Author Topic: Help Understanding How Much House I Can Afford  (Read 905 times)

HMM12

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Help Understanding How Much House I Can Afford
« on: July 21, 2021, 02:44:42 PM »
Hi Team -

I have an idea in my head of how much I want to spend per month and overall. What I'd like is for someone to tell me if I can afford more comfortably or I'm in the right general ballpark on price.

Happy to answer any questions but I'll start it off with some info.

1. Married, 2 kids, one about to be in kindergarten, both of us are 38
2. Both of us are employed
3. Total combined annual income with bonuses - ~$250k
4. Total combined 401k balances ~$1.025m
5. Brokerage accounts - ~$210k
6. Crypto Account ~$60k
7. 529 plans ~$20k
8. Cash Savings ~10k
9. Current single family home. Bought in 2011 for $280k, currently owe $200k, Listing price would be ~$550k. I'm currently paying ~$1500 in principal, interest and insurance.
10. We currently live in the metro Boston area (inside of 128) and will stay in the same area.

I didn't really want to pay more than $800k and that seems reasonable (and safe) to me. Does that sound reasonable to people or am I under estimating what I can/should afford?

jeromedawg

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Re: Help Understanding How Much House I Can Afford
« Reply #1 on: July 21, 2021, 03:02:45 PM »
Hi Team -

I have an idea in my head of how much I want to spend per month and overall. What I'd like is for someone to tell me if I can afford more comfortably or I'm in the right general ballpark on price.

Happy to answer any questions but I'll start it off with some info.

1. Married, 2 kids, one about to be in kindergarten, both of us are 38
2. Both of us are employed
3. Total combined annual income with bonuses - ~$250k
4. Total combined 401k balances ~$1.025m
5. Brokerage accounts - ~$210k
6. Crypto Account ~$60k
7. 529 plans ~$20k
8. Cash Savings ~10k
9. Current single family home. Bought in 2011 for $280k, currently owe $200k, Listing price would be ~$550k. I'm currently paying ~$1500 in principal, interest and insurance.
10. We currently live in the metro Boston area (inside of 128) and will stay in the same area.

I didn't really want to pay more than $800k and that seems reasonable (and safe) to me. Does that sound reasonable to people or am I under estimating what I can/should afford?

Based on your salary alone, and the "x3" rule FWIW, you can more 'safely' afford a $750k loan. Whether or not you want to borrow that kind of money is based on the rest of your budget though. Given you'd presumably be selling your current place and getting some equity there, you can definitely borrow less (or buy bigger LOL). I would tend to agree that $800k seems like a good number in your situation. You should be netting a little over $300k from your home sale if I'm not mistaken which means that you're looking at probably up to a $500k~ loan.... unless you were planning to increase the down-payment amount supplementing from your Crypto or Brokerage.
« Last Edit: July 21, 2021, 03:04:40 PM by jeromedawg »

Aegishjalmur

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Re: Help Understanding How Much House I Can Afford
« Reply #2 on: July 21, 2021, 03:08:15 PM »
Hi Team -

I have an idea in my head of how much I want to spend per month and overall. What I'd like is for someone to tell me if I can afford more comfortably or I'm in the right general ballpark on price.

Happy to answer any questions but I'll start it off with some info.

1. Married, 2 kids, one about to be in kindergarten, both of us are 38
2. Both of us are employed
3. Total combined annual income with bonuses - ~$250k
4. Total combined 401k balances ~$1.025m
5. Brokerage accounts - ~$210k
6. Crypto Account ~$60k
7. 529 plans ~$20k
8. Cash Savings ~10k
9. Current single family home. Bought in 2011 for $280k, currently owe $200k, Listing price would be ~$550k. I'm currently paying ~$1500 in principal, interest and insurance.
10. We currently live in the metro Boston area (inside of 128) and will stay in the same area.

I didn't really want to pay more than $800k and that seems reasonable (and safe) to me. Does that sound reasonable to people or am I under estimating what I can/should afford?

What are your monthly expenses? Without knowing that we can't really say if you can afford it on not.

You mention an $800K home. If you put 20% down(which you could do with the equity from the sale doing a simo-closing), the PI at 2.5% would be $2529, before you add in taxes, insurance and HOA dues, so a $1K jump each month.

Have you though about upkeep costs of a home 3X your current? This will impact your ability to save for other items, or afford other items.
 
