#HomeBuying #DreamHome #Finances #RealEstate
🏡 Are you in over your head with your dream home purchase? It’s a common concern when considering a big investment like a new home. But fear not, we’re here to provide some insight and guidance on whether or not you can comfortably afford your dream home.
##Assessing Your Financial Situation
Before diving into a big decision like purchasing a home, it’s essential to take a close look at your financial situation. Here’s a breakdown of the key factors to consider:
###Income
– Base salary: $145K per year
– Stock vests: $40-50K per year
###Liquid Assets
– HYSA: $75K
– Roth IRAs: $52K (potential for liquidation)
– Emergency fund: $10K
###Monthly Cash Flow
– Total monthly income: $7,400 (base salary)
– Projected adjusted monthly income: $9,600 (including stock grants)
##Understanding Affordability
When considering the purchase of a $580K home with a 20% down payment, it’s important to assess whether you can comfortably manage the monthly expenses. Here’s a breakdown using the Redfin mortgage calculator:
###Monthly Expenses
– Mortgage, taxes, and insurance: $4,000
##Evaluating Affordability Factors
It’s crucial to weigh the following factors to determine if the home purchase is financially feasible:
###Debt-to-Income Ratio
– With a monthly mortgage expense of $4,000 and your adjusted monthly income of $9,600, your debt-to-income ratio falls within a manageable range.
###Emergency Savings
– It’s commendable that you have a substantial emergency fund in place, providing added security in the event of unforeseen expenses.
###Retirement Funds
– While it’s important to have a safety net, dipping into your 401K should be reserved for true financial emergencies.
##Seeking Professional Advice
Considering the significant financial commitment of homeownership, it’s always wise to consult with a financial advisor or mortgage specialist. They can provide personalized guidance based on your specific financial portfolio and goals.
##Final Thoughts
When it comes to making a major decision like buying your dream home, it’s natural to have concerns about affordability. However, based on your current financial situation, it appears that you have the means to comfortably manage the expenses associated with the home purchase. It’s essential to continue monitoring your financial situation and seek professional advice to ensure that your decision aligns with your long-term financial goals.
In conclusion, the ability to comfortably afford a home is a combination of careful financial planning, a solid understanding of your income and assets, and a realistic assessment of your monthly expenses. With the information you’ve provided, it seems that you’re in a strong position to move forward with the purchase of your dream home.
Remember, it’s always a good idea to seek professional advice and thoroughly evaluate your options before making a final decision. It’s an exciting time, and with the right financial strategy in place, you can confidently take the next steps towards homeownership. So, take a deep breath and know that you’re not crazy for considering this – you’re being financially responsible and thoughtful about your future. Congratulations on finding your dream home! 🏡
As someone who makes about half their money in stock I’d tell you to probably not count it in your regular income. The stock can fluctuate, your vesting schedule can fluctuate, there’s a lot of moving parts. I really wouldn’t try to stretch your budget past your base salary to make a home purchase unless you want ulcers.
On the flip side, you live on your base salary and have tons of money in your schwab. Live low stress and splurge when you want to. It’s a much better paradigm.
Consider factors such as job security, wage changes during a recession, how valuable this property is to you, etc. if you’re willing to make financial sacrifices, sure, paying for a property you love is okay. If your finances aren’t very secure, I’d be having second thoughts.
You may be able to negotiate a lower price or other benefits as a buyer depending on how the market is in your area. Consult a real estate agent regarding your options and go from there!
20% down for a 580K home is just about all of your liquid assets. Including retirement funds. The remaining mortgage is about 3X your income before stock grants. I think you can do this but barely. You are going to feel real house poor for a few years until your stock grants re-up your liquid assets and if there is any major repair on the house you are going to be hurting. Ultimately up to you.
Is it possible? Yes. Will you likely end up house poor and spread extremely thin? Also yes.
$10k emergency fund is also very low for this scenario. If for any reason you found yourself without a job, it would be two months or less before you’d find yourself in a pretty dire situation.
It would be a very poor decision to liquidate your Roth IRA
I’ll give a slightly different take than some of the other comments The numbers are close. If you include the stock grants, this is easily doable. Without the, it’s a lot harder. Having said that, if it’s your dream home, I say go for it. Reaching for a first house isn’t the worst thing in the world. Assuming you get at least one more set of stock grants, just be sure to save that money as emergency fund/house fund. good luck!
Oh one other thing: please don’t bring up 401k or IRA. If you have to touch that, you can not afford this.
Do you have other debts?
It’s one thing to pay a good % for housing w/o other debts, quite another when you’re paying on cars, student loans, etc
Honestly, if your life comes into alignment with this house, do it. But other houses will come along, and it’ll probably give you more optionality moving forward to pass on it. Good luck!
Idk my mortgage is 23% of my monthly take home pay and I don’t think id want it to be any more than 30-35%
It costs a LOT just to exist in this economy, living on half your income may seem doable on paper but often in practice it’s not easy.
Make a budget and see if it’s realistic for you, if this is you first home why not put down less than 20% so you have have more in your emergency fund because if you’re buying a house there will surely be a lot of unexpected expenses come up.
