Another how much mortgage can I afford post.

[Invest2016]

Age - 36
Wife - 35
Four Kids, I have a very stable job. Wife stays home.

Income -$400,000 - a few years now.

Recently paid off student loans !!!

Current mortgage - $2,100. $330k remaining
Probable equity after fees - $275k

Spend $10,000 per month including mortgage.

$7,000 goes into 401k, IRA, VTSAX per month.

401k $85k
VTSAX $110k
IRA x2 $20k or so.
$100k savings at a bank.

Would need to spend around $1,000,000 to have a significant upgrade. Can I afford it ?

Thinking $275k down so mortgage for $750k or so. 30 year fixed.

Thanks !

[PowderDay9]

You live in a 650k house and you're asking if you can afford a $1M house? Does the $2100 include property taxes and insurance? How much more in taxes is the new house?

Assuming your job really is that stable and you have the proper insurances (life, disability, etc), then yes you can afford it. Should you buy it is another question. Depends on your goals. You're net worth outside of your home is low compared to your age/income. You may have a lot of future expenses considering you have 4 kids. Are you you planning on saving for their education? If it were me I'd wait on the more expensive house.

What is the reason you want the $1M house?

[random_walker_77]

You say your job is stable -- how stable is the income level? Does that $400K depend on a bonus, or on stock market performance (i.e. RSUs)?

If it's truly stable at 400K, I don't see any concerns with borrowing 800K. Borrowing 2x gross income is no big deal, given minimal other debts. The mortgage would be a long-term obligation and the main thing is to make sure your income can last on a similar timescale.

Not what you asked, but I'll bring it up anyways:
Is this a forever home? Given that transaction costs are high, it'd be best to not be upgrading again in 5-10 years.

Given the high income, you're somewhat house-poor. Increasing the house isn't going to help that, but at your income level, you can afford to buy that higher standard of living. Just make sure that's what you want. Are you in the medical field and started relatively late w/ high student loans? Since your spending sounds relatively restrained at ~95K/yr excluding mortage, for a family of 6, you've got budget leeway to spend more and still save a lot. Assuming ~25% for taxes, you've got 300K to work with. The non-housing spending is 95K, so that leaves ~200K. If you increased this mortgage to 40-50K/yr, that still leaves 150-160k of saving, so you could comfortably knock off this larger house's mortgage within a decade while still saving for retirement. That says to me this is not a concern, so long as your income assumptions are correct.

[scorcher31]

Based on you having the salary for a few years and the recently paid students loans I would guess you're a physician. Can you afford the home...probably, but it will also put you behind the 8 ball a bit. Your savings are on the low side (as are most new physicians) and you want to boost that up as much as you can while you are young so it grows over time. Our current house in a high income state and is half the price of your current one and our gross income is a bit higher just for some perspective. You can definitely pull it off, but make sure it's what you want because the combination of waiting longer to front load your retirement, and just higher expenses in general (mortgage, taxes, filling/decorating the home) i expect will overall make a large difference in your retirement age.

[KlangFool]

OP,

1) What is your annual saving now?

2) What would be your annual savings after buying the 1 million house?

3) How old are your kids? Will they be taking the student loans for their college education? If not, where would the money come from after buying the 1 million house?

4) In my affluent neighborhood of annual median household income of 150K and median house price of 500K to 600K (about the same ratio as yours), the majority of the parents cannot afford to pay for their kids' college education. Their kids ended up with student loans. Most households only have 2 kids.

KlangFool

[Dude5568]

I'll go with my man Dave Ramsey on this . Do you meet the following criteria -

- Are you debt free ( except the current mortgage ) ?
- Do you have 3-6 months of expenses in an emergency fund ?
- Are you putting down 20 percent ? ( Yes you are ) ?
- Are you getting a 15 year fixed mortgage where the Principal/Interest/Taxes/Insurance are no more than 25 percent of your take home each month ? ( you're getting a 30 year )

Dave has a mixed reception on financial forums but his home buying advice is solid IMO.

Since I suspect you are a Physician , i'll add a few more -
- Do you have term life and disability ( and also preferably umbrella ) insurances in place ?
- Have you run a calculation on your ideal retirement scenario and where does this house and it's associated expenses fit in ?

Since you have 4 kids , I'll add one more -
- What have you planned for their higher education if any ?

