House down payment strategy?

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Topic Author
softmax
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House down payment strategy?

Post by softmax »

I'm new to this forum and have found it extremely useful :)
I'm turning 28 this year (not married) and I recently moved to a VHCOLA w/o state tax.
Rent here is high and my current lease will end in July, so I'm seriously considering buying.

I'm targeting a 1M house (constrained by my 150k base salary), but it's an awkward budget in my area for two reasons:
- many people can afford 1M so nice houses are typically gone in just a few days (they probably even don't ask for inspection, which I won't risk myself).
- market is quite slow right now. I can nearly name all the house within my budget on Redfin.

I currently hold 240k in a savings account with 1.60% interest rate (it has been declining every month).
My frustration is that I have no idea when I can eventually buy the house and I feel that 1.60% cannot even beat the inflation, not to mention the craziness in the real estate market here.
Also, (I'm not sure if my mindset is right), the stock market has been doing well recently and I guess I'm becoming relatively less competitive compared to other buyers.

I wonder if people have suggestions on how I should deal with my down payment.
bloom2708
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Re: House down payment strategy?

Post by bloom2708 »

$1 million house on $150k salary is not a good idea. Even at 4x salary you are looking at $600k.

Houses are much more (costly) than just the monthly payment.

Why do you feel you need to own right now? New to the area (will you stay?). Not married/no kids yet.

Stay flexible. Keep saving. If you feel you have saved "enough" for a future down payment of 20%, then invest more.

I would not buy in your shoes. A $1 million anchor. No thanks. Up your rental budget. Get a place with a pool and fun amenities. You can own down the road when things line up.
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KlangFool
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Re: House down payment strategy?

Post by KlangFool »

OP,

It is very simple.

You cannot afford the 1 million house. Even if you buy the house, you will lose it eventually.

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JoeRetire
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Re: House down payment strategy?

Post by JoeRetire »

softmax wrote: Tue Feb 04, 2020 1:53 am I'm targeting a 1M house (constrained by my 150k base salary)

I currently hold 240k in a savings account with 1.60% interest rate (it has been declining every month).

I wonder if people have suggestions on how I should deal with my down payment.
Assuming you need 20% for a down payment, it sounds like you are already there.

That said, $1M is an awful lot to pay for a house on a $150k salary. I know I wouldn't buy with those numbers.
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daheld
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Re: House down payment strategy?

Post by daheld »

Going to join the chorus here and say that unless there's something you left you on your first post, there's no fathomable way you can afford a $1 million home.

Even being charitable and assuming you're able to take ALL $240k in your savings and apply it to a down payment, that leaves you with a $760k mortgage (and presumably a $0 emergency fund). This'll cost you over $42,000 per year, which is more than 28% of your gross income for only P&I. None of this is advisable.

Unless there's some major source of money you left out, I'd re-sign a lease.
Topic Author
softmax
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Re: House down payment strategy?

Post by softmax »

Sorry guys I should have mentioned that my TC is 250k (150k base + 100k RSUs?). I've talked to many lenders and they all told me that RSUs don't count. But even with considering RSUs, all lenders said I could easily afford a 1M house as long as I have 200k down payment. Were they just luring me to buy?
KlangFool
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Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Tue Feb 04, 2020 3:01 pm Sorry guys I should have mentioned that my TC is 250k (150k base + 100k RSUs?). I've talked to many lenders and they all told me that RSUs don't count. But even with considering RSUs, all lenders said I could easily afford a 1M house as long as I have 200k down payment. Were they just luring me to buy?
softmax,

1) Why should they care if you lose your house later? They had made money from you.

2) Even with 250K "income", you are still "house poor". And, if we hit a recession, your RSU may worth nothing.

3) What would be your net worth excluding the house after you bought the house?

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dsmil
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Re: House down payment strategy?

