Author Topic: Need Advice - Non-Mustachian Home Purchase  (Read 1248 times)

FIRE-Man

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Need Advice - Non-Mustachian Home Purchase
« on: May 10, 2020, 10:13:50 PM »
Looking for sanity check on a home purchase we are interested in.

Bottom line, we have roughly 750k in cash and retirement accounts, with another 100k in cash likely coming when I sell my house.

We want to purchase an immaculate home in a desirable neighborhood for 775K. Will finance at 2.75%

We both have very stable jobs, and the house can definitely fit in the budget without affecting monthly investments (401k, roth) etc.

I'm buying in the type of market where homes sell in hours, not days, and I have a chance to snag this one before it even hits the market.

Am I a non-mustachian fancy-pants nut job ? Bottom line, we love the place and it could resell with no issues down the line.

Make me a non-believer.


Dicey

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #1 on: May 10, 2020, 10:20:02 PM »
Hahaha. I live in the Bay Area. Looks like chump change to me, lol.

Seriously, you need to give us some income numbers, plus job stability update, blah x 3.

FIRE-Man

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #2 on: May 10, 2020, 10:23:47 PM »
LOL @ your bay area response. I feel for you!

Income is 11,800 per month after taxes and TSP contributions, or 141,600

Mortgage would be 4100/month. no other debt. no CC's no cars, etc.

we contribute 2200/mo to brokerage, max roth IRA's.

Job stability is maximum. 1 x military, 1 x federal employee.


SwordGuy

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #3 on: May 10, 2020, 11:33:09 PM »
LOL @ your bay area response. I feel for you!

Income is 11,800 per month after taxes and TSP contributions, or 141,600

Mortgage would be 4100/month. no other debt. no CC's no cars, etc.

we contribute 2200/mo to brokerage, max roth IRA's.

Job stability is maximum. 1 x military, 1 x federal employee.

Stability for military isn't so awesome if the military gets downsized due to serious budget constraints.    Then it's Up or Out and many a career gets cut short, often without a pension.   I've seen it happen before and it's bound to happen again.    Are you likely to get redeployed and then have to unload this puppy?  Transaction costs are high with a house this size.   If you do get redeployed, will you lose your military allowance for quarters if you go to a cheaper area?  I've seen military couples really screw themselves over when they can't afford the house in an HCOL area when they get reassigned to the middle of nowhere and they can't sell it because they are underwater.   It's not like there isn't some real uncertainty in the market nowadays...

We made more money than that before we retired and I can't imagine paying that much for a house on what we used to make.   I know that probably seems cheap in some parts of the country, but golly.  That's THREE QUARTERS OF A MILLION DOLLARS on housing!!!   Does it come with nubile dancing girls that do your every bidding and a built-in hypnosis center so your wife is ok with that?     

Is that $4100/month for a 30 year or a 15 year?   Fixed rate?   

Why not buy a less than immaculate house and fix it up over a period of 5 or so years?   Or one in a decent area instead of the premier, fashionable area?  You can often save a bundle by doing that, especially if you put in a lot of sweat equity on the renovations.


Dicey

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #4 on: May 10, 2020, 11:47:35 PM »
Does it come with nubile dancing girls that do your every bidding and a built-in hypnosis center so your wife is ok with that?     
Well shit, our house cost more than that and we didn't get none o' that. We wuz robbed!

lhamo

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #5 on: May 11, 2020, 06:56:21 AM »
Totally depends on what market you are in.

Here in Seattle, that would get you a decent, but not terribly fancy, home in a decent, but not terribly fancy, neighborhood.

We spent roughly that much on our condo in Beijing in 2009, but we put down 500k so our mortgage was only around $1800.  Which was less than we were paying to rent in a crappier neighborhood/building.  The condo was in the complex where our kids went to school, so they could walk to school and back.  By 2015-2017 when we started leaving China/FIREing, it had appreciated so much that we could buy a nice house in a nice neighborhood in Seattle and still have plenty left over to FIRE on.

Malcat

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #6 on: May 11, 2020, 07:22:19 AM »
That's a huge mortgage, which doesn't sound very doable on one income. When we were making a lot more than you, with extremely stable jobs, we weren't willing to buy more than we could afford on the lower income.