[Lee_WSP]

I'll go with my man Dave Ramsey on this . Do you meet the following criteria -

- Are you debt free ( except the current mortgage ) ?
- Do you have 3-6 months of expenses in an emergency fund ?
- Are you putting down 20 percent ? ( Yes you are ) ?
- Are you getting a 15 year fixed mortgage where the Principal/Interest/Taxes/Insurance are no more than 25 percent of your take home each month ? ( you're getting a 30 year )

Dave has a mixed reception on financial forums but his home buying advice is solid IMO.

Since I suspect you are a Physician , i'll add a few more -
- Do you have term life and disability ( and also preferably umbrella ) insurances in place ?
- Have you run a calculation on your ideal retirement scenario and where does this house and it's associated expenses fit in ?

Since you have 4 kids , I'll add one more -
- What have you planned for their higher education if any ?

While that rule of thumb has a lot of exceptions in my mind, OP's situation is far from any of them. OP's buying a want, not a need and wants should be very affordable. IMO.

[SevenBridgesRoad]

I always thought this was the wrong question. Start with: what are your goals in life? If you go maximum house and mortgage, you are making other tradeoffs, short and long term. For one, my wife and I never bought into the whole max house thing (at your age, my income was about what your is). We've had very nice homes, but always stayed well below our means. Early financial freedom (not necessarily early retirement) was my goal, not a maximum house.

[XM16E1]

IMO your savings to income level is too low. I would guess you have only had the 400k income for a short time, 1 or 2 years? If it was me I would stay in the current house and bank more cash, at least triple what you currently have, before upgrading homes.

[BusterMcTaco]

My vote is yes. If this is a forever home, you can absolutely do it. It's basically trading your equity from one house to another house (presumably one you want, or need, more than that one you have currently). Yes, you'd be considerably increasing your mortgage, but not to the extent that it's liable to set you back more than a year or two in FI/retirement.

I get not needing to go above and beyond on houses, but a house isn't a want in my mind. It is the #1 most used purchase in your entire life. Like a mattress/bed, don't skimp. Buy what works for you. Just make sure it's a forever home or the transactions costs will hurt.

[HomeStretch]

A $1 million house is 2.5x your annual salary which is reasonable. But consider holding off until you boost your portfolio balance and can save a minimum of 20-25% of gross income even with higher new house costs.

[Nate79]

Do you need a $1m house? Does your current house suck so bad that you are willing to pay hundreds of thousands more to upgrade?

[Xrayman69]

To the OP,

What some people call a “want” or “upgrading” may simply be on your account a desire to have some more space (family of 6) after many years on loving lean.

If you maintain a responsible lifestyle than yes you can afford this price home. Don’t feel bad or shamed that you can afford a more comfortable lifestyle. Don’t feel shamed into constantly and forever liver for tomorrow when today is right here.

Save the max you can, enjoy your spouse and family time, do great work and enjoy your work. No shame in having it all if you maintain a responsible spending habit and lifestyle.

[KlangFool]

To the OP,

What some people call a “want” or “upgrading” may simply be on your account a desire to have some more space (family of 6) after many years on loving lean.

If you maintain a responsible lifestyle than yes you can afford this price home. Don’t feel bad or shamed that you can afford a more comfortable lifestyle. Don’t feel shamed into constantly and forever liver for tomorrow when today is right here.

Save the max you can, enjoy your spouse and family time, do great work and enjoy your work. No shame in having it all if you maintain a responsible spending habit and lifestyle.

Xrayman69,

<<If you maintain a responsible lifestyle>>

Do you consider someone that earns 400K per year and live in a 1 million house but cannot afford to pay for the kids' college education living a responsible lifestyle?

That is the common definition of a responsible lifestyle of my peers.

KlangFool

[Nate79]

To the OP,

What some people call a “want” or “upgrading” may simply be on your account a desire to have some more space (family of 6) after many years on loving lean.

If you maintain a responsible lifestyle than yes you can afford this price home. Don’t feel bad or shamed that you can afford a more comfortable lifestyle. Don’t feel shamed into constantly and forever liver for tomorrow when today is right here.

Save the max you can, enjoy your spouse and family time, do great work and enjoy your work. No shame in having it all if you maintain a responsible spending habit and lifestyle.

Xrayman69,

<<If you maintain a responsible lifestyle>>

Do you consider someone that earns 400K per year and live in a 1 million house but cannot afford to pay for the kids' college education living a responsible lifestyle?

That is the common definition of a responsible lifestyle of my peers.

KlangFool

That is certainly not a responsible lifestyle. I would consider it extremely irresponsible if not harmful to the wellbeing of their kids.