Post by dsmil »

softmax wrote: Tue Feb 04, 2020 3:01 pm Were they just luring me to buy?
In my experience, lenders will approve you for more than you should actually take. They'll probably use whatever the maximum debt to income ratio is for a conventional loan. I'm sure that giving a larger loan helps them, and they'll wind up selling the loan anyway and passing along the risk. You are much better off doing your own analysis and ignoring the amount that the bank will give you.
livesoft
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Re: House down payment strategy?

Post by livesoft »

Just keep saving and investing for the next 10 years or more, then come back and ask your question. In the meantime, get your money out of a low-interest savings account into the stock market. You have plenty of time for any market losses to recover before trying to buy a home in 10 to 15 years.
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J45
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Re: House down payment strategy?

Post by J45 »

Hey Welcome to the club! I am relatively new too but its certainly very helpful.

In plain words, without sugar-coating, Its impossible to afford one mil property on $150 income. I wonder if you did any research!

When you buy a house, you have bills, insurance, taxes, repairs, security, maintenance and a lot more. Then the big elephants like roof change, painting etc can easily throw you off.

Not trying to disappoint you but in my experience, I wouldn't even buy $500 with income of $150. Keep at least half of what you have in savings as emergency fund and feel good. Start small, slowly grow and then branch out :D

Sorry, saw your response later but my answer still does not change.
$250! Hold it, save more for few years and then do it.
dellfanboy
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Re: House down payment strategy?

Post by dellfanboy »

I'll add a few more data points. Please don't buy this house. I'm in a similar area and have a $400k HHI. We can't move forward with spending $1M on a house (aka anchor). Save more and invest.
Golf maniac
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Re: House down payment strategy?

Post by Golf maniac »

Every lender I have ever approached when buying a house has approved me for double the amount I wanted and was comfortable getting. As Klang stated you would be house poor and I would advise you to downgrade what you are looking at. On your cash savings getting 1.60%. That money is not for investment purposes, it is for liquidity for emergencies or saving up for a down payment. My homes have never been even 2x my annual income. You get so much financial freedom from not putting a significant portion of your income into your home (mortgage, taxes, maintenance). You can truly save for that early retirement and other passions you may have. Good luck and hopefully you will find something you can afford.
Lee_WSP
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Re: House down payment strategy?

Post by Lee_WSP »

If you don't know when you will buy, then invest it very conservatively, but invest it.

Ie, put it in something a little more conservative than the Wellesley fund.

I decline to weigh in on the question of whether you should even buy, but there are calculators out there to tell you whether it makes financial sense or not.
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Re: House down payment strategy?

Post by Dottie57 »

softmax wrote: Tue Feb 04, 2020 3:01 pm Sorry guys I should have mentioned that my TC is 250k (150k base + 100k RSUs?). I've talked to many lenders and they all told me that RSUs don't count. But even with considering RSUs, all lenders said I could easily afford a 1M house as long as I have 200k down payment. Were they just luring me to buy?
Luring you to buy. The have quotas and are not looking out for you.
Topic Author
softmax
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Re: House down payment strategy?

Post by softmax »

Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
KlangFool
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Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Tue Feb 04, 2020 5:07 pm
1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
softmax,

1) So, even if the rent double, it is still cheaper to rent.

2) See "Telecom Bust".

3) Given your net worth without the house, it won't take long for you to go bankrupt if you are unemployed. Will you last one year of unemployment?

4) Many people live paycheck to paycheck and they will lose their houses when they are unemployed. Do you like to be one of them? See (3).

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bloom2708
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Re: House down payment strategy?

Post by bloom2708 »

softmax wrote: Tue Feb 04, 2020 5:07 pm Considering all the factors above, is buying really a bad idea?
I still think you are WAY under estimating the cost difference between renting and owning.

A $1 million house, an $800k mortgage and ~$100k of cash/investments. Just not a good idea.

Cart before horse.
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Lee_WSP
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Re: House down payment strategy?