What are your incomes without bonuses? How confident are you that the bonuses will continue at current levels? How much do you need that income to support your current spending?

How quickly do you want to retire and how would having that house payment effect that timeline?


dandarc

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Re: Help Understanding How Much House I Can Afford
« Reply #3 on: July 21, 2021, 03:13:46 PM »
Why do you want to move?

The house you live in is a lot like any other consumption decision - determine your parameters for what you'll find acceptable, then the goal should be to meet those parameters at the lowest cost you can. With your income and assets, I'd imagine a bank will loan you enough money to buy anything you want within reason.

Unless you want to engage in speculation, betting that you can make a better return on your primary residence than alternatives, but more house for sure means higher cost (things like utilites, taxes, insurance, maintenance tend to scale with the purchase price). I don't know how housing in Boston does on that speculative investment aspect.

Morning Glory

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Re: Help Understanding How Much House I Can Afford
« Reply #4 on: July 21, 2021, 03:19:11 PM »
What's wrong with your current house? Do you need more space, want to be closer to work, etc? I don't know the market in your area enough to know what a reasonable house costs.

If your new house is bigger you won't just be facing higher upkeep costs but also more time needed for cleaning and yard chores. Plus how much do you like your job and how long will this new house push back your FIRE date?

HMM12

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Re: Help Understanding How Much House I Can Afford
« Reply #5 on: July 21, 2021, 03:19:18 PM »
Hi Team -

I have an idea in my head of how much I want to spend per month and overall. What I'd like is for someone to tell me if I can afford more comfortably or I'm in the right general ballpark on price.

Happy to answer any questions but I'll start it off with some info.

1. Married, 2 kids, one about to be in kindergarten, both of us are 38
2. Both of us are employed
3. Total combined annual income with bonuses - ~$250k
4. Total combined 401k balances ~$1.025m
5. Brokerage accounts - ~$210k
6. Crypto Account ~$60k
7. 529 plans ~$20k
8. Cash Savings ~10k
9. Current single family home. Bought in 2011 for $280k, currently owe $200k, Listing price would be ~$550k. I'm currently paying ~$1500 in principal, interest and insurance.
10. We currently live in the metro Boston area (inside of 128) and will stay in the same area.

I didn't really want to pay more than $800k and that seems reasonable (and safe) to me. Does that sound reasonable to people or am I under estimating what I can/should afford?

What are your monthly expenses? Without knowing that we can't really say if you can afford it on not.

You mention an $800K home. If you put 20% down(which you could do with the equity from the sale doing a simo-closing), the PI at 2.5% would be $2529, before you add in taxes, insurance and HOA dues, so a $1K jump each month.

Have you though about upkeep costs of a home 3X your current? This will impact your ability to save for other items, or afford other items.
 
What are your incomes without bonuses? How confident are you that the bonuses will continue at current levels? How much do you need that income to support your current spending?

How quickly do you want to retire and how would having that house payment effect that timeline?

I don't have to many Monthly Expenses:
Day Care ~$700
normal utility bills - Internet, Streaming, Cell phone, electricity, gas, water, car insurance  Maybe $800-$900 total
No consumer debt or student loans
No credit card bills
Both of my cars are paid off & wont need to be replaced for ~8 years.

Income without bonuses:
$200k

Pie in the sky I retire at 55, best case is 60 worst case is 65.
I'm currently saving 14% of my salary, company match is 100% up 7%. My wife is doing about the same and company matches 4%.


To be clear the house I will buy will be ~ the same sq foot size and lot size. Upgrading to a more desirable school system so the home upgrade won't be much. Meaning the expenses should stay ~ the same.


Watchmaker

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Re: Help Understanding How Much House I Can Afford
« Reply #6 on: July 21, 2021, 03:29:04 PM »
Upgrading to a more desirable school system so the home upgrade won't be much. Meaning the expenses should stay ~ the same.

Okay, with the caveat that I don't have kids-- I think moving just to get them into a different school system is usually silly. Most kids do fine as long as their school isn't awful. Most bad or mediocre things about a school can be mitigated with after school programs, tutoring, summer school, etc.

But I'd agree that based on the fact that you say you have low spending and don't want to retire very young, $800k is a reasonable target for a house in your situation.