[TimOthy1456]

This is not a direct answer to your question, but hopefully the logic will help. Or, I may just be wrong.

The way I think about housing cost is not in terms of the cash flow, which is how I see most people, including Bogleheads, thinking about it.

I think in terms of the actual cost. I.e., after-tax mortgage interest + after-tax property taxes + maintenance on the house + any PMI + opportunity cost of capital for the down payment - expected home price appreciation.

Using this framework, I think my total cost of staying in my house ends up being $2k per month for a $510k house. I am ok with that level of cost. Of course the cash flow lost to housing is much higher than $2k.

Now as far as how much house you can afford - I don't think in terms of net worth or in terms of % of income, etc. like most people do either. I simply project out what I think my income, expenses, investment returns and therefore net worth will be by age. I am OK with that number and trajectory. My goal is be able to retire by a certain age, make a certain level of charitable contributions and leave a certain amount for my kiddo(s).

Of course, these two analyses have a ton of uncertainty - job could be lost, or compensation could go down, wife could decide to stop working, home prices could go down, investment returns could be negative, etc. It is wise to leave a margin of safety in any decision you make and you can mitigate risks by taking on less debt or lowering your burn rate. But the central point is I think in terms of costs, not cash flow when it comes to houses and I think in terms of net worth trajectory when it comes to affording XYZ purchase.

The small caveat is on the affordability point is that I mainly just live a lifestyle I am happy with, independent of affordability considerations. There are times my wife and I have made nearly $500k together and times, such as when in school, we've made <$100k. Our lifestyle did not really change much.

[dsmil]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

[KlangFool]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

[smitcat]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.
I believe that we need a bit more information before we can lend good thoughts on the topic he has raised.
There is a good possibility that his very recently payed off school loans will offset his new home costs for the most part.
How about we collect some additional information before assuming the OP's future intentions?

[White Coat Investor]

Age - 36
Wife - 35
Four Kids, I have a very stable job. Wife stays home.

Income -$400,000 - a few years now.

Recently paid off student loans !!!

Current mortgage - $2,100. $330k remaining
Probable equity after fees - $275k

Spend $10,000 per month including mortgage.

$7,000 goes into 401k, IRA, VTSAX per month.

401k $85k
VTSAX $110k
IRA x2 $20k or so.
$100k savings at a bank.

Would need to spend around $1,000,000 to have a significant upgrade. Can I afford it ?

Thinking $275k down so mortgage for $750k or so. 30 year fixed.

Thanks !

Yes, you can afford a $750K mortgage on a stable $400K income.

[KlangFool]

OP,

1) You have a 600K house that you owed 330K.

2) Your net worth excluding the house is about 300K.

3) Your current annual expense excluding the 1 million houses is about 120K per year.

4) You have 4 kids.

Your future obligation

A) Assuming that your kids do not go to medical schools and 30K per year for college, you need 4 x 4 x 30K = 480K. You know how much medical school costs.

B) Assuming your retirement expense = 80K, you need 2 million (25X).

It is very simple.

Do the calculation. Can you afford to spend another at least 400K plus interest and property tax extra on the house? What would you have to give up for the house?

KlangFool

[KlangFool]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.

smitcat,

Many folks do not think about how they are going to pay for their kids' college education before they overspend on their houses. They assumed that they can afford to do that even after they overspend on the house.

This is common among my peers.

KlangFool

[smitcat]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.

smitcat,

Many folks do not think about how they are going to pay for their kids' college education before they overspend on their houses. They assumed that they can afford to do that even after they overspend on the house.

This is common among my peers.

KlangFool

Three thoughts...
1. college can cost from zero dollars up to $300+ per student, you view of costs may not be close to others views.
2. he is saving at least $82K a year now even with the school loans at 36. He will likely have no problems cash flowing college if he chooses if/when the time comes.
3 Peers are people that are like you , not just someone who lives in your area. a suggestion would be to seek info. from your true peers and not quote ones that you do not identify with.

[finfire]

On your income, you current mortgage looks good.

Why mess with that? Will a $1M home make you that much happier?

[Olemiss540]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.

smitcat,

Many folks do not think about how they are going to pay for their kids' college education before they overspend on their houses. They assumed that they can afford to do that even after they overspend on the house.

This is common among my peers.

KlangFool

Three thoughts...
1. college can cost from zero dollars up to $300+ per student, you view of costs may not be close to others views.
2. he is saving at least $82K a year now even with the school loans at 36. He will likely have no problems cash flowing college if he chooses if/when the time comes.
3 Peers are people that are like you , not just someone who lives in your area. a suggestion would be to seek info. from your true peers and not quote ones that you do not identify with.