Post by Lee_WSP »

softmax wrote: Tue Feb 04, 2020 5:07 pm Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
Redfin says that the monthly on said 1 million dollar house is 4,533. Renting is still cheaper.

The price can and probably will go down too.
Green Street
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Re: House down payment strategy?

Post by Green Street »

Continue renting sir
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Topic Author
softmax
Posts: 222
Joined: Tue Feb 04, 2020 1:27 am

Re: House down payment strategy?

Post by softmax »

Lee_WSP wrote: Tue Feb 04, 2020 8:14 pm
softmax wrote: Tue Feb 04, 2020 5:07 pm Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
Redfin says that the monthly on said 1 million dollar house is 4,533. Renting is still cheaper.

The price can and probably will go down too.
Thanks for the number.
Renting is almost always cheaper than mortgage payment in nearby counties (Bellevue, Kirkland, Redmond) that I would consider, unless there's a recession. Does it mean I should never buy or at least I should hold the cash until the next recession? Some people would argue that renting is throwing away the money, which I kind of agree...
Lee_WSP
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Re: House down payment strategy?

Post by Lee_WSP »

softmax wrote: Tue Feb 04, 2020 8:55 pm
Lee_WSP wrote: Tue Feb 04, 2020 8:14 pm
softmax wrote: Tue Feb 04, 2020 5:07 pm Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
Redfin says that the monthly on said 1 million dollar house is 4,533. Renting is still cheaper.

The price can and probably will go down too.
Thanks for the number.
Renting is almost always cheaper than mortgage payment in nearby counties (Bellevue, Kirkland, Redmond) that I would consider, unless there's a recession. Does it mean I should never buy or at least I should hold the cash until the next recession? Some people would argue that renting is throwing away the money, which I kind of agree...
Renting is usually always cheaper since you will usually rent a smaller place than you buy and you don't have those maintenance expenses such as HVAC, roof, flooring, etc.

https://michaelbluejay.com/house/rentvsbuy.html

At a 4% ROR & 3.5% home appreciation. If you only stay 10 years, renting is cheaper. If you stay 15 years, owning comes out ahead a little.

Bump the rent up to $3k and buying will make a little more sense if you stay put for 10 years. But only if you stay put for 10 years.
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AerialWombat
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Re: House down payment strategy?

Post by AerialWombat »

bloom2708 wrote: Tue Feb 04, 2020 7:22 pm
softmax wrote: Tue Feb 04, 2020 5:07 pm Considering all the factors above, is buying really a bad idea?
I still think you are WAY under estimating the cost difference between renting and owning.

A $1 million house, an $800k mortgage and ~$100k of cash/investments. Just not a good idea.

Cart before horse.
+1

Don’t buy in Seattle. Home prices actually declined there a tiny bit last year, and the market is cooling a tad. If you work downtown, consider buying in the west Sound and take the ferry. Much more house for the money and better QOL (in my opinion). Houses under $400k over there. Don’t become house poor.
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KlangFool
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Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Tue Feb 04, 2020 8:55 pm
Some people would argue that renting is throwing away the money, which I kind of agree...
softmax,

You have a choice. You can agree with them. Or, you can buy at their houses at a great deal since they had thrown away their money by buying a house.

KlangFool
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JGoneRiding
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Re: House down payment strategy?

Post by JGoneRiding »

By base salary I assume you also get bonuses? I get it. I bought a 215k house on a 55k base salary just starting out. It was a horrid idea but in the end has worked very well

But I wouldn't recommend it to anyone. It was often an anchor and you are young in an expensive place life can take you anywhere.
Unladen_Swallow
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Re: House down payment strategy?

Post by Unladen_Swallow »

OP,

Asking how much house you can afford by looking at a mortgage holds the same wisdom as buying a car based on the monthly payment.

I wouldn't buy a $1M house with neither $150k, nor $250k salary. The house will become your master.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
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Toons
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Re: House down payment strategy?

Post by Toons »

Look at a 250,000 price or less :mrgreen: :mrgreen:
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petulant
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Re: House down payment strategy?