HMM12

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Re: Help Understanding How Much House I Can Afford
« Reply #7 on: July 21, 2021, 03:45:09 PM »
I would want to retire earlier but I'm guessing I'm going to have to spend some money later for college so I'm just assuming on those ages.

Also I thought the same as you before I had kids regarding school systems but now having 2 kids I want to do everything I can to give them the best possible change. I'm considering also staying in my current house and sending them to a non-religious private school. 

Upgrading to a more desirable school system so the home upgrade won't be much. Meaning the expenses should stay ~ the same.

Okay, with the caveat that I don't have kids-- I think moving just to get them into a different school system is usually silly. Most kids do fine as long as their school isn't awful. Most bad or mediocre things about a school can be mitigated with after school programs, tutoring, summer school, etc.

But I'd agree that based on the fact that you say you have low spending and don't want to retire very young, $800k is a reasonable target for a house in your situation.

Morning Glory

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Re: Help Understanding How Much House I Can Afford
« Reply #8 on: July 21, 2021, 06:31:57 PM »
You could probably retire now if you keep your house, or better yet sell it and move to an lcol with a better school system. It will take care of college if you sell the crypto and put it all in the 529. Between taxable and 401ks you have 1.2 million, that gives you 50k/year and no daycare costs.

Chris Pascale

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Re: Help Understanding How Much House I Can Afford
« Reply #9 on: July 21, 2021, 09:13:44 PM »
One rule of thumb is that your payment is 25% of your take home.

Will you liquidate the brokerage acct for your down payment? Or the crypto acct?

AccidentialMustache

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Re: Help Understanding How Much House I Can Afford
« Reply #10 on: July 21, 2021, 10:30:38 PM »
Pie in the sky I retire at 55, best case is 60 worst case is 65.
I'm currently saving 14% of my salary, company match is 100% up 7%. My wife is doing about the same and company matches 4%.

What you are saying doesn't square. If your expenses are actually as low as you pitch ($3k/mo listed, although no food/clothes/etc) then 1 mil in the bank already says you're retired. But that doesn't make sense with a savings rate of ~10% (averaging your and your wife's 401k contributions).

Ballpark numbers are always suspicious. Back it up with data (real fleshed out data) and you'll get a better answer, but to be honest with real data you can answer it yourself. Is there 1.5-2k (or more -- include upkeep, higher insurance, etc) of excess in your monthly budget? If yes you're probably good. If not you probably aren't. Would private school cost less than that? If so, maybe you're fiscally better off with that.

Paper Chaser

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Re: Help Understanding How Much House I Can Afford
« Reply #11 on: July 22, 2021, 04:47:37 AM »
You're talking about spending several hundred thousand dollars just to get your kids into a different school district.
Spend a small amount of that money on tutors or a private school instead. You'll get the same or better results for a whole lot less hassle and money. The money you don't spend on a housing upgrade can then be invested for their college costs, allowing you to retire earlier.

Dicey

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Re: Help Understanding How Much House I Can Afford
« Reply #12 on: July 22, 2021, 07:19:35 AM »
Congratulations! With no non-mortgage debt and that much saved, you're already winning the game. Stick around a little longer and you'll be shaving years off that retirement projection.

It almost always makes more sense to buy the house in a better school district than it does to spend money on private schools, because houses tend to appreciate. If private schooling would cost you more than $1k a month, that's an easy answer. Don't forget that private schools get more expensive as the kids get older, and your fixed rate mortgage will be a constant.

Moving is expensive.  If you can be assured that the next house will be your forever home, that's another point in favor of moving just one more time.

Seems like you could wait a year to make a change, which might be enough for the market to settle down. If it doesn't,  at least your current home will continue to appreciate. No real risk there. In my market, there is so little inventory, people are offloading their POS properties now, while FOMO buyers are grabbing at straws and making completely non-contingent offers, which I am sure many will come to regret. Don't be one of them.

I am from a HCOLA, so I'm much more comfortable with larger mortgages. If you could buy something for 25% of your net income, it would be nice, but that's unreasonably low for your area and financial situation. Given your current NW, you could very easily afford a loan that's 33% of your gross, so why squeeze your family into a shoebox? If you never saved anything beyond the match again, you'd still easily hit your targets.

Tl;Dr - It depends on what you want. You can easily afford this upgrade.

