Need your thoughtful insights for purchase of home

[0152755]

Hello All,

I am 39 year old working in a rural community college in the state of Wyoming. I am the sole earner, my wife is homemaker and I have a 4 year old child.

Income: 55500/year

Savings:
403-b: 45000
457 (Pre-Tax)- 20000
457 (Roth) - 10000
Traditional IRA - 8000
Roth - 7000
HSA - 16000 (using hsa as retirement vehicle)
529 for child: 10000
No Debt

Savings for Home Down Payment: 40000
Emergency Savings: 20000

Future Retirement Savings planned at the rate of:
403-b: 10400/year (Including employer contribution)
HSA: max out
Roth IRA: max out
529: 4800/year
Planning to retire at 65.

Investments are in 100% stock [85% US (total stock market), 15% international], plan to maintain that allocation until the age of 45. Beyond that planning to switch to moderate asset allocation.

Expect to have 2% raise every year. We are considering to buy a home at the max of $200000 which I plan to live for at least next 20 years. Will I be able to afford a mortgage of $1300 (30 year mortgage including taxes,utilities and maintenance) without compromising my savings. My monthly expenses are expected to be $800 (food, car, insurance etc).The savings rate above mentioned was a best ball park estimate based on several retirement calculators (Fidelity, T Rowe Price, Vanguard) to fund that will replace my 100% earnings during retirement. The retirement calculator accounted for social security income too. Am I overlooking anything? Appreciate your thoughtful insights. I don't want to jeopardize my retirement at the expense of home purchase. What additional tweaks I can make for my savings strategy. Happy to provide any additional information you may need.

P.S: Don't have plans to FIRE as I love what I do. Some forum members may find my post repetitive as I have posted the same on bogleheads. Just thought of receiving a wide range of perspectives.

[fell-like-rain]

Based on what you’ve said, you’re saving $28,200 a year (10.4k 403b, 7k HSA, 6k Roth, 4.8k 529). If your expenses are $2,100 a month, that comes to $25,200, for a total of $53,400 out of your gross pay of $55,500. So unless your effective tax rate is 3%, those numbers don’t work out.

On the other hand, if you saved for retirement at that level, you’d hit a stash of $630k (25x expenses) by age 53, much sooner than your planned date of 65. In fact, you’d only need to save $5500 for retirement each year if you wanted to be set by 65. So there’s a lot of flex in your current plans.

[six-car-habit]

 You are looking to buy a house that you will live in for 20+ years. Your child will grow up in this house.  You might have the house until retirement at 60 or longer.

 A family cannot live inside of a 403b / ira / or 529 account. It's just digital # on a computer server , and some printed paperwork.

  Retirement accounts are not your family's own yard, a kitchen, bedroom, a comfortable place to eat- sleep -play -relax- garden-enjoy your childs growing up - having sleepovers - etc.

 Saving money is great, should you focus on maxing out savings instead of the things i listed above ??  Thats for you to decide.  But if you bought a house, and still saved 35% instead of 55%, you'd still be ahead of most folks in retirement savings / earnings.

[insufFIcientfunds]

It looks like your 403b includes an employer contribution so that 10.4k isnt coming only from you, so I can see how the tax math works out, as noted in an earlier post. What do they match you at?

It doesn't look like you are overlooking anything honestly. 4 years old is a great age. it only gets better from there. I would get the little tike into a forever home sooner than later so your family can experience all those benefits - like Christmas, Thanksgiving, school projects, home projects, whatever. There is no way to put a price on those. Sounds like you will be able to maintain a high enough level of savings even with a home purchase.

Good Luck!!

[gatortator]

Hello All,

I am 39 year old working in a rural community college in the state of Wyoming. I am the sole earner, my wife is homemaker and I have a 4 year old child.

Income: 55500/year
No Debt

Savings for Home Down Payment: 40000
Emergency Savings: 20000


We are considering to buy a home at the max of $200000 which I plan to live for at least next 20 years. Will I be able to afford a mortgage of $1300 (30 year mortgage including taxes,utilities and maintenance)

A few calculations to consider....

1.  Multiply your yearly income by 2.5 or 3  get find your max mortgage amount.   I remember hearing this in the late 1980s as a teenager and it has always stuck with me.  It looks like CNN Money is still suggesting this.  I am in a dual income household, yet both of my house purchases have been based only a mortgage of 3x the lowest income.  It has given me great piece of mind and absolutely kept my fixed costs/ lifestyle inflation in check.   Since you are a single income household,  I would go by 2.5x.

  (55.5k * 2.5)+40k= 178.7k max house price.  200k is too high a limit.

2.  Front end ratio or housing ratio,  is typically set at 28% of monthly expenses.
Based on your current income,  55.5k/12= 4625/mth    1300/4625=28.1%.  just over the ideal limit.
 (simple calculation as you don't separate the 1300 in PITI, HOA fees, utilities, maint.)

[SwordGuy]

Hello All,

I am 39 year old working in a rural community college in the state of Wyoming. I am the sole earner, my wife is homemaker and I have a 4 year old child.

Income: 55500/year
No Debt

Savings for Home Down Payment: 40000
Emergency Savings: 20000


We are considering to buy a home at the max of $200000 which I plan to live for at least next 20 years. Will I be able to afford a mortgage of $1300 (30 year mortgage including taxes,utilities and maintenance)

A few calculations to consider....

1.  Multiply your yearly income by 2.5 or 3  get find your max mortgage amount.   I remember hearing this in the late 1980s as a teenager and it has always stuck with me.  It looks like CNN Money is still suggesting this.  I am in a dual income household, yet both of my house purchases have been based only a mortgage of 3x the lowest income.  It has given me great piece of mind and absolutely kept my fixed costs/ lifestyle inflation in check.   Since you are a single income household,  I would go by 2.5x.

  (55.5k * 2.5)+40k= 178.7k max house price.  200k is too high a limit.

2.  Front end ratio or housing ratio,  is typically set at 28% of monthly expenses.
Based on your current income,  55.5k/12= 4625/mth    1300/4625=28.1%.  just over the ideal limit.
 (simple calculation as you don't separate the 1300 in PITI, HOA fees, utilities, maint.)

This is very good advice.    You can always add on to a house, but that mortgage (particularly at today's low rates) doesn't get lower.

You're single income at the moment.  Will you spouse be working part-time (or more) in 2-3 years when your child goes off to school?   That will make a real difference in how tight your budget is.

[Sanitary Stache]

I have another thought for you to consider, though I am not sure how it fits into your house criteria.

We have been spending an additional 50% of out PI on home improvements.  If a $150,000 house is perfect but has areas you want to update, make sure you consider your home improvement costs.  I am talking kitchen and bathroom finish remodels, yard improvements like a fence and shed, weatherization improvements, appliance upgrades.  Not emergencies.

[luzbarker]

I have another thought for you to consider, though I am not sure how it fits into your house criteria.

We have been spending an additional 50% of out PI on home improvements.  If a $150,000 house is perfect but has areas you want to update, make sure you consider your home improvement costs.  I am talking kitchen and bathroom finish remodels, yard improvements like a fence and shed, weatherization improvements, appliance upgrades.  Not emergencies.

This is an interesting idea.

[MrThatsDifferent]

I don’t know, if you’re not planning on retiring until you’re 65, then I’m not sure what you’re worried about? You seem settled. I’m presuming your job is safe?