Post by petulant »

softmax wrote: Tue Feb 04, 2020 8:55 pm
Lee_WSP wrote: Tue Feb 04, 2020 8:14 pm
softmax wrote: Tue Feb 04, 2020 5:07 pm Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
Redfin says that the monthly on said 1 million dollar house is 4,533. Renting is still cheaper.

The price can and probably will go down too.
Thanks for the number.
Renting is almost always cheaper than mortgage payment in nearby counties (Bellevue, Kirkland, Redmond) that I would consider, unless there's a recession. Does it mean I should never buy or at least I should hold the cash until the next recession? Some people would argue that renting is throwing away the money, which I kind of agree...
What, pray tell, do you mean by the phrase "throwing away the money"? I would think you would be concerned about throwing away more than your entire rent payment on the mortgage interest alone. It may be that's a phrase you and your non-finance peers haven't thought through.

Also mortgage bankers are not trustworthy on your decisions. They have a commission or a quota or both. They will tell you what you can get approved for, which often includes a 50% DTI. Yes, they will approve a mortgage for 50% of your paycheck if you have no other debt. Let that sink in.
BogleMelon
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Re: House down payment strategy?

Post by BogleMelon »

softmax wrote: Tue Feb 04, 2020 5:07 pm 4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.
Many people have credit card, It shouldn't be an awful idea if many people did so. Many people smoke, it shouldn't be an awful idea if many people did so. Many people live paycheck to paycheck (and that comes with severe anxiety from little things such as replacing car battery), but hey, it shouldn't be an awful idea if many people did so. Many people are suffering from obesity due to their eating habits, and/or lack of exercise, but it shouldn't be an awful idea if many people did so.

If you still didn't get the idea, then this might help: https://en.wikipedia.org/wiki/Argumentum_ad_populum
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
BogleMelon
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Re: House down payment strategy?

Post by BogleMelon »

softmax wrote: Tue Feb 04, 2020 8:55 pm
Lee_WSP wrote: Tue Feb 04, 2020 8:14 pm
softmax wrote: Tue Feb 04, 2020 5:07 pm Thanks everyone for all the fruitful suggestions.
By VHCOLA w/o state tax I mean Greater Seattle and I'm sure many of you have figured. It looks like the discussion has shifted to whether I should buy. While I'm also not sure if I'm really ready to buy, I would like to clarify my original motivation to buy.

1) I pay 2.6k for a 1B1B apartment right now, and the rent will certainly increase this year afaik (a couple of big tech companies are building new offices near my apartment). Q: Can I find a cheaper place to live in? A: Probably no because the location is very important to me.

2) My career growth is quite foreseeable although there's always a chance to be laid off. I started my very first full-time job last year after graduating from the grad school so it's relatively safe to say that my career hasn't saturated yet. I work in tech so the growth of TC is very much predictable.

3) The real estate market in Seattle is growing too fast (taking the Bay Area as the reference) and as long as I don't go bankrupt, it's unlikely that I will regret buying the house early. Honestly 1M in Greater Seattle isn't even close to an ideal home for a family with kids. If school district is taken into consideration, the price could easily go up to 1.5M.

4) Many people I know who have similar backgrounds (i.e., late 20s, 250k~300k TC, software engineers) have bought or at least are on the market. I'm not jealous; I just think it shouldn't be an awful idea if many people did so.

Regarding my net worth if I bought the house excluding the house itself (cc KlangFool)
cash: 40k
stocks: 25k + 18k (after tax) RSUs to be vested next week
401k + IRA: 10k (I'm going to max out this year)

Considering all the factors above, is buying really a bad idea?
Redfin says that the monthly on said 1 million dollar house is 4,533. Renting is still cheaper.