This could be a situation where paying PMI isn’t that evil. Keep more of your assets and just refi to remove it down the line.
Don’t liquidate your Roth or 401k. And add a couple hundred to the Redfin estimate. You’d want to put 20% down to get rid of PMI which would be … $120 a month.
House purchase is not just a house purchase. You also need to spend to furnish it as well as save for taxes. Empty space somehow does not remain empty for long.
Depending on the age of the house, it may need constant fixing/updating. Unless you are pretty handy, contractors are expensive.
I’d recommend adding 10% of the house price to the actual cost for the first year.
I’m on team “go for it.” Especially if it’s your dream house – then it’s worth it to be in a house you love, even if you are a bit stretched on payments. A dream home will hold value. And interest rates will come down, so refinancing will happen. You are doing well financially and this is an okay investment. If you didn’t love the house I would say you should pass, but the passion you have for the place counts. And, when interest rates do start to drop, prices are going to go up.
Dream house vs living the dream. It gets old after like a year, but having freedom everyday to do whatever never gets old. You will be able to shave many years off retirement by investing your money instead of buying your dream house. To each their own.
You can make this work but you might end up miserable in the process. Sounds like you might end up house poor. Also ask yourself what makes this your dream home? Are those elements that set it apart worth it?
You can borrow against your 401k and the interest is something you pay yourself back and you avoid the 10% penalty. It may be worth getting familiar with how this works.
For what it’s worth, I never regretted buying any of my homes and if anything I wish I went bigger and earlier. Sounds like you are stretching, but homeownership is the surest and fastest way to building wealth and you have to jump in sometime.
I say go for it! Best of luck!
theres “buying a house” and theres “buying my dream house”.
These two situations should be treated separately
I would not consider liquidating the Roth accounts.
What does your current spending, excluding rent, look like?
If you’re spending 1k/mo outside of housing costs right now, then maybe this would be fine for you and you wouldn’t end up housepoor. If you’re spending 3k/month outside of housing costs right now, this is probably a bad idea. If you’re spending 7k, it’s obviously completely inviable. Don’t guess on your spending. Audit your bank/CCs/etc for at least the last year to make sure you’ve budgeted correctly.
$580k home, $185k gross salary and $290k net worth? I would say it’s not too big of a risk.
True, you shouldn’t liquidate your retirement. And true, in a sense your stock options aren’t guaranteed… but then again, neither is a salary.
My wife an I recently purchased a $585k house. It’s our first house so we didn’t roll any equity in from a prior home. We make about $190k combined. Total monthly payment is about $3600. We’re just fine. Had to become a bit more intentional with our misc. spending and travel but we don’t feel house poor. Just my 2cents
Are you at all concerned that this house was bought and then shortly thereafter put back up for sale? Thats not a good sign.
Does your redfin calculator also include taxes and insurance on your new home?
I was in a similar situation, went for a reach home. Barely could afford it, but it’s been appreciating since I bought it a ton (historic house in quaint town). It’s best financial decision I’ve ever made.
If it’s your dream house, it probably is someone else’s. I say go for it
I bought my $420k house is 2018 as a 27 year old making $135k per year. Property takes and insurance about $1400. At the time it was more than half my income but ended being a great financial move as it’s worth way more now. Even then I was told to wait for the next “crash” glad I never listened as I’m sitting on close to $250k in equity now
It’s not really about your current earning situation, it’s about your job stability and income growth.
Also, what are the property taxes each year? Insurance? Is this in a state like CA or FL with skyrocketing insurance rates? What’s your car situation?
If you think you can stablely live there for 5 years then you are in a high enough income bracket to afford it.
You’ll be house poor though. But not horribly so.
I’ve bought some houses that were 50% of what I make and used my 401k to borrow against and have been paying back myself with interest. I don’t regret any of the stretches and have gained more equity with the bigger buys.
You can do it if everything in you’re life works out perfectly and nothing changes. You’ll be house poor but you can do it. I’ve been house poor before. It sucks but I eventually started making more money. Idk where you are in your career though. I was early In mine and I’m midway now at 170k and my wife is at 120. When. I bought my house I was at 55k plus a GIBill which helped a’lot. And my wife was at like 12k a year while she finished her degree. Now I have a house that’s not crazy expensive and I make a decent amount. I’m not house poor at all now. You will be though. With that said I jumped right in like a dumbass and it worked out. Yours might work out too.
I would be wondering why it’s back on the market…failed inspection?
Why is the house back on the market though? Problems? I’d look into that first before going over my finances.
Definitely don’t take funds from the Roth if you can avoid it, but you can withdraw up to $10k of earnings penalty free if it’s for a first time home purchase and you first contributed 5+ years ago, in addition to contributions
If you do it just take out the basis in your Roth IRA. Dont liquidate the entire position.
Sounds like you’ll be pretty house poor so just depends on what kind of lifestyle you live or like to live. My wife and I enjoy traveling abroad, going out to dinner, and such but just bought a 700K house on $250K income. We’ll be fine but def have to cut back on the trips and dumb shit we spend money on.