Note to @AccidentalMustache, you might want to re-read the original post and check your math.
« Last Edit: Today at 07:11:42 AM by Dicey »

charis

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Re: Help Understanding How Much House I Can Afford
« Reply #13 on: July 22, 2021, 07:50:48 AM »
I have two kids and I still think it's silly to your triple housing costs for a better district. My kids are in a "bad" public school according to greatschools.com and the like. In reality, it's a good school with a relatively high concentration of poverty in a highly segregated urban/suburban area. I'm ok with staying in the district because I know I can afford to help my kids succeed academically. They also have access to tutoring, music lessons, extracurriculars, and summer camps.  And I can still afford to retire early to spend more time with them.

You can afford your plan, clearly. But in your shoes, I'd definitely stay in the cheaper house and retire or work hours when kids are in school.

Sibley

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Re: Help Understanding How Much House I Can Afford
« Reply #14 on: July 22, 2021, 08:06:45 AM »
Your motivation for this is to switch school systems. But, as many on this forum can attest, that may or may not actually be what's best for your child(ren).

The #1 factor for children's success in school is parental involvement. As long as the school isn't actively bad for the kid (and "actively bad" will vary based on the child), then you as parent can make up for any lack. But if you switch to a highly competitive school district which destroys your child's mental health, you can't fix that so easily. And your child will rightfully blame you for screwing them up so badly.

There's a lot of posts on the forum about schooling and schools. I recommend you do a bunch of reading, then do some serious reflection on what's actually best for your child before you make any decisions about moving. The Mini Money Mustache section should be quite helpful.

theoverlook

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Re: Help Understanding How Much House I Can Afford
« Reply #15 on: July 22, 2021, 08:21:54 AM »
You're talking about spending several hundred thousand dollars just to get your kids into a different school district.
Spend a small amount of that money on tutors or a private school instead. You'll get the same or better results for a whole lot less hassle and money. The money you don't spend on a housing upgrade can then be invested for their college costs, allowing you to retire earlier.
It's likely you haven't looked into what private school costs lately, especially for two kids through all 12 years of primary and secondary school. In an area like Boston, you're looking at $500,000+ to send two kids through 12 years of private school. Spending $800,000 on a house that will be worth, assuming it just keeps up with inflation, at least a million dollars 12 years from now, seems like a great deal compared to that. Your actual costs are the opportunity cost of your down payment and principal payments, the interest on the loan, the increased property taxes, and the increased cost of higher end upkeep.

Paper Chaser

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Re: Help Understanding How Much House I Can Afford
« Reply #16 on: July 22, 2021, 10:19:10 AM »
You're talking about spending several hundred thousand dollars just to get your kids into a different school district.
Spend a small amount of that money on tutors or a private school instead. You'll get the same or better results for a whole lot less hassle and money. The money you don't spend on a housing upgrade can then be invested for their college costs, allowing you to retire earlier.
It's likely you haven't looked into what private school costs lately, especially for two kids through all 12 years of primary and secondary school. In an area like Boston, you're looking at $500,000+ to send two kids through 12 years of private school. Spending $800,000 on a house that will be worth, assuming it just keeps up with inflation, at least a million dollars 12 years from now, seems like a great deal compared to that. Your actual costs are the opportunity cost of your down payment and principal payments, the interest on the loan, the increased property taxes, and the increased cost of higher end upkeep.

You're right. However, there's a reason that I mentioned tutors first, before private school. I'd wager that outcomes for kids with parents that are hands on, and the addition of precise tutoring coordinated to each kid's strengths and weaknesses will be on par or better than people that spend 6 figures to send kids to private schools and assume that the schools will teach their kid everything they need to know.

OP has around $1.3 million in liquid assets and probably $350k in equity in the current home. The kids already have massive advantages over their peers just growing up in an environment like that. OP and their spouse could easily retire now, move to a LCOL, buy a nice home outright with their current equity and have $50k annual income from the investments. This would allow them to be present for everything in their kids' lives if they wanted. Or they can double down on the HCOL treadmill and buy a more expensive home, pay for expensive schools, etc and follow their plan of working until 60 or longer.