The price can and probably will go down too.
Thanks for the number.
Renting is almost always cheaper than mortgage payment in nearby counties (Bellevue, Kirkland, Redmond) that I would consider, unless there's a recession. Does it mean I should never buy or at least I should hold the cash until the next recession? Some people would argue that renting is throwing away the money, which I kind of agree...
If renting is throwing away money, what would you consider: property taxes, bank interest, house insurance, house repairs, closing fees, loss of opportunity for not investing the down payment, realtor fees when selling?

https://jlcollinsnh.com/2013/05/29/why- ... nvestment/
"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather
cochlearboy
Posts: 84
Joined: Sun Jul 07, 2019 12:11 pm

Re: House down payment strategy?

Post by cochlearboy »

KlangFool wrote: Tue Feb 04, 2020 9:40 pm
softmax wrote: Tue Feb 04, 2020 8:55 pm
Some people would argue that renting is throwing away the money, which I kind of agree...
softmax,

You have a choice. You can agree with them. Or, you can buy at their houses at a great deal since they had thrown away their money by buying a house.

KlangFool
Hi OP -

I make a similar salary as you do, and I live in an expensive zip code, too. I've also had to grapple with the feeling of throwing away money by renting, too. But, KlangFool and other posters are ABSOLUTELY correct that renting is not necessarily "throwing away money" because renting can often be cheaper than the total costs of maintaining a house, paying PITI, paying home insurance and property taxes. It really does add up!

As a rule of thumb, the costs of ownership are worth it when you own a home for a long period of time (i.e., roughly 10 or more years, but this really depends on the area).

One thing that I have done as a renter is to try to rent "cheap but nice" apartments. I also try to focus on single bedroom apartments that have a small square footage (I don't need alot of possessions), since they (usually) run cheaper than an equivalent single bedroom with bigger square footage.

This is my advice to you as someone who is in your shoes - keep renting and do your research on finding cheap apartments. With all of the extra money that you have, max out your tax advantaged accounts. Once you max out your tax advantaged accounts, open a brokerage and invest in a total stock market index fund and an international index fund (assuming you wish to invest in international). This has been what I have been doing for the past 7 years since I graduated college, and I sailed way past the $500k mark in 2019 thanks to the great returns in the stock market over the past 6 years. I will keep this plan going until I either get married and/or move to a low-cost area where housing prices are far more cheaper.
EnjoyIt
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Re: House down payment strategy?

Post by EnjoyIt »

I will chime in with everyone else not to buy, but I will give you more reason than just money.

You are young, not married and with no kids. You have freedom to switch jobs to anywhere in the world if a great opportunity comes. A house will limit your opportunities.

Your young, do you want to spend you free time doing yard work or fixing broken things or would you rather call the landlord when something goes wrong and instead go out on a date?

One day you will have a spouse and maybe kids. I am almost positive you and your spouse will be interested in buying something else together and make a life for yourselves. Selling this house will cost you 6% real estate agent fees and another 2-4% in making the house sellable and closing costs. That can be $80k-$100k you throw away right there.

There is more. Property tax in Seattle is about 1% plus you should expect another 1-2% maintenance every year. That comes to $20k-$30k a year gone which is not that far off from how much you pay in rent. This also does not include 4% interest on an $800k mortgage which is another $32k for the first year.

Buying is a huge mistake for you that so many people make in your shoes. For your sake you will head these warnings.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
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JoeRetire
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Re: House down payment strategy?

Post by JoeRetire »

softmax wrote: Tue Feb 04, 2020 5:07 pmConsidering all the factors above, is buying really a bad idea?
Yes. But it sounds like your mind is already made up.

I wish you luck.

Many years ago, one of my best friends was married with two children. He and his wife both had good jobs and the housing market was very hot. They decided the time was right so they purchased a McMansion that they could only afford with down payment help from her parents. It was a beautiful house in a wonderful, growing neighborhood.

They were house poor.

She got pregnant and left her job. He got laid off. They declared bankruptcy. They got divorced. Before I lost touch with him, he was a rather unhappy guy.

