Affording your "dream house" as a Pharmacist?

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Temperature101 said:
No I am not insane. I live in Ft Lauderdale and I know pretty well the housing market in South FL..Your parent may have bought that house between 2004-2007 when prices were at their highest.
http://www.realtor.com/realestateandhomes-search/Miami_FL/beds-5/baths-3/price-450000-500000
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er... I clicked on that link and this is the first house that showed up:

miamipu.jpg
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There are two ratios that you need to watch:

1. front-end ratio which is the total monthly housing payment including principal, interest, property taxes, insurance, HOA as a percentage of your GROSS (before taxes) monthly income. The limit is 28-33% depending on the type of mortgage, and they may also offer you a higher interest rate if you have a high ratio because you are riskier.

2. back-end ratio which is the housing payment plus any other debt payments you have such as student loans, car loans, credit cards, etc. The limit is 36-45%. This is where pharmacy students need to watch out because if you have $150k in loans, even if you stretch it out on the 30 yr extended repayment plan, it's still $1,000/mo which takes a big chunk out of the back-end ratio and probably eats into the front-end ratio as well, reducing the size of the mortgage you can qualify for.
 
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pezdispenser said:
There are two ratios that you need to watch:

1. front-end ratio which is the total monthly housing payment including principal, interest, property taxes, insurance, HOA as a percentage of your GROSS (before taxes) monthly income. The limit is 28-33% depending on the type of mortgage, and they may also offer you a higher interest rate if you have a high ratio because you are riskier.

2. back-end ratio which is the housing payment plus any other debt payments you have such as student loans, car loans, credit cards, etc. The limit is 36-45%. This is where pharmacy students need to watch out because if you have $150k in loans, even if you stretch it out on the 30 yr extended repayment plan, it's still $1,000/mo which takes a big chunk out of the back-end ratio and probably eats into the front-end ratio as well, reducing the size of the mortgage you can qualify for.
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28-33% seems too high to me....My 15-year mortgage(including tax, insurance and HOA) is 16% of my gross household income and I still think is too high...Thanks God that I am not someone who is fascinated about expensive beautiful homes; then again, my wife is but she let me handle most of our finacial dealings.
 
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Whoever said location location location is spot on. The east coast is expensive as well. Forget NYC, north NJ is expensive too. 300k barely gets you a small home. So no 1 million dollars is not dumb, there are many average-sized homes here 500k+. Nj is overcrowded (population ~8 million and not a huge state in terms of area ). Proximity to NY, the shore, etc also contribute. I just wanted to put that out there.

As for the home, it's totally doable if you save a large down-payment. Also, it makes a difference if you're paying it yourself or if you have a spouse, and what they do, how much they make etc. So if your spouse is a doctor or dentist or something that definitely would help ;)
 
My partner and I are looking in the 600-800k range and personally I think that is a little high even with a pharmacist and physician dual income. I am trying to talk her down to 500k range...:rolleyes:
 
The house you live in is more of an liability than asset. Buy only what you need. My wife and I bought a house that's just barely over 1x our annual income.

Keep the price vs. Rent ratio in mind. If the price is > 15x annual rent, think twice about buying.
 
PumpkinSmasher said:
My partner and I are looking in the 600-800k range and personally I think that is a little high even with a pharmacist and physician dual income. I am trying to talk her down to 500k range...:rolleyes:
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Im also looking in this range, but plan on putting down a large DP (350k). My payments should be around 1800/month if I finance 400k. Ive talked to a few banks and most say this is doable. I probably shouldn't trust a bank, but based on the numbers Ive worked out this should be feasible.
 
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StallionRx said:
Im also looking in this range, but plan on putting down a large DP (350k). My payments should be around 1800/month if I finance 400k. Ive talked to a few banks and most say this is doable. I probably shouldn't trust a bank, but based on the numbers Ive worked out this should be feasible.
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Wow...If I had that kind of money, I would be semi retired now...It's very rare to see people save that kind of money on a pharmacist salary unless they've been working for 20+ years.
 
Temperature101 said:
Wow...If I had that kind of money, I would be semi retired now...It's very rare to see people save that kind of money on a pharmacist salary unless they've been working for 20+ years.
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He could be dual income professional household or extremely frugal like me. I employ a method called conscious spending by Ramit Sethi.
 
xiphoid2010 said:
The house you live in is more of an liability than asset. Buy only what you need. My wife and I bought a house that's just barely over 1x our annual income.

