Author Topic: would you take on a 500 k mortgage in a hcl city if the house and propertytaxes  (Read 3273 times)

Midcenturymater

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After 5.5 years of renting in a pretty hcl city in socal....We bought a house. I had been trying to buy a house in another expensive city...London.... for the last ten years. I have up buying in London as I was uneasy taking on the debt in relation to my modest salary that went from 37 k up to 70 k in the 5 years I did it.

So when my husband was offered a job in the usa we jumped on the plane and came. They paid for the move.

Then they paid for green cards. So 18 months ago we suddenly felt secure enough to buy having a right to remain here.

We bought a livable fixer in a great school district earlier this year.
2400 mortgage 780 prop taxes and insurance.

60 % of my husband's income goes on that. We live carefully on the other 40. He puts only 6 % in a 401. So we have only saved 55 k through that in 6 years.

We intend to save my modest 50 k salary minus 800 childcare a month, in its entirety and that should be coming in by August.

My question is...would you have taken on that house payment? We waited as we wanted to get closer to the time of would return to work.
Reading some of these threads makes me wonder.

The fact is we have one better than average salary coming in with a guarantee of 6 month of pay when the job is  pulled which could happen anytime.

I sometimes look at 300 k houses else where and think would we be better moving on when the job goes, to see place like that? We are very happy living where we live. The house was a great price and the agent said it would sell for 50 to 100 k more already.( debatable but local comps suggest that)

Would you be planning on getting out when a job shift happens. In 5.5 Yeats we dropped 150 k in rent. Rents went up 11 % last year. The last home we rented was 2700 k a month. We anticipate when we get taxes back this home will be around the same as the rental we paid for. Apartments are now up to 1900 a month if we had gone that route, but the rent would be raised annually


Our home would rent out for $3500 once we replace the furnace and air con(5500 cost)

Lots in here seem to bulk at big mortgages but the way we see it is as rent was the same  cost, now we are in effect saving that rent as one e day we will pull it back out as equity from the house.
Am I missing something?

MonkeyJenga

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I'm not entirely clear how all the numbers and comps add up, but if your main question is whether I would take on a $3,180 housing cost (not including maintenance), my answer is no. How big is your current home? Do you and your husband want to retire early?

Have you filled out this case study template? It may help to see all your financials laid out.

Midcenturymater

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Thanks. I will have a look at the case study.
We just did not want to keep renting and even apartments sold for 450 k up with silly hoa per month.
House is 1670 s feet. There are four of us. We put 22 % down on 670 K.

I just can't get how we are worse off than if we carried on renting a house. There is no spare money left each month right now to save as there wasn't when we rented. How can we be worse off than throwing 2700 a month in rent. I agree we could have taken an apartment with no yard, less enjoyable housing experience but for a two bed that runs close to 2 k anyway.

We are also considering renting a room to a foreign student on 3 month stay
..for 1200 a month. That would bring our house payment down to 2000 whilst we had student...But food bill would go up as we would provide two meals a day for that.

I just don't see why we would be better. Staying in this city and having carried on renting?

Distshore

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I understand your trade-offs and while I can't answer if you're "right" or not, we made the same decision as you.

Also in a very HCOL area, and I was renting a 2BR apt miserably ($1700/month, but fair market would have been $2000; I'd been there 5 years).  We did think about downsizing to a 1BR, but rents for those were increasing to $1500 and it wouldn't accommodate our future children. 

So we bit the bullet and bought a fixer-upper 4BR 1300 sq ft house in the same neighbourhood to accommodate our planned family; $2700/month.  After the tax break, it's about the same payment as a fair market 2BR apartment.  Of course the costs are higher for utilities and much higher for renovations, but we have also hit a big upswing on property pricing, which we plan to cash out of in the medium term.

We have a much better (for us) quality of life in the house.  One way or another, most of us have to pay for housing.  Effectively we had two choices - a big rent payment or a big mortgage payment, so we picked the mortgage.  I think the choice depends on life factors as much as anything - ie we have stable, but location-specific jobs. There's no option to "buy less house" - 1300sq ft is modest anyway.