Never make yourself house poor.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
daheld
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Location: Midwest US

Re: House down payment strategy?

Post by daheld »

softmax wrote: Tue Feb 04, 2020 5:07 pm Considering all the factors above, is buying really a bad idea?
Yes. But you've come up with a list of items that are intended to further convince yourself that you should buy. None of us here will be able to stop you from buying, but you asked for opinions from the group and I think you've gotten a resounding answer. You might buy and it might turn out to be a great investment. Or, more likely, you'll buy and find that you're stretched far too thin and buying involves a LOT of unforeseen costs that renting does not. The consensus from the group you queried is that it's a terrible idea and none of the benchmarks we'd use to gauge your decision say it's a wise idea to buy.

Good luck.
Topic Author
softmax
Posts: 222
Joined: Tue Feb 04, 2020 1:27 am

Re: House down payment strategy?

Post by softmax »

Thanks everyone for generously sharing your experiences and advices!

I'm so glad I joined this forum because NO one ever educated me that renting could be better than buying. I now understand that buying is a stretch for me and I plan to revisit in a couple of years. 

I grew up in an metropolitan area where people of my parents' age have become extremely wealthy just because they bought their properties early. Therefore the only "life advice" I have received from senior family members is to buy early. One thing I know for sure is that my parents will be sad if I had to rent for my entire life, simply because it's a sign of "instability".

I'm going to assume that I will be in Seattle/Bay Area for the rest of my life. Industries are here and it's much easier to switch job if my current job doesn't go well. I do want to have concrete plan of when to buy. I can think of the following tiggers, whichever comes first (0% inflation for simplicity):
  • I'm engaged or married and I need at least a 2b2b (we enjoy having guests and parents around) in a great location. Rent is probably ~$3500.
  • My TC > 350k. I did my research (https://www.levels.fyi/) and found this do-able and a safe goal. Maybe having a house that I have full control will improve my QOL?
  • Recession finally comes and my employment is still solid. 
I would also want to be financially prepared, i.e., I want to be able to buy immediately when I need to or there's a great deal. Should I always keep my current 20% down payment in HY savings / CD and invest the rest in the stock market?
KlangFool
Posts: 20239
Joined: Sat Oct 11, 2008 12:35 pm

Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Wed Feb 05, 2020 1:46 pm Thanks everyone for generously sharing your experiences and advices!

I'm so glad I joined this forum because NO one ever educated me that renting could be better than buying. I now understand that buying is a stretch for me and I plan to revisit in a couple of years. 

I grew up in an metropolitan area where people of my parents' age have become extremely wealthy just because they bought their properties early. Therefore the only "life advice" I have received from senior family members is to buy early. One thing I know for sure is that my parents will be sad if I had to rent for my entire life, simply because it's a sign of "instability".

I'm going to assume that I will be in Seattle/Bay Area for the rest of my life. Industries are here and it's much easier to switch job if my current job doesn't go well. I do want to have concrete plan of when to buy. I can think of the following tiggers, whichever comes first (0% inflation for simplicity):
  • I'm engaged or married and I need at least a 2b2b (we enjoy having guests and parents around) in a great location. Rent is probably ~$3500.
  • My TC > 350k. I did my research (https://www.levels.fyi/) and found this do-able and a safe goal. Maybe having a house that I have full control will improve my QOL?
  • Recession finally comes and my employment is still solid. 
I would also want to be financially prepared, i.e., I want to be able to buy immediately when I need to or there's a great deal. Should I always keep my current 20% down payment in HY savings / CD and invest the rest in the stock market?
softmax,

A) <<My TC > 350k.>>

<<I would also want to be financially prepared, i.e., I want to be able to buy immediately>>

1) Just think about this carefully. (A) will not happen immediately. Even if it does, you wait one or two years before you settle on the job and buy the house.

2) If your TC is > 350K, why do you need to save for the house down payment?

Between your annual savings and your emergency fund, you should be able to cover the 20% down payment. If you cannot do that, you cannot afford the house.