82k a year on a 400k salary with a late start is not saving a whole lot (especially on bogleheads). I believe those savings rates are POST DEBT REPAYMENT from a quick read.

The OP's peers are most likely house broke, debt laden, and well behind the curve for retirement in their early 60's. That's going to be consistent with EVERYONE'S peers as Boglheads and FI enthusiasts are by far the minority (including high income households).

I believe Klang is merely saying to run the numbers and to plan for a very large expense upcoming if that is your plan (to pay for college).

[smitcat]

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.

smitcat,

Many folks do not think about how they are going to pay for their kids' college education before they overspend on their houses. They assumed that they can afford to do that even after they overspend on the house.

This is common among my peers.

KlangFool

Three thoughts...
1. college can cost from zero dollars up to $300+ per student, you view of costs may not be close to others views.
2. he is saving at least $82K a year now even with the school loans at 36. He will likely have no problems cash flowing college if he chooses if/when the time comes.
3 Peers are people that are like you , not just someone who lives in your area. a suggestion would be to seek info. from your true peers and not quote ones that you do not identify with.

82k a year on a 400k salary with a late start is not saving a whole lot (especially on bogleheads). I believe those savings rates are POST DEBT REPAYMENT from a quick read.

The OP's peers are most likely house broke, debt laden, and well behind the curve for retirement in their early 60's. That's going to be consistent with EVERYONE'S peers as Boglheads and FI enthusiasts are by far the minority (including high income households).

I believe Klang is merely saying to run the numbers and to plan for a very large expense upcoming if that is your plan (to pay for college).

As I posted to Klang above...
"Many folks do not believe that a college education is a requirement of parenthood, and the OP did not ask about that.
I believe that we need a bit more information before we can lend good thoughts on the topic he has raised.
There is a good possibility that his very recently payed off school loans will offset his new home costs for the most part.
How about we collect some additional information before assuming the OP's future intentions?"

[dsmil]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

The OP is saving $84k per year. A good chunk of that should be able to be diverted for college savings, or cash flow can be used for college when the time comes. If the OP can't save enough with a $400k income, I don't think the $4k per month mortgage would be the cause.

[KlangFool]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

The OP is saving $84k per year. A good chunk of that should be able to be diverted for college savings, or cash flow can be used for college when the time comes. If the OP can't save enough with a $400k income, I don't think the $4k per month mortgage would be the cause.

dsmil,

<<The OP is saving $84k per year. A good chunk of that should be able to be diverted for college savings, or cash flow can be used for college when the time comes. >>

That is before buying the 1 million house. With the 1 million house, the additional PITI (24K per year) will reduce the number down to 60K before other additional housing expenses. That is barely enough savings for retirement. There is no money for college educations.

<<If the OP can't save enough with a $400k income, I don't think the $4k per month mortgage would be the cause.>>

So, if OP is not saving enough now, why are you recommending that OP should spend more on 1 million houses? How does this make any sense?

KlangFool

[Flyer24]

I think some information is getting overlooked and maybe some information has been left out. I will fill in from some other posts. The OP just finished paying off a $130K student loan. His payments were $2100 a month resulting in additional free cash flow. Congrats on paying off the loan!

[smitcat]

I think some information is getting overlooked and maybe some information has been left out. I will fill in from some other posts. The OP just finished paying off a $130K student loan. His payments were $2100 a month resulting in additional free cash flow. Congrats on paying off the loan!

Yup - and the OP owns a duplex rental while paying down the student loans and saving.
But rather than wait for the OP to add details required to factually give some feedback we could just make up 'problems'.

[smitcat]

Yes, you can afford it. Your savings will drop but you'll still be putting >15% towards retirement. A 15% savings rate at that income level goes a long way, assuming spending levels aren't too crazy in retirement.

dsmil,

In summary, you are assuming that OP will not be paying for his kids' college education after buying the 1 million house. Is that correct? And, in your belief system, that is a responsible lifestyle.

KlangFool

The OP is saving $84k per year. A good chunk of that should be able to be diverted for college savings, or cash flow can be used for college when the time comes. If the OP can't save enough with a $400k income, I don't think the $4k per month mortgage would be the cause.

dsmil,

<<The OP is saving $84k per year. A good chunk of that should be able to be diverted for college savings, or cash flow can be used for college when the time comes. >>

That is before buying the 1 million house. With the 1 million house, the additional PITI (24K per year) will reduce the number down to 60K before other additional housing expenses. That is barely enough savings for retirement. There is no money for college educations.