Good schools are great, but I'm not convinced that they're that much better than a combination of average schools and involved parents. OP can choose to send the kids to fancy schools for several hundred thousand dollars, and spend a bunch more of their time away from home working to pay for all of that. Or OP can invest the very healthy resources currently available and spend more time with the kids, supplementing what they learn at school and teaching them in ways that are probably more effective than the schools.
« Last Edit: July 22, 2021, 12:44:45 PM by Paper Chaser »

charis

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Re: Help Understanding How Much House I Can Afford
« Reply #17 on: July 22, 2021, 12:14:50 PM »
^ This.  People kind of default to the common notion that if they aren't giving their kids the "best" education that they can afford, they aren't doing their parental duty. I think this boils down to peer pressure and it's uncomfortable to buck the trend if your family, peers, and friends subscribe to this notion.

Most of my friends either moved or send their kids to private school. I'm sure they have private conversations about how nutty we are (not just about that, ha). But one is sending their kid to the same tutor that my child had for the same issue. So paying tuition for a "great" school and a pricey tutor, and feels like the school downplayed the problem for too long without providing additional support.

HMM12

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Re: Help Understanding How Much House I Can Afford
« Reply #18 on: July 22, 2021, 01:28:49 PM »
Hi - Thanks for all the replies you've give me a lot to think about.

PMJL34

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Re: Help Understanding How Much House I Can Afford
« Reply #19 on: July 22, 2021, 08:57:40 PM »
OP,

You want to move into a neighborhood with a better school district. I'm not understanding how anyone has a problem with this??

This is completely normal/rational and I would argue a smart thing to do in your shoes assuming you are in a subpar school district now. Especially considering that you have 2 children (I don't even want to know the cost of private school for 18 years + college for 2 children).

You can "afford" a 2 million dollar home no problem. So yes, 800k is totally affordable for you. I would argue that it is even low considering your income + assets. 

However, I agree with AccidentialMustache that your math doesn't add up (not even close). You are most likely spending a lot more than you say you are. Either that or you are saving a lot more than 14% of your income (plus 4% of wife).

Either way, you are more than safe. Find your family a nice new home and enjoy it for many years to come!

 

AccidentialMustache

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Re: Help Understanding How Much House I Can Afford
« Reply #20 on: July 22, 2021, 10:18:28 PM »
Note to @AccidentalMustache, you might want to re-read the original post and check your math.

Listed expenses:

I'm currently paying ~$1500 in principal, interest and insurance.

...

I don't have to many Monthly Expenses:
Day Care ~$700
normal utility bills - Internet, Streaming, Cell phone, electricity, gas, water, car insurance  Maybe $800-$900 total
No consumer debt or student loans
No credit card bills
Both of my cars are paid off & wont need to be replaced for ~8 years.

Income without bonuses:
$200k

I mean I did it in my head but I still get 1500+800+700 = 3k/mo.

But that doesn't square with 200k income and non-maxed 401ks. His could be maxed at 14% if he's making ~130-140k, but his wife is far from maxed out then. That suggests lots of unlisted spending.

HMM12

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Re: Help Understanding How Much House I Can Afford
« Reply #21 on: July 23, 2021, 06:37:43 AM »
You're right about expenses. I just included reoccurring bills and nothing like food or gas or discretionary spending.

My credit card monthly spending is around $3k that we always pay off. I have a credit limit of $30k or something.

Note to @AccidentalMustache, you might want to re-read the original post and check your math.

Listed expenses:

I'm currently paying ~$1500 in principal, interest and insurance.

...

I don't have to many Monthly Expenses:
Day Care ~$700
normal utility bills - Internet, Streaming, Cell phone, electricity, gas, water, car insurance  Maybe $800-$900 total
No consumer debt or student loans
No credit card bills
Both of my cars are paid off & wont need to be replaced for ~8 years.

Income without bonuses:
$200k

I mean I did it in my head but I still get 1500+800+700 = 3k/mo.

But that doesn't square with 200k income and non-maxed 401ks. His could be maxed at 14% if he's making ~130-140k, but his wife is far from maxed out then. That suggests lots of unlisted spending.

Malcat

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Re: Help Understanding How Much House I Can Afford
« Reply #22 on: July 23, 2021, 06:55:05 AM »
Rules of thumb for spending are for lazy people looking for an excuse to spend more.

The only way to know what you can "afford" is to analyze your own long term situation, establish your goals and priorities, and spend according to meeting those goals.