In summary, you do not have to save for the house down payment.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Unladen_Swallow
Posts: 784
Joined: Tue Dec 10, 2019 6:12 pm

Re: House down payment strategy?

Post by Unladen_Swallow »

JoeRetire wrote: Wed Feb 05, 2020 8:08 am
softmax wrote: Tue Feb 04, 2020 5:07 pmConsidering all the factors above, is buying really a bad idea?
Yes. But it sounds like your mind is already made up.

I wish you luck.

Many years ago, one of my best friends was married with two children. He and his wife both had good jobs and the housing market was very hot. They decided the time was right so they purchased a McMansion that they could only afford with down payment help from her parents. It was a beautiful house in a wonderful, growing neighborhood.

They were house poor.

She got pregnant and left her job. He got laid off. They declared bankruptcy. They got divorced. Before I lost touch with him, he was a rather unhappy guy.

Never make yourself house poor.
Very much so.

Any home mortgage that can only be serviced by two pay checks, while there are (will be) young kids in the picture is an unfeasible proposition as far as I'm concerned. The stability of the jobs is irrelevant.
"I think it's much more interesting to live not knowing than to have answers which might be wrong." - Richard Feynman
Topic Author
softmax
Posts: 222
Joined: Tue Feb 04, 2020 1:27 am

Re: House down payment strategy?

Post by softmax »

KlangFool wrote: Wed Feb 05, 2020 1:54 pm
softmax wrote: Wed Feb 05, 2020 1:46 pm Thanks everyone for generously sharing your experiences and advices!

I'm so glad I joined this forum because NO one ever educated me that renting could be better than buying. I now understand that buying is a stretch for me and I plan to revisit in a couple of years. 

I grew up in an metropolitan area where people of my parents' age have become extremely wealthy just because they bought their properties early. Therefore the only "life advice" I have received from senior family members is to buy early. One thing I know for sure is that my parents will be sad if I had to rent for my entire life, simply because it's a sign of "instability".

I'm going to assume that I will be in Seattle/Bay Area for the rest of my life. Industries are here and it's much easier to switch job if my current job doesn't go well. I do want to have concrete plan of when to buy. I can think of the following tiggers, whichever comes first (0% inflation for simplicity):
  • I'm engaged or married and I need at least a 2b2b (we enjoy having guests and parents around) in a great location. Rent is probably ~$3500.
  • My TC > 350k. I did my research (https://www.levels.fyi/) and found this do-able and a safe goal. Maybe having a house that I have full control will improve my QOL?
  • Recession finally comes and my employment is still solid. 
I would also want to be financially prepared, i.e., I want to be able to buy immediately when I need to or there's a great deal. Should I always keep my current 20% down payment in HY savings / CD and invest the rest in the stock market?
softmax,

A) <<My TC > 350k.>>

<<I would also want to be financially prepared, i.e., I want to be able to buy immediately>>

1) Just think about this carefully. (A) will not happen immediately. Even if it does, you wait one or two years before you settle on the job and buy the house.

2) If your TC is > 350K, why do you need to save for the house down payment?

Between your annual savings and your emergency fund, you should be able to cover the 20% down payment. If you cannot do that, you cannot afford the house.

In summary, you do not have to save for the house down payment.

KlangFool
> Even if it does, you wait one or two years before you settle on the job and buy the house.
That's true. I will carefully evaluate the stability of my employment.

> Between your annual savings and your emergency fund, you should be able to cover the 20% down payment.
I thought one could decide to invest the difference more aggressively, and if we believe time in market >> timing the market, we could be reluctant to pull the investment out just to cover the down payment?
KlangFool
Posts: 20239
Joined: Sat Oct 11, 2008 12:35 pm

Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Wed Feb 05, 2020 2:19 pm
> Even if it does, you wait one or two years before you settle on the job and buy the house.
That's true. I will carefully evaluate the stability of my employment.