Keep the price vs. Rent ratio in mind. If the price is > 15x annual rent, think twice about buying.
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Interesting thought. Does that figure hold up virtually nationwide, ie in both low and high cost areas? Here I'm renting for ~800/month + utils, which corresponds to a maximum of a 144k house. Home prices are fairly low here (offset by higher taxes, of course) so I think this is a reasonable ballpark. Based on region, some will say that's a super low rent, and some will say it's on the high end, which is why I wonder.

Of course there are other things to think of, like the place I rent is old and terribly energy inefficient, whereas owning an entire home my utilities could be higher due to sqft. Also right now, my landlord covers the lawn mowing, but I don't get a garage. I don't directly pay property taxes, but I can't take that deduction either. Lots of tradeoffs to consider.
 
xiphoid2010 said:
The house you live in is more of an liability than asset. Buy only what you need. My wife and I bought a house that's just barely over 1x our annual income.

Keep the price vs. Rent ratio in mind. If the price is > 15x annual rent, think twice about buying.
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You're in an area of one of the lowest real estate in the country.. you can buy a mansion for 300k. Though you also have 2.5 to 3% property tax. So what you make up in low cost housing you will forever get slapped with a heavy re tax. Tho it can be offset by the lack of state income tax.

Your example doesn't really apply to the rest.
 
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Its Z said:
You're in an area of one of the lowest real estate in the country.. you can buy a mansion for 300k. Though you also have 2.5 to 3% property tax. So what you make up in low cost housing you will forever get slapped with a heavy re tax. Tho it can be offset by the lack of state income tax.

Your example doesn't really apply to the rest.
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My example is on the low end, but the principle applies to the rest. The long standing conventional wisedom is not to buy a house more than 3x your annual income. That's been around for a long time now. Do you have to limit yourself to 1x? no, but even with today's low mortgage rates, talking about buying $600k or whatnot in a $120k income is most likely just asking for unpleasant suprises.

House you live in drains you on closing cost, property tax, maintenance, utilities, HOA, mortgage interest, and another 6% to the realtor when you sell, etc. Renting is actually often the best option for young and mobile pharmacists, especially when a local housing market showes a high price to rent ratio. I am asking people to do some financial analysis before just jump on a band wagon.
 
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Ackj said:
Interesting thought. Does that figure hold up virtually nationwide, ie in both low and high cost areas? Here I'm renting for ~800/month + utils, which corresponds to a maximum of a 144k house. Home prices are fairly low here (offset by higher taxes, of course) so I think this is a reasonable ballpark. Based on region, some will say that's a super low rent, and some will say it's on the high end, which is why I wonder.

Of course there are other things to think of, like the place I rent is old and terribly energy inefficient, whereas owning an entire home my utilities could be higher due to sqft. Also right now, my landlord covers the lawn mowing, but I don't get a garage. I don't directly pay property taxes, but I can't take that deduction either. Lots of tradeoffs to consider.
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An important thing is compare apple to apples. The purchase to rent ratio is the price of buying a house vs renting a similar house/condo.

The local housing market is often skewed towards purchase price or rental price. If you are in the market, consider taking advantage of it. At a ratio of 12x, the price of my house is skewed in favor of buying. Time to break even is likely short, and even if I move before then, I can rent it out and have a good chance of generating a net positive cash flow. Now had the ratio been 20x, it would made more sense for me to sign a long term lease instead.
 
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Wife and I are both working - we gross a little over 400K per year. Even we're not looking at $1M homes.

That's just waaaay too much for a single pharmacist. You will be severely tied down and working overtime just to make ends meet. That's not a way to live your life.

For a single pharmacist - I suggest between 230-350K for a home.
 
pinipig523 said:
For a single pharmacist - I suggest between 230-350K for a home.
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You get 1000-1300 sq.ft condo in SD for that price.