Person A makes as much as you do and has the same expenses, has a stable, low risk career, a very loving marriage, two healthy kids, and wants to work to traditional retirement age.
Person B makes as much as you do and has the same expenses, has an insanely high pressure/high competition job, his marriage is feeling serious strain from his career and his one kid who has been hospitalized with an eating disorder, and he is really concerned that he can't stay sane working much past 50, at the very least, he wants to cut back, but is worried he might burnout completely.

Can they both "afford" the same house?

Look at your own life and make your own decisions. Don't spend "up to" a max that some rule that isn't customized to your life tells you you can spend.

I personally bought for a tenth of what I "could afford", and thank God I did, because my specific risk factors did come into play and mess with my finances in a major way. I was smart and saw them coming, so I avoided spending up to whatever max the rules said I could.

Know your needs, spend accordingly. Don't be lazy.


Watchmaker

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Re: Help Understanding How Much House I Can Afford
« Reply #23 on: July 23, 2021, 10:38:44 AM »
You want to move into a neighborhood with a better school district. I'm not understanding how anyone has a problem with this??

This is completely normal/rational and I would argue a smart thing to do in your shoes assuming you are in a subpar school district now. Especially considering that you have 2 children (I don't even want to know the cost of private school for 18 years + college for 2 children).

You can "afford" a 2 million dollar home no problem. So yes, 800k is totally affordable for you. I would argue that it is even low considering your income + assets. 

Like I said, I don't have kids so this isn't something I've researched intensely, but I think the idea that school quality (and particularly school "rankings") has a strong impact on the outcomes for children with good home lives is not well supported by the data. I'd go as far as saying that, if the idea is to give the kids the best chance at good outcomes, the optimal choice might be to move to a LCOL area and retire now so OP can be more present in their lives.

There's been a lot of excellent discussion of the importance of school quality on this site over the years, from which I have learned a lot. A selection of threads that might be interesting to the OP:

https://forum.mrmoneymustache.com/ask-a-mustachian/do-school-rankings-matter/
https://forum.mrmoneymustache.com/ask-a-mustachian/life-changes-and-school-district-question/
https://forum.mrmoneymustache.com/mini-money-mustaches/school-choice-what-to-look-at-besides-test-scoresranking/

I'm also not sure even the banks' "How much home can I afford" calculators would tell them they can afford a $2M house on $250k income. $800k, sure. That doesn't make it a good idea though. To be clear, it might be a good idea, depending on how nice the house is and how much they value it, but if the only difference in the house would be what school their kids would go to, I think moving would probably be a mistake.



Paper Chaser

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Re: Help Understanding How Much House I Can Afford
« Reply #24 on: July 23, 2021, 11:45:04 AM »
OP,

You want to move into a neighborhood with a better school district. I'm not understanding how anyone has a problem with this??

You do realize which site you're on right? And what the general themes are around here? We're all about cutting spending, making good investments, retiring early, DIY to achieve independence, and focusing on aspects of life that matter more than incomes, job titles, rat races, and keeping up with the Joneses. Spending hundreds of thousands of dollars more than necessary to live in the "good" school district isn't really a good fit with any of those objectives if you ask me. It seems like a poor investment compared to staying put and simply being involved with the occasional focused tutoring session if one of the kids is struggling with something specific and the parents can't help. And it's an even worse investment compared to moving to a cheaper location and retiring tomorrow to truly have quality time with the kids and teach them things that schools won't. And the thing about "good schools" is that they're usually just schools with a higher percentage of involved parents. They don't typically have a drastically different curriculum or teaching methods than the "average" or "poor" schools. OP really only needs to care about the education that their kids receive, not the performance of an entire school district. And the key to the performance of OP's kids lies in OP's home, wherever that happens to be.

OP's got a few different choices as I see it:
1) Stay put and just be involved in the kids education. Use tutors as needed. Retire early.
2) Stay put and pay a bunch for expensive private school. Probably still need to be pretty involved in the kids' education though. Work until "normal" retirement age to pay for the schooling and their consumer spending.
3) Pay a bunch more for a different home in the "good school" district. Still need to be involved in the kids' education though. Work until "normal" retirement age to pay for the expensive home that got them into the "good school" and their consumer spending.
4) Move someplace cheaper and retire or semi-retire right now. Have a paid off home and 45-50k annual income from investments. Be able to really spend quality time with their kids, focusing on education as needed but also having free time to pursue other interests when the kids are at school. This would probably require cutting spending from current levels (which are likely higher than OP realizes), but maybe not by too much with no mortgage, lower taxes and cheaper COL for other things.

