Potential home buyer trying to prepare!

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Topic Author
LAhomes
Posts: 2
Joined: Wed Jul 28, 2021 5:58 pm

Potential home buyer trying to prepare!

Post by LAhomes »

Hi all,

My wife and I are potential first time home buyers in a HCOL area (LA) trying to plan for purchasing a home in the near future (1-4 years ideally) and trying to get a better sense of what we can comfortably afford without being house poor.

Our current finances look like:

220-280k annual income (My compensation has some variability to it).

515k invested across retirement and traditional investment accounts (The vast majority is in index funds, no crypto or anything highly volatile and have enough not in retirement accounts to be able to cover a 20% down payment).

50k cash

20k worth of car debt with low interest rates (5k remaining on one vehicle, 15k on the other).

Plan to have 1-2 kids in the near future as well which will add some child care costs (from some rudimentary research looks like 1-1.5k/mo per kid in our area).

800+ credit scores.

We currently are saving a minimum of 60k/year (More if my earn pushes us above 220k) and pay 2.8k for a 2 bed 2 bath apartment. When plugging our numbers into a home affordability calculator it suggests that we could qualify for a home as expensive as 1.1 million which sounds like absolute insanity (especially when looking at the monthly payments).

We would like to purchase a single family home but are a bit weary of the prices and the looming child care costs to boot. Could any of you offer any guidance?
tesuzuki2002
Posts: 1431
Joined: Fri Dec 11, 2015 11:40 am

Re: Potential home buyer trying to prepare!

Post by tesuzuki2002 »

It seems in 4 years you could probably put down about $400K that would get you down to a $700K mortgage... still seems high to me, but I come from the Midwest... I bought a nice $250K home and it's paid for, but I also make less than 1/2 your income.

Seems your income may push above $300k in 4 years too... I would think that's doable...
reader79
Posts: 98
Joined: Fri Jan 15, 2021 11:42 pm

Re: Potential home buyer trying to prepare!

Post by reader79 »

I would ignore the home affordability calculator. If you're going above 3x your income, you're looking at being house poor. In LA, I would rent as long as possible and plow as much as possible into your investments. Remember, your primary residence is often a terrible investment. See here for a wonderful article on it from one of my favorite personal finance writers: https://jlcollinsnh.com/2013/05/29/why- ... nvestment/
VTI: 50%, QQQM: 30%, VO: 10%, VB: 10%
Topic Author
LAhomes
Posts: 2
Joined: Wed Jul 28, 2021 5:58 pm

Re: Potential home buyer trying to prepare!

Post by LAhomes »

Very enlightening article! Thanks for sharing!

To be clear: We aren’t actually considering buying a 1.1 million dollar house but were looking at what price point is likely to be comfortable to us but may just look at renting a house after that article and continuing to save through index funds.
tashnewbie
Posts: 4283
Joined: Thu Apr 23, 2020 12:44 pm

Re: Potential home buyer trying to prepare!

Post by tashnewbie »

A lot can happen in 4 years, with your income, net worth, and housing prices, among other things.

Figure out how much you want to save each year.

Then I would drill down into your spending.

How much are your monthly non-housing expenses? Include potential future childcare costs. How much is discretionary or could be cut? That gives you an idea of how much extra you could spend on housing. You'll have to figure out if that is comfortable to you.
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