So yes, in your shoes I would have (and did) make the same call, FWIW.

Midcenturymater

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Thanks. People seem aghast on here when you do a high multiple mortgage but it was that or keep renting. There aren't really any cheap.houses here unless you live next to the freeway literally. Oh those sell for 600 k so we dropped another 10 per cent to get as far from the freeway as we could.

To us the maths added up. But so many threads on here suggest it is not the best option.

I just can't see how spending another 150 k plus in rent in the next 5 years would have been better if the numbers are the same.

We are not remodelling. The house word rent out very easily if we had to relocate for jobs due to high ranking schools.

I just wonder if I am missing something.
We love our house. We love the neighbourhood, our neighbours.  Our quality of life from our house us excellent, even if we can't save right now. I feel like we are doing well living on one not massive salary, not getting in debt......just not saving. Being home with my kids has been worth every dollar I could have traded it for by sticking them in day care and generating g a salary. Maybe people feel more mobile so they just won't live I a ace where an ordinary house with things to fix is almost 700 k.??

Distshore

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In many (most?) areas in the US, houses in the $600K+ price range are huge, wasteful McMansions and I think many on here assume that's what you have if you spend so much.  But in several big name cities, that's the entry cost for a modest inner suburbs house, and your only real option to cut housing costs is to share (which I did until I married), or move to a lower cost area (ie a different city or state).

I don't think that advice of "don't spend so much on mortgage/downsize/rent" is one size fits all, and usually comes from people who don't live in the several big name cities referenced above.  I personally don't think you're missing anything, and most would have to agree the daycare years are the hardest financially; I'm in them now too.

It does hit hard right now, and would if we were going to retire here, but I don't plan to.

Another Reader

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This makes zero sense unless you work and bring in your expected salary.  If that did not happen, you could live there for decades and have nothing but the built up equity in the house and whatever your husband's modest 401k would be.  Under those circumstances, I would look for employment in a lower COL location.  80 percent of his income with a house costing less than $200k would put you in a much better financial position.

In your shoes, I would get back into the workforce as soon as it is possible.  Then start maxing out both 401k's and IRA's.  In the meantime, practice as much frugality as you can and see if you can up your savings.  That's how you "afford" living in a HCOL area.

Midcenturymater

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Thanks Distshore. Reassuring.

Yes in our city 600_ 700 gets an entry level home. We went as low as possible by getting the type of house that others would see as a major.fixer. it has original kitchen, with original roper oven and job, original shower....and the main bathroom has no bath.....and we have moved in and not spent a penny aside the $60 to get the dying 30 year central air going. The sellers were nice enough to repaint it and put low cost but new carpets through all rooms except the kitchen.
We guess all the curtains ( beautifully made and lined ) are from the early 80 s. They work great so we keep them and celebrate them.

So basically all we plan on doing is putting a bath in and a dish washer. In the next 5 years we need a new roof (10 k) and new water heater (1500) and furnace and central air system (5500). So we have to save up that 20 k first. Once those jobs are done the house should be done of the expensive jobs for some time.

And the thing is we just really love this house exactly as it is. But yes pretty much 70O k for 1670 square feet.

It is in itself a huge luxury having this space. In the UK I grew up in 900 square feet in a family of 4. Maybe a bit smaller than the 1100 average but many live in less.

Why do so many Americans live in huge homes? Is it a status thing.
I know 1670 is big...but modestbig I reckon.


We could have moved but this is the city where our one job is

Midcenturymater

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Thanks another reader. You are exactly right
 We only have 2000 a month for all 4 of us for everything
 We are lucky if we can save $100. Need to cut food bill down from 700 a month I guess.

I am in the process of transferring my teaching credential. So the aim is by August for me to pull in 39 to 48 k as a teacher. After house maintenance all of that will be saved.

We are discussing when my husband's job ends( it will ) if we can't find an equivalent or higher job for him......We seek jobs outside California.

The thing is we love living here....amazing quality of life, amazing schism, amazing community. We are a little nervous if we move to Colorado say where we can buy a 300 k outright, we would pine for California.