This whole MMM/FIRE concept is ready made for somebody like OP. They've got tons of income, and decent assets already. This FIRE game is on "easy mode" for them if they choose to play (Technically, they've already won the game if they choose the LCOL path and curtail the spending.) If they can shift their thinking the world can be their oyster. It just comes down to what OP wants their life to be, or perhaps what they don't want it to be. Move to a cheap place and retire now? Stay in the high earning job for a couple more years while cutting spending and stacking investment accounts to retire early in the HCOL? Move to the expensive place, don't change a thing about their lifestyle and do the normal "upper middle class" life full of material possessions, debt, career stress, and retiring by 65?

charis

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Re: Help Understanding How Much House I Can Afford
« Reply #25 on: July 23, 2021, 12:18:26 PM »
I don't have a problem with the OP's desire to move to a better district (though I do have a problem with the public system in many places being set up to foster grave inequity and segregation).

But I would personally wouldn't send my kids to a wealthier district for the sake of it having better schools. Because, among many other reasons, A) I know they will be well educated regardless because they have well educated, involved, well off parents who will see to that, B) I'm not afraid that associating with poor, less educated families will be detrimental to them C) I don't think the overall education is objectively better (cheating is rampant, for example, in the best high schools near us).  For me, the cons out weigh the pros, money aside even.

Dicey

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Re: Help Understanding How Much House I Can Afford
« Reply #26 on: July 23, 2021, 12:56:28 PM »
@Paper Chaser, we are all about making the best use of our green armies. In my state, homes in the top-ranked school districts sell for more.  This means a home in the "good"  district is going to appreciate more, based on actual sales statistics. Note the OP said the house most likely would not be bigger.

I don't have kids, nor do I make the rules. Knowing them has allowed me to play the game and make lots more money. What's not mustachian about that?

Villanelle

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Re: Help Understanding How Much House I Can Afford
« Reply #27 on: July 23, 2021, 01:58:45 PM »
Last time we bought, we looked at how much we were spending each month on rent.  Let's just say $2000 for the sake of easy math.

Then we looked at how much we were saving and investing at the end of each month.  This is different from your "we have low spending assessment", because it is what you *actually* have left over each month (on average), not what you get if you write down what you think you spend.  (If you obsessively track spending, they will be the same.  But if you just sit down and write down all the things you can think of, you are almost certainly well short of actual spending.  One-off expenses, annual things like car registration, gift spending, impulse buys, upgrades, etc. all add up.

In your case with what you provided, this disconnect in actual spending vs.  "what I wrote down when I had to think of things I spend money on" is significant, which is all the more reason to simply use what is leftover on average over the recent 18-24 months.  (and then accounting for income increases, major expenses you paid, major expenses you didn't have during that time but will eventually like a car, changes in lifestyle up or down, etc.)

So, if over the course of the past 2 years (and accounting for any income or spending increases in that time that make the older data less accurate) we averaged $1500 in savings in addition to our automatic investments which we won't touch, then we could technically afford $3500 in house expenses (mortgage, insurance, HOA, maintenance including escrowing for future large issues, taxes, etc.)  That's our current $2000 home expense of rent, plus all of the rest of  our monthly unspent money.  When we did this, we decided we weren't comfortable cutting it anywhere near that close, but it less us see what things would look like.  So if we decided we wanted to keep at least $600 of that savings/cushion, then we knew we could spend $2900.  Figuring what that looked like as a purchase price was pretty easy once we had that numbers (and could estimate taxes, insurance, etc.)

To me, that's the way to do it unless you have a very, very clear picture of your spending.  It tells you what your current lifestyle and spending allows you to spend on a house and leave everything else except supplemental savings untouched. 

PMJL34

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Re: Help Understanding How Much House I Can Afford
« Reply #28 on: July 23, 2021, 09:29:55 PM »
Given what we know, clearly the OP is able to manage their money. They have amassed 1.25+ million portfolio plus 350K in home equity. Why is everyone questioning if they can afford an 800k home?? 800K home with their income + savings is absolutely affordable, and I state again, very conservative.