Thank god too, because the higher income career, although incredibly stable and recession proof completely disappeared when I got diagnosed with an illness that knocked me right out of my career and cost us over 60% of our income.

Only you can decide what risks are worth it for you, but personally, this is not one that I would take. 5X your combined income gives me heart palpitations.

RFAAOATB

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #7 on: May 11, 2020, 07:49:48 AM »
Looking for sanity check on a home purchase we are interested in.

Bottom line, we have roughly 750k in cash and retirement accounts, with another 100k in cash likely coming when I sell my house.

We want to purchase an immaculate home in a desirable neighborhood for 775K. Will finance at 2.75%

We both have very stable jobs, and the house can definitely fit in the budget without affecting monthly investments (401k, roth) etc.

I'm buying in the type of market where homes sell in hours, not days, and I have a chance to snag this one before it even hits the market.

Am I a non-mustachian fancy-pants nut job ? Bottom line, we love the place and it could resell with no issues down the line.

Make me a non-believer.

Any kids in the picture now or in the future?  For some people that would push them towards the house (GOOD SCHOOLS!) and for others it might push them away. (Smaller house, baller vacations)

If there's kids now, buy the house.  If there's gonna be kids in the future, put those planned bigger mortgage payments to your current house now so that when you buy the big house later you can have a smaller mortgage and still afford plane tickets and hotels.  Even if you don't get this house, Zillow will always be there to show you the next one.  If there's no kids now or ever, buy the house if you can handle worst case scenario of having to sell in a down market and not fall into a depression downsizing.

affordablehousing

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #8 on: May 11, 2020, 10:47:15 AM »
That seems easily realistic with your assets and income. If you like the house go for it. One question, why is your mortgage so high? Are you putting no money down? High taxes? VA loan with lots of hidden fees? With a 2.75% rate your payment should be much less.

FIRE-Man

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #9 on: May 11, 2020, 09:04:16 PM »
VA loan with no money down. No hidden fees, but property taxes are roughly 7k annually.

Many others have asked about job security. Even within the military and federal sector, my wife and I would be some of the last to go in a downsizing event. There's nearly no chance of forced relocation so stability is high.

Thanks for all the feedback, but the house got pulled out from under our feet. Bummed, but might be a blessing in disguise.

Dicey

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #10 on: May 12, 2020, 01:08:10 AM »
$7k sounds pretty reasonable to me, but then I live in California. Yesterday, on a whim, i decided to look up my grandmother's old house in Illinois. Her house was sold in 1988 for about $100k. Zillow says the house is worth about $345k now. The property taxes are over $8k per year. They have doubled in twenty years! That is insane! The property vslue hasn't even kept up with inflation, but the taxes have way outpaced it.

I was pleased to see that the neighborhood still looks pretty nice and "her" house is well kept.

Back on point, there is always a better house out there, you just haven't discovered it yet. With this pandemic, there's no way that prices will continue to rise as they have been. That's a curve that's sure to flatten out in the months and possibly even years ahead.

Dicey

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #11 on: May 12, 2020, 01:28:36 AM »
Apparently, I have a few more thoughts...

It's great that you can get a VA loan with nothing down. The catch is that should the property you purchase lose value, you could become upside down financially and psychologically. You never want to be underwater on a house. If you have to sell for some unforeseen reason, it could cost you money OOP, or ruin your credit.

The arguably more difficult thing is if the house loses value, even if you don't have to sell. Many people can't live with their house becoming worth less than they owe. During the Great Recession, lots of people walked away from their homes just because they weren't "worth" what used to be. In my market, real estate came roaring back, further pricing the people who walked away out of the market. Other places still haven't come back and probably never will.