I am suggesting we just do it anyway. Rent the California home out to start with...We can always sell when get settled else where.

I bet it us not that hard to earn 80 to 100 k between us somewhere else even with me a lowly paid teacher.


For now the one good job is here.

I promised myself I would stay home till my youngest child is 4or 5. We are nearly there. Being at home has been worth the financial savings sacrifice. I feel not just our kids have benefited but the whole family has. I cloud not want them in daycare from 7.30 till 5 every day. I would rather retire 7 years later.

ooeei

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I just don't see why we would be better. Staying in this city and having carried on renting?

If you assume that you'll stay in that house for a long time and keep your jobs, you're probably right that buying is better. 

On the flip side, imagine 2 years into your mortgage your job situations changed and you either lost the job or had to move to a new city (or got a significantly better job offer in a new place).  Assuming you can sell the house, you're still paying the fees associated with selling real estate (~6%) and have to deal with the hassle of selling.  If you combine that with a decrease in home prices in your area or a maintenance problem, you can see that the downsides can be significant compared to a rental. 

I have a friend dealing with that exact thing right now. He bought a pretty expensive house that he originally had roommates helping pay for and a good job.  He later discovered living with roommates gets old after a few years in the real world. Now he decided to quit his job and go back to school so he can make more money later.  Just as he quit the job, the housing market in his area took a downturn, it's not severe, but not great for him.  Now he's had the house on the market for ~6 months.  It also just so happened that he had an A/C line leak while the house was on the market, and it flooded through the top floor into the ceiling of the first story.  Two weeks later an upstairs toilet tank broke and did the same.  He had virtually no maintenance problems in the 3 years he owned the house, but these two just happened to come up right when he wanted to sell, and each took around a month to fix.

With a rental you get downside protection you can't get with a house.  If you aren't in the stage in life where you can commit to a location for 5 years or so, buying can get risky.

edit:
I just saw the part about only saving $100/month.  How in the world are you going to afford any maintenance problems or doctor's appointments if you can only save $100/month?  You're living way above your means IMO.
« Last Edit: January 04, 2016, 07:26:13 AM by ooeei »

Midcenturymater

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Thanks. I agree we are living very close to the edge.
Sorry...I omitted...
I still have 20 k emergency fund in UK for house problemd. If we have to draw on that one to do all big maintenance on house( reflected in the house price)....We could within a week.
We have 150 k in equity in a UK flat we rent out. In ten years that is paid off and will generate 1200$ a month. It generates 1000 now. We keep any extra in a repair fund over there for that property.

That was the only thing that gave me the confidence to buy this house. If it all goes tits up...We have 6 months of full income(1 of us) to make decisions
We can sell uk property and tough that 150 on to our mortgage here...meaning we would then just have a loan three times my husband's income.
The key thing is by August 2016...I intend to have income...25 to 48 k depending on if I secure part or flat time work.

Look I have never ever lived like this. I didn't buy a house till I was 42!!! I saved for the 8 years I did work. The rest was spent travelling and studying.
Maybe I took some of my retirement early in a way.

I have never not had savings. It does feel precarious. But we don't ever get in debt. When we need to repair say a car I sell/ flip a piece of furniture. That has only generated 2500 this year but it did cover little emergency costs.

I often imagine living somewhere cheaper. We sell both houses and we have maybe 300 k to buy outright then we save everything.

But when my husband crunches the numbers he reckons we are better off staying put.

In less than a year the house has apparently gone up 70 k.
Ridiculous I agree but there is the stupid overheated house market. We did a lot of research before we bought. Even in the recession the houses in this area ad close to what we paid. Maybe 30  to 40 k less for our size, probably all done up I imagine.

I think we are good as long as I get income this year.
I hate living check to check and not saving. But I would gIve hated not being home with my kids even more. I guess being a stay home has been our much enjoyed luxury item these last 6 years!!

Midcenturymater

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Sorry I meant 30 k cushion in UK when put into dollars.
It is not.much I agree but it is something. It I'd.less than a year of shelter payments if we have no income...but better than nothing. We are living within our means actually. Only just,😁