About moving for school districts. I think we need to clarify what their current school district grade is and what their future district grade is. For example, if they are in 1-4 greater school rating and moving to a 7-10 rating. I think this is wise. If they are going from a 7 to a 10, then no I personally wouldn't do it.

I am heavily involved with multiple school districts due to my employment, not to mention my two own children. I am fully aware of how school ratings are scored. I also agree that parent involvement is #1. With that said, there are drastic differences between low performing schools and even average performing schools. I also think this 800k purchase price will be 1000x more mustachian than sending 2 children to private schools.

I get that at MMM everyone should live in the sticks and FIRE immediately, but the OP has already stated that they are not looking to do that. Therefore, my advice was catered to the OP given the information they provided.

 

AccidentialMustache

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Re: Help Understanding How Much House I Can Afford
« Reply #29 on: July 24, 2021, 06:44:45 AM »
Given what we know, clearly the OP is able to manage their money. They have amassed 1.25+ million portfolio plus 350K in home equity. Why is everyone questioning if they can afford an 800k home?? 800K home with their income + savings is absolutely affordable, and I state again, very conservative.

For me? Because the 401k numbers also imply they aren't maxing out their tax sheltered retirement accounts. That suggests they did amazing at some point the past, but that lifestyle creep may have set in, which leads me to ask about the real numbers.

Your assertion of conservative is fine, if (and only if) their savings over time has been steady or rising.

ender

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Re: Help Understanding How Much House I Can Afford
« Reply #30 on: July 24, 2021, 07:16:59 AM »
Given what we know, clearly the OP is able to manage their money. They have amassed 1.25+ million portfolio plus 350K in home equity. Why is everyone questioning if they can afford an 800k home?? 800K home with their income + savings is absolutely affordable, and I state again, very conservative.

For me? Because the 401k numbers also imply they aren't maxing out their tax sheltered retirement accounts. That suggests they did amazing at some point the past, but that lifestyle creep may have set in, which leads me to ask about the real numbers.

Your assertion of conservative is fine, if (and only if) their savings over time has been steady or rising.

I'm also confused about this.

It's possible that their $210k brokerage came from this over the last few years maybe?

Paper Chaser

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Re: Help Understanding How Much House I Can Afford
« Reply #31 on: Today at 04:46:36 AM »
@Paper Chaser, we are all about making the best use of our green armies. In my state, homes in the top-ranked school districts sell for more.  This means a home in the "good"  district is going to appreciate more, based on actual sales statistics. Note the OP said the house most likely would not be bigger.

I don't have kids, nor do I make the rules. Knowing them has allowed me to play the game and make lots more money. What's not mustachian about that?

I don't consider a primary home to be an investment, and OP sure doesn't seem like a real estate investor. If we're only considering the value of the home, then sure paying more to buy in a good school district can pay off when you sell (ignoring that OP would be buying into the hottest market in recent history and looking to sell ~20 years from now when the kids finish school and who knows what home values or the schools might be like then). But looking at a picture outside of just the financials of this home purchase, I'm not sure the education is that much better in the good school than an average school. And really parental involvement seems to be a bigger driver to student success and good outcomes than the teaching they receive at school. OP is a 38 year old millionaire with a $200k+ annual income. They don't need to maximize their home value 20 years from now when the kids are done with school, and continue to work to pay for that in the mean time.

They somehow stumbled upon this place, but don't really seem to grasp that the only reason they'd have to work into their 60s is excessive spending. That could be spending on housing, or education, or consumer goods ($36k discretionary spending each year on top of regular bills leads me to think there's a lot slipping through the cracks here). If OP's kids can get similar outcomes for less $$ by staying in the current place and just being involved parents that seems like a much better investment of time/energy/money to me than paying 6 figures to either move or send the kids to fancy private schools. And of course I've mentioned the possibility of moving and retiring right away as well, which may also lead to better outcomes for less money. It's OP's life. They can choose their path forward based on their priorities. It just seems like a reminder of what this place is supposed to really be about was needed. It's not the "needlessly work a high paying job so that you can afford anything that society and marketing firms tell you you should want" forum. It's the "spend mindfully so that you can live a truly meaningful life on your terms" forum. If OP is fully aware of their various options and chooses to buy the more expensive place and work longer than necessary to support that decision (because it represents mindful spending) then great for them. But we should do our best to make OP aware that they have other options too, so they may make an informed decision.