Yeah, no-down loans are great, but they're not risk free. Better to be sure you've really thought the decision to buy an expensive property through. I'm not saying don't do it, just that there is a lot to consider before you decide.

mistymoney

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #12 on: May 12, 2020, 07:42:43 AM »

Am I a non-mustachian fancy-pants nut job ?


hmmm - I think you know your own answer here!

red_pill

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #13 on: May 12, 2020, 10:40:16 AM »
A) Did I read it right that you want to spend $4100 for the mortgage alone on a $11,800 take home income?  That's 35% of your take home.  How much is property tax? What about maintenance? Assuming you spend $500 a month on maintenance and $500 a month on property tax (which is probably low), and $100 a month on insurance, and you're up to $5,200 a month, which is 44% of take home.  Shoot, if you run the numbers for all your utilities you could be up to 50% in a heartbeat.  I think there is a term for that....house poor.  Or is my math wrong?

B) The question of "too much house" has very little to do with the price of the house (as long as you can afford it).  How big is this house and how much is it in comparison to the neighborhood? Is it a 4 bedroom, 3500 sq ft monster in the middle of Nebraska for just you and your wife? Or is it a 1500 sq ft rancher outside of Seattle for a family of 4?

C) The $750K you have in cash and retirement accounts is irrelevant to the question since you aren't using them for the purchase. I suspect that you included them as evidence that you are doing well, but really it just shows some conformational bias.

D) Big mortgages aren't that scary at 2.75%.  But at 5% they get a bit intimidating.  At 7% it's a different animal altogether.  Affordable dream house turns into albatross real quick.  And no one knows what interest rates are going to do.  No one. 

If you're debating it, that is generally a sign you know it's more than you need. 

FIRE-Man

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #14 on: May 12, 2020, 08:11:58 PM »
A) Did I read it right that you want to spend $4100 for the mortgage alone on a $11,800 take home income?  That's 35% of your take home.  How much is property tax? What about maintenance? Assuming you spend $500 a month on maintenance and $500 a month on property tax (which is probably low), and $100 a month on insurance, and you're up to $5,200 a month, which is 44% of take home.  Shoot, if you run the numbers for all your utilities you could be up to 50% in a heartbeat.  I think there is a term for that....house poor.  Or is my math wrong?

B) The question of "too much house" has very little to do with the price of the house (as long as you can afford it).  How big is this house and how much is it in comparison to the neighborhood? Is it a 4 bedroom, 3500 sq ft monster in the middle of Nebraska for just you and your wife? Or is it a 1500 sq ft rancher outside of Seattle for a family of 4?

C) The $750K you have in cash and retirement accounts is irrelevant to the question since you aren't using them for the purchase. I suspect that you included them as evidence that you are doing well, but really it just shows some conformational bias.

D) Big mortgages aren't that scary at 2.75%.  But at 5% they get a bit intimidating.  At 7% it's a different animal altogether.  Affordable dream house turns into albatross real quick.  And no one knows what interest rates are going to do.  No one. 

If you're debating it, that is generally a sign you know it's more than you need.

Yes, you read that correct and your math is good. My take home is obviously after taxes and TSP contributions. After the mortgage, Roth contributions, Brokerage contributions, ALL other bills, groceries etc, we would have about 1500/mo breathing room. Tight ? Maybe, but we are disciplined and have 1 year of living expenses in savings.

However, all this is irrelevant considering the house sold to other people.

I mean it when I say this was the kind of place that would make you think FIRE might not be all it's cracked up to be. hahaha

Thanks for all the advice. As I said before, probably a blessing in disguise.

Dicey

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Re: Need Advice - Non-Mustachian Home Purchase
« Reply #15 on: May 13, 2020, 07:36:11 AM »
D) Big mortgages aren't that scary at 2.75%.  But at 5% they get a bit intimidating.  At 7% it's a different animal altogether.  Affordable dream house turns into albatross real quick.  And no one knows what interest rates are going to do.  No one. 
Ah, I see you're in Canada. The beauty of a thirty year fixed mortgage in the US is that your 2.75% mortgage will always be at...2.75%. It doesn't make up for our current leadership, but at least it's guaranteed to outlast it ;-)

And given that OP is using after-tax, post-maxed out retirement savings numbers, the % spent on housing is not unreasonable. Those "rules of thumb" guides don't include any of that. The OP has skewed the numbers because he is prioritizing saving and investing. If he was just using his gross income, the percentage would be more what you would expect.