved closer to family (we didn't need to upgrade to a larger house we chose to upgrade) and even through we love where we live and we love our house - I 150% regret the amount of money we spent on the house, taxes, maintenance and generally heating/cooling/utilities.  Massive regret - not enough to change the situation because the cost of changing is so high but it was a terrible financial decision. 

[yachi]

FWIW - personal finance is personal - we upgraded our house 6 years ago when we moved closer to family (we didn't need to upgrade to a larger house we chose to upgrade) and even through we love where we live and we love our house - I 150% regret the amount of money we spent on the house, taxes, maintenance and generally heating/cooling/utilities.  Massive regret - not enough to change the situation because the cost of changing is so high but it was a terrible financial decision.

This is good to know.  One of my recurring thoughts is it would be nice to move closer to family (currently 1 hour drive), and buy a larger house so we can entertain them instead of using a fire hall.  If I'm honest it's also so we can project the success we've had.

[Morning Glory]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

+1000
I am still very happy with my decision to downsize.  I loved a lot of things about my big house and property but I got tired of spending every weekend and most vacations maintaining it. And those utility bills! When I buy again I want something 1500 sqft or less with a small garden.

[newco]

37M, 38F. Married, 1 kid
Combined take home: $14000 per month

Expenses approx $3k per month (including Groceries, food, gas, shopping, dining, phones, Internet etc.,)

The math here really doesn't make sense.  $14,000 in take home pay a month and you only have $150K in the 401k at your age?  If you have a spending problem, you should probably buy as little house as possible and increase your retirement savings. 

If you don't have a spending problem, where is the extra $11,000 a month going? 

[clarkfan1979]

37M, 38F. Married, 1 kid
Combined take home: $14000 per month

Expenses approx $3k per month (including Groceries, food, gas, shopping, dining, phones, Internet etc.,)

The math here really doesn't make sense.  $14,000 in take home pay a month and you only have $150K in the 401k at your age?  If you have a spending problem, you should probably buy as little house as possible and increase your retirement savings. 

If you don't have a spending problem, where is the extra $11,000 a month going?

The post says that his savings rate is currently 50%. If he gets this house his savings will go down from 7K/month to 5K/month, which is around 35% overall.

Property taxes at 2.8% with no state income tax is a good trade-off for someone who is a high income earner. From my limited knowledge, Texas pays teachers well and has good schools. Florida property taxes are around 1% with no state income tax, but the public school situation always seems to be tricky.

Illinois is the worst for property taxes and taxes in general. One of my friends bought a fixer for 415K in October 2020 and his property taxes are 20K/year. School district is good, but not great. Illinois also has income tax, so you don't really get a break on any taxes.   

[Dicey]

There's a niche of people who buy brand-new houses and live in them until the development is built out. Then they sell them for a nice profit. Some of them are even Mustachians....

[wrangler05]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

yep, I think the same too. We used to live in a 1500 sq ft townhome and still have plenty of space left. All these responses about utilities are making me think twice about this home. Thank you and keep'em coming!

[wrangler05]

37M, 38F. Married, 1 kid
Combined take home: $14000 per month

Expenses approx $3k per month (including Groceries, food, gas, shopping, dining, phones, Internet etc.,)

The math here really doesn't make sense.  $14,000 in take home pay a month and you only have $150K in the 401k at your age?  If you have a spending problem, you should probably buy as little house as possible and increase your retirement savings. 

If you don't have a spending problem, where is the extra $11,000 a month going?

sorry for the misunderstanding. total expenses = $7k (rent, groceries etc.,) please see breakdown in original post. We save $7k currently per month. This is not the case until last year. Had to clear of huge debt (health related) and now we are on track. Hoping to not lose this traction by buying a lot more house than we need.

[wrangler05]

There's a niche of people who buy brand-new houses and live in them until the development is built out. Then they sell them for a nice profit. Some of them are even Mustachians....

This is the only reason We might end up buying this house, We could probably flip it right after we close and get a modest check back after realtor commission and capital gains. but it's a gamble with raising interest rates. Austin probably didn;t get the memo about raising interest rates because ppl are house crazy here.

[Morning Glory]

In the literal sense of “are we buying too much house”, my answer is yes. 3,000 sq ft for three people is extravagantly wasteful, which is a focus of the MMM site. More materials consumed, more to heat/cool, more to clean and maintain.

yep, I think the same too. We used to live in a 1500 sq ft townhome and still have plenty of space left. All these responses about utilities are making me think twice about this home. Thank you and keep'em coming!

Lol my electric averaged $200/ month at the big house (more if we had a wet year and the sump pumps were running [yes, pumps, plural]).This was without ac because we didn't need it,, although we did use fans in summer When we downsized to an apartment it was like $50 bucks.

Propane heat was $200- $300/month during winter most years, and we kept the thermostat at 62.

Oh yes there was one year the line from the septic tank to the drain field froze and we had to get it pumped every month for like $250 a pop until the ground melted.

Another year we lost our ag exemption and our property taxes went from $2000 to $3000 and we could have gotten out of it by putting 10 acres into production with some feeder calves but I'd just had a baby and didn't want one more thing to take care of (those rates are per year but we also had 7% state income tax). If you are taxed primarily by house size instead of income there is even more benefit to living smaller.

Political-ish side note: I thought conservatives wanted to encourage large families but taxing people based on house size instead of income seems to discourage them. I don't get it.

[elaine amj]

Many years ago, after I went back to work and we were flush with dual income money, we looked at upgrading the size of our house. I didn’t end up finding anything I loved in my price range so didn’t move. 10 years after that, I was grateful I didn’t as it would have delayed FIRE by a couple of years. A bigger house would have been nice, but not 2 years of work nice.

I do sometimes faintly regret it as we are still looking to change up our house now (I’ve never liked my current house much) and the one I was tempted by all those years ago would still be a great layout now. And prices have skyrocketed so that size is vastly more expensive now. It would have been a huge return on investment.

So financially speaking, I would be far ahead of I had bought that house then. Practically speaking, I would have had to work a couple of extra years and frankly, I’d choose FIRE 2 years early vs a bigger net worth now.

A 3000 sq ft new build would be gorgeous. Just remember, there are a lot of things you can afford with your income. Is it worth it? Maybe do some math as to how many extra years of work this house would cost you.

Alternatively, a flip could be worth the investment. Al though you’d have to consider the risk. And do some serious math to see if it would be worth it.


Sent from my iPhone using Tapatalk

[iluvzbeach]

We used to live in Austin but moved away a few years back. A decision we do not regret.

Don’t forget that your homeowners insurance will be quite costly on the place. Plus, although I think the property tax rate you indicate seems a bit higher than it should - even for ATX, don’t forget that you will have to pay those high property taxes even in retirement (as long as you continue to live there.) We now live in a state where there is income tax but our property taxes are minimal in comparison to what we paid in Austin. When we FIRE the income tax will go down significantly and our property tax will remain low, resulting in far less tax liability and annual expense requirements than if we’d stayed in Austin.

I know your question isn’t about whether you should stay in Austin or not, but I would encourage you to look for a smaller house with less property tax outlay. Your budget, saving rate and reduced need for outsourced work will all benefit greatly down the line.