Hello Mustachians ...
I've been intending to post my case study here for some time; it's really cathartic to make this jump, so here's my situation:HISTORY (not that important - feel free to skip):
I immigrated to the US 8 years ago. In years 1-4, I earned about $45,000 and my wife earned $20,000. We paid $1,500 rent and saved about $50,000. Four years ago, we had a daughter and two years ago, my son was born. Between taking care of the kids and some visa issues, my wife worked very little in that period. Nonetheless, we feel it was worth it, as my kids had (and still have) the "luxury" of Mom-at-home.
My salary increased to $70,000 in 2014, but rent also went up to $1,750. The three years from 2014-2016 cut our savings to about $30,000. The NOW:
In mid 2016, I got a full time job in the federal government ($102,000) doing Biomedical Research (which I love) and my wife and I received Green Cards (cost $10,000). My work is difficult to do outside of a well-funded laboratory setting, so I intend to remain in this position. My wife has now returned to work part-time (~10 hr per week). As a result, our situation has improved and in the past year, one year our cash stash has rebounded to ~$50,000. We have no debt.
- We both really like the area and our jobs.
- We do not plan to have any more kids.
- We currently rent a condo close to work.
We would like to buy a home and our priorities are as follows:
Close to work for both of us (either by bike (preferred) or public transit (can get a work subsidy that covers total cost))
Good (but not necessarily “great” schools)
“Nice” neighborhood - I know, this is very subjective.
The problem is that a house that ticks all of these boxes will cost somewhere upwards of $400,000 in this area !!!!! On the upside, we are not in any rush, and can sit tight until we see a bargain. I have established that financing is available based on my income alone, and can get a loan for more than we are comfortable spending ($450k, 30 yr. Conventional @ 4.25%; 5% down-payment). I don’t like getting a 30-year loan OR just putting down 5% but that’s what we can do right now and it leaves us with a $15k cash po. Also, I have no intention of spending this much - I was just testing the waters.
Here are what I see as our options: 1. Continue to rent.
We can probably rent our current home at the same price ($1,750) for another 3 or 4 years. I bike to work and schools are great. In that period, we could probably save or invest $1,500 a month. This may put us in a better position to make a bigger down-payment but mortgage interest rates are climbing.2. Buy a house now that ticks all the boxes
We saw a great house for $420,000. It exceeds what we would like in every way (small house (950 sq. ft), walkable to schools, neighborhood kids play on the street, only 5 miles to work along bike trails, friendly neighbors, ~15 min walk to my wife’s workplace, two “towns” within walking distance). We would love to live there but feel that we may be over-reaching. The equity gain for the first few years is just $500-600 per month and the total monthly payment including all bills would be >50% of my net income ($2,700). That seems INSANE … but the half that’s left is certainly enough for us to retain our current living standards and continue putting money in my 401k / TSP. Also, in two years when both kids go to school, my wife will likely double her income.
NOTE: An alternate possibility is to take a 5/5 ARM at a rate of 3.3%. This lowers the monthly payment by $200 for the first 5 years. Upper cap is 5.15%, so in 5 years, our mortgage could potentially increase by a maximum of $400. 3. Buy a house that compromises on our “wants”.
(outside a 30-min commute distance and/or questionable schools).
Houses in such areas that we think we could tolerate will still cost a lot in this area ($325-$400,000). We are not too excited about this option but are considering it. We have identified one area where lots of homes are being bought at these prices … is it evolving into a “good” neighborhood ??? hmm … 4. Sit tight and wait for a “bargain” home.
This is the most tempting option from my perspective because in the meantime, we revert to option 1 (rent and save). This would allow us to save more for a down-payment and hopefully get a deal when we do make the plunge. On the downside, we have been monitoring the market for 4-5 months and there are very few (if any) such bargains that appear.
Anyhow. Any thoughts on our situation would be very gratefully received. My finances are laid bare below. Could I add that it feels great to open up my finances to others and let them take a cold, hard, objective look !! I had contemplated going to a financial adviser but I do not trust paid financial advisers any more than I do car mechanics …
OK ...Topic Title: To buy or not to buy ... that is the question ... Life Situation:
37 y/o married coupleIRS filing status:
married filing jointlynumber & ages of dependents:
2 y/o 4y/oAssets:
2 x Cars: 4,000; 2008 Mazda 5 ($4,000); 2001 Elantra ($0). We own both.Gross Salary/Wages:
Wife: 400-1,200 (per month)
Me: 3,864 (26 pay periods per year)
** Subsequent numbers are for my salary per pay period - Wife's job has few benefits, so not included. Pre-tax deductions:
401K (TSP) 193 (5% : max for employer match)
FSA 21Taxable wages:
3,439Paid by employer: (Just for information ; Not counted in any calculations)
401K matching 193
Health Insurance 505
Retirement Plan 460
___________________________________________________________After tax income (approx monthly):
5,835Cost of housing: (includes rent, bills, taxes, insurance)
|Current monthly rent: ||1,750 |
|$420k house (proposed):||2,700||In four months, we've found one such house|
|$400k house (proposed):||2,550||Hard to find. Perhaps found one in 4 months|
|$350k house (proposed):||2,250||Will require persistence and/or luck. Very rare.|
|Credit cards: ||n/a ||I have cards but always pay off the entire balance|
|Car ||160||Gas, Insurance, Repairs|
|Groceries ||700||We eat good food @ home !!|
|Social activities ||300||probably more than we really spend|
|Pre-school (for 2y/o) ||200||approx. 2,400 for coming year|
|Phones||70 ||2 phones; Google Fi. Includes $10 per month to pay for one of our phones|
|Internet & basic cable ||75||I hate the internet monopoly in this country|
|Travel ||470||immigrant tax !! haha … we travel once a year to see family (4 x $700) and each set of parents visits once a year (4 x $700)|
|Medical (co-pays, etc)||60||a little high|
|MONTHLY EXPENSES LAST YEAR:||2,911||included $6,000 ($500 per month) in costs unique to last year. We also got quite loose with spending because for the first time in years, we had some financial breathing room. We've tightened up again !!|
1. Most importantly, is there a road to Mustachian Nirvana and FI on a combined $110k salary for a family of 4 in a high cost-of-living area. We feel that we live a Mustachian existence but cannot see how to plot a path to financial independence …
2. To buy or not to buy a house. Any thoughts? Buying the $420k house would give us a solid base from which to grow our kids and life, but it seems like it would be a huge chunk of our money that we could be using for something else. On the upside, with that settled, we could work to build new income streams (I guess we could do that either way) ...
Thanks so much in advance for any suggestions.