<<If the OP can't save enough with a $400k income, I don't think the $4k per month mortgage would be the cause.>>

So, if OP is not saving enough now, why are you recommending that OP should spend more on 1 million houses? How does this make any sense?

KlangFool

"So, if OP is not saving enough now, why are you recommending that OP should spend more on 1 million houses? How does this make any sense?"

$400K income in most states with his details - dependents, pre tax deductions etc will yield about $110K in taxes.
That leaves $290K for savings and spending.
He is currently at about $10K spending per months with the current home.
Why people presume to know details about this post I have no idea....I would say we need more facts to make any such statements.

[Broken Man 1999]

To the OP,

What some people call a “want” or “upgrading” may simply be on your account a desire to have some more space (family of 6) after many years on loving lean.

If you maintain a responsible lifestyle than yes you can afford this price home. Don’t feel bad or shamed that you can afford a more comfortable lifestyle. Don’t feel shamed into constantly and forever liver for tomorrow when today is right here.

Save the max you can, enjoy your spouse and family time, do great work and enjoy your work. No shame in having it all if you maintain a responsible spending habit and lifestyle.

From what I have read, OP, you should be just fine.

We enjoyed owning a large enough home that allowed the family members to have room to pursue their activities without being annoyances to the other residents of the home. Very nice option to have. You have a large family, I'm sure a larger house would be great.

At your income level, you have a lot of flexibility.

Broken Man 1999

ETA: In the daughter's circle of friends, other than the daughter of my neurosurgeon, we had the largest home. And, it was great because so many gatherings of their friends were held at our house. We always knew where the daughters were, and what they were doing, for the most part.

It wasn't unusual for me to come home from a business trip and find the daughters' friends all over the house doing sleep overs.

[Golf maniac]

I always thought this was the wrong question. Start with: what are your goals in life? If you go maximum house and mortgage, you are making other tradeoffs, short and long term. For one, my wife and I never bought into the whole max house thing (at your age, my income was about what your is). We've had very nice homes, but always stayed well below our means. Early financial freedom (not necessarily early retirement) was my goal, not a maximum house.

+1, spot on advice

[Xrayman69]

To the OP,

What some people call a “want” or “upgrading” may simply be on your account a desire to have some more space (family of 6) after many years on loving lean.

If you maintain a responsible lifestyle than yes you can afford this price home. Don’t feel bad or shamed that you can afford a more comfortable lifestyle. Don’t feel shamed into constantly and forever liver for tomorrow when today is right here.

Save the max you can, enjoy your spouse and family time, do great work and enjoy your work. No shame in having it all if you maintain a responsible spending habit and lifestyle.

From what I have read, OP, you should be just fine.

We enjoyed owning a large enough home that allowed the family members to have room to pursue their activities without being annoyances to the other residents of the home. Very nice option to have. You have a large family, I'm sure a larger house would be great.

At your income level, you have a lot of flexibility.

Broken Man 1999

ETA: In the daughter's circle of friends, other than the daughter of my neurosurgeon, we had the largest home. And, it was great because so many gatherings of their friends were held at our house. We always knew where the daughters were, and what they were doing, for the most part.

It wasn't unusual for me to come home from a business trip and find the daughters' friends all over the house doing sleep overs.

I’ll bet it brought a smile and some joy to your life. Life need not always about “fun now” but it also needn’t be constant worry and fear riddled with guilt.

I have recently found the tremendous joy of spending some money now for experiences with my family and quality of life. We lived a humble life young and then what we deemed personally (and yes it is a personal determination) responsible financial life well within our means. We now have the ability to look back and think that the extra 1k or even 10K will not make a difference on our impact to the kid or our perpetual future.

We have the means to pay for the kids college and graduate education but have no plans on making this a right but rather a privilege based upon merit. In other words a guaranteed scholarship from mom and dad is not a sure thing. I think “personally” this is a valuable life lesson for which we regularly discuss with the kid.

So to address the question posed by the OP, yes you can afford the home if you remain “responsible” with your finances. The “responsible” merits are “personal” and for which which only you and your spouse can determine. If you ask the bank they will likely say yes, and thus provide some low level of QA regarding your finances.

[mnsportsgeek]

Yes, you can absolutely afford a 1m home if your income level is secure and can be found again if needing a job change.