> Between your annual savings and your emergency fund, you should be able to cover the 20% down payment.
I thought one could decide to invest the difference more aggressively, and if we believe time in market >> timing the market, we could be reluctant to pull the investment out just to cover the down payment?
softmax,'

If your annual savings is 100K and your emergency fund is 200K, why do you need to save for the house's down payment?

KlangFool
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Topic Author
softmax
Posts: 222
Joined: Tue Feb 04, 2020 1:27 am

Re: House down payment strategy?

Post by softmax »

KlangFool wrote: Wed Feb 05, 2020 2:28 pm
softmax wrote: Wed Feb 05, 2020 2:19 pm
> Even if it does, you wait one or two years before you settle on the job and buy the house.
That's true. I will carefully evaluate the stability of my employment.

> Between your annual savings and your emergency fund, you should be able to cover the 20% down payment.
I thought one could decide to invest the difference more aggressively, and if we believe time in market >> timing the market, we could be reluctant to pull the investment out just to cover the down payment?
softmax,'

If your annual savings is 100K and your emergency fund is 200K, why do you need to save for the house's down payment?

KlangFool
Oh I get it! I was assuming that we should never touch the emergency fund because that's for unemployment. Also, isn't 200k too much for emergency fund (I guess it largely depends on the COL)?
KlangFool
Posts: 20239
Joined: Sat Oct 11, 2008 12:35 pm

Re: House down payment strategy?

Post by KlangFool »

softmax wrote: Wed Feb 05, 2020 2:41 pm
KlangFool wrote: Wed Feb 05, 2020 2:28 pm
softmax wrote: Wed Feb 05, 2020 2:19 pm
> Even if it does, you wait one or two years before you settle on the job and buy the house.
That's true. I will carefully evaluate the stability of my employment.

> Between your annual savings and your emergency fund, you should be able to cover the 20% down payment.
I thought one could decide to invest the difference more aggressively, and if we believe time in market >> timing the market, we could be reluctant to pull the investment out just to cover the down payment?
softmax,'

If your annual savings is 100K and your emergency fund is 200K, why do you need to save for the house's down payment?

KlangFool
Oh I get it! I was assuming that we should never touch the emergency fund because that's for unemployment. Also, isn't 200k too much for emergency fund (I guess it largely depends on the COL)?
softmax,

1) What is the PITI of the 1 million houses? You do not want to lose the house after you bought the house. So, you need at least 6 months to 1 year of your annual expense as emergency fund after buying the house. So, this number is quite high. I do not know the exact number but it is a big number.

2) Your annual savings before buying the house should be high enough that after you bought the house, you can still save money. Aka, your annual saving = 100K or more. Or else, you should not buy the house.

<<I was assuming that we should never touch the emergency fund because that's for unemployment.>>

3) Make it bigger a bit so that you use it for the house downpayment or any other lumpy expense so that you can spend first and refill later. Or, you can pre-fill the emergency fund before you spend.

In summary, if you can afford to buy the house, you do not need to save for the house's down payment.

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
Ron Ronnerson
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Location: Bay Area

Re: House down payment strategy?

Post by Ron Ronnerson »

Compared to many on this board, I’m sort of liberal when it comes to home purchases. I prefer to cut costs in categories that don’t help increase net worth and, as a result of those reductions, create more room in the budget for a better house than one would otherwise be able to afford. Additionally, I recommend staying put in that house for a long time so as to minimize transaction costs. Still, the house cost needs to be within reason when considering savings and income. You’re honestly just not there yet. So, keep saving.

While it’s okay to stretch yourself a little bit if you have a plan worked out on how you’ll make things work (a common reality for those of us in VHCOL areas), you don’t want to find yourself way in over your head.

Also, renting is not throwing away money as you need somewhere to live. I totally agree with EnjoyIt. You are young and unmarried. Keep your flexibility and rent for now. Not only can you not afford a $1M house just yet, you really should question why you even want it in the first place.
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