Hello all, I’m a longtime MMM reader (discovered MMM near the end of college, four years ago), but have mostly lurked on the forums rather than posting. I think this is the right sub-forum, but please let me know if it isn't. My spouse and I went to law school, which means we’re only now about to graduate and join the working world. I wanted to see if people had any advice for our situation given our housing plans.
My spouse and I have both accepted jobs at major firms in the DC market for after graduation. We currently live outside the DC area, although we spent ten weeks in our preferred neighborhood last summer when we were working at our firms as summer associates. We’re planning to purchase a condo, rather than rent, when we move, which is the primary decision I was hoping people could provide advice regarding.
Financial Summary:
Future joint annual income (starting in September): $360,000, with lockstep bonuses and raises following the biglaw pay scale
Debt: approx. $250,000 in student loans; no other debt
Roth IRAs: $23k total (fully funded last year and this year – not intending to pull from for any transactions, but including for completeness)
Down payment: conservatively, $50,000 to $60,000 in cash available for a down payment, after budgeting for all other expenses between now and September
Whether to Rent or Buy:
Living within walking distance to both of our firms is non-negotiable for us. We did that this summer, both strongly preferred that option, and it’s comfortably within our budget. Obviously that limits our potential real estate options substantially. I have built a fairly comprehensive spreadsheet to model the rent vs buy calculus in our particular situation, and we break even after 3-5 years, depending on whether we buy on the low or high end of our price range.
We are both strongly career-oriented. We aren’t having kids, so buying a home with “room to grow” isn’t a concern. Biglaw is a more volatile career trajectory than I’d like (up-or-out model), but our best projection is that at least one of us will stay at a firm at least long enough to break-even on buying. Staying in DC is also quite likely if/when we depart from our firms, so buying seems like a sound option for us, although I’m interested to know if that seems right to others in similar situations.
What to Buy:
We have a fairly large potential price range. The upper end of our price range is around $800,000. That would represent increased consumption, but there are some properties we have seen on the market where the increased utility would be worth the additional expenditure. Otherwise, we’re primarily looking in the $550,000 to $680,000 range. Accounting for HOA fees, our PITI would give us a debt to income ratio of 15% to 18% ($680k and $800k mortgages, respectively), which seems very comfortable. Obviously what we actually end up buying will depend on the market several months from now.
When to Buy:
Our preference is to complete our home purchase and fully move in before starting work in September. I have spoken with several lenders who will extend financing based on non-contingent job offers, so it is possible for us to complete a transaction on our preferred timeline.
The bar exam is at the end of July. We are planning to take a “bar trip” (vacation) after the bar exam.* We can either purchase before the bar (mid-June to mid-July) or at some point in August or early September. Our current plan is to start looking seriously in early-June and buy once something we are happy with is available.
Buying Process:
We have paid attention to the market since last September, so we have a decent feel for what’s available in the neighborhoods we are considering. I’m generally skeptical of buyer’s agents given the principal-agent problems involved, but I have found an agent who rebates 2% of the commission (assuming a standard 3% buyer’s agent commission), which represents substantial savings for us.** I’m intending to comparison shop title insurance, since I’ve read that that is a highly variable charge where shopping around can save significant money. My presumption is that we’ll independently retain an inspector when we get to that stage, rather than one recommended by our agent (again, because of the incentives misalignment), although I’m unsure on how to select a good inspector; any advice on that point would be especially helpful.
Any other thoughts or recommendations? We’re first-time homebuyers. We have family members who have purchased property more recently, and both of our sets of parents are willing to provide advice, but no one else in our familial or social circles is quite as diligent about optimizing all these sorts of financial details. I’m trying to minimize how much we pay in transaction costs without shouldering an excessive amount of risk of missing something critical.
*I expect the natural reaction here is to ask why we are taking a vacation given our $250,000 in student loans (I can hear Dave Ramsey from here!). In August, we will be (relatively) cash-poor but time-rich. By October, we will have ample cash flow but little disposable time. Our plan is to pay down the student loans quickly (we may invest the free cash flow instead if our refinanced interest rate is sufficiently low, although that’s a separate conversation), so we’re likely to end up in a situation where we have comparatively more money than time in the next few years. We’ve made a conscious decision to time-shift some (moderate, intentional) vacation spending from 2022-us to August-2018-us. There are obviously tradeoffs (risk, interest payments, opportunity costs), but we’re willing to pay them for our planned vacation. I don’t expect everyone to approve, but it is a considered decision. In any case, the trip provides a constraint for our home-purchasing process.
**I realize that the buyer's agent is functionally rebating our own money back to us, but I'm not confident in our ability to negotiate an equivalent price decrease if we proceed without a buyer's agent. I'm also (somewhat reluctantly) willing to pay a 1%, rather than 3%, commission for the use of the buyer's agent's services.