I am playing to buy 200k condo 950 sq.ft here, cash offer, and just rent it out... will give me about $1450/month in rent. I can't finance since HOA is in litigation and it's a short sale... let's see if the offer goes through lol
 
Temperature101 said:
500k for a condo/townhouse! That is crazy...You can buy a 3500-4000 sq ft 5br 3 bath 3 car garage in miami with that kind of money...It seems like even a pharmacist cant afford a decent house in these major cities in CA.
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the problem with pharmacy is that there is no cost-of-living adjustment. look at the BLS stats...a pharmacist in florida vs new york makes the same money, even though new york state as a whole is way more expensive place to live. if anything, you sacrifice pay to live in the larger cities, which IMO is mainly a lifestyle choice (but also where the majority of jobs are)

also, i'd rather buy a 500k 2 bed in SD and risk an earthquake/ridiculous tax increases than have to deal with mosquitoes, hurricanes, rick scott, george zimmerman, crappy schools, etc. maybe i'm just biased.

BMBiology said:
Mortgage rate tax deduction is a myth if you are making a pharmacist salary and buying a $550,000 house especially now since interest rate is so low. Why? Because in order for you to get the mortgage tax deduction, you have to itemize your taxes and therefore, give up your standard deduction ($5,950 for single).

I calculated if you are making $125,000 a year, borrow $450,000 @ 3.5% interest rate for a $550,000 house, you will save < $4,000 in taxes for the first year (most saving). However, property tax is >1% in California so >$5,500 in taxes a year. No saving whatsoever.
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a myth? I think you have it wrong. i'm pretty sure mortgage INTEREST tax deduction is the #1 reason why people itemize each year (which lets them add on more deductions such as property tax deduction, charitable donations, and etc). you failed to calculate the interest/year on 450k, even at 350 basis points this exceeds single standard deduction by a lot.

of course you shouldnt buy a house just because it's a tax deduction. but it's definitely not a myth.
 
psychoandy said:
a myth? I think you have it wrong. i'm pretty sure mortgage INTEREST tax deduction is the #1 reason why people itemize each year (which lets them add on more deductions such as property tax deduction, charitable donations, and etc). you failed to calculate the interest/year on 450k, even at 350 basis points this exceeds single standard deduction by a lot.

of course you shouldnt buy a house just because it's a tax deduction. but it's definitely not a myth.
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What are you talking about? My number is based on 450 k mortgage. Do your calculation and see how much you would save with itemizing your taxes vs. taking the standard deduction. Based on my number 450 k mortgage @ 3.5% interest plus property tax, the saving is not much especially because of today's low interest rate. I would save <$4,000 the first year. I would have to pay >$5,000 in property tax a year.

http://www.nytimes.com/2012/10/28/r...really-benefits-from-interest-deductions.html
 
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BMBiology said:
What are you talking about? My number is based on 450 k mortgage. Do your calculation and see how much you would save with itemizing your taxes vs. taking the standard deduction. Based on my number 450 k mortgage @ 3.5% interest plus property tax, the saving is not much especially because of today's low interest rate. I would save <$4,000 the first year. I would have to pay >$5,000 in property tax a year.

http://www.nytimes.com/2012/10/28/r...really-benefits-from-interest-deductions.html
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Generally pharmacists who live in states with state income tax are going to itemize deductions. You're in California? I'm pretty sure your state income tax bill alone is going to be more than the $5,950 standard deduction.

The interest in the beginning on a $450k mortgage at 3.5% is going to be around $15,000, totally deductible.

For $5,500 in property taxes, the ad valorem part is going to be deductible. Hard to compare with the rental case, because you are still indirectly paying it in the rent that the landlord charges you, and also most of the time you are not comparing properties with the same value, e.g. renting a $250k apartment vs. buying a $550k house.
 
BMBiology said:
What are you talking about? My number is based on 450 k mortgage. Do your calculation and see how much you would save with itemizing your taxes vs. taking the standard deduction. Based on my number 450 k mortgage @ 3.5% interest plus property tax, the saving is not much especially because of today's low interest rate. I would save <$4,000 the first year. I would have to pay >$5,000 in property tax a year.

http://www.nytimes.com/2012/10/28/r...really-benefits-from-interest-deductions.html
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ok maybe i'm doing this wrong.

simple interest on 450k loan x 0.035 = $15,750 for year one. this number goes down over time as you should be paying principal/interest and your debt load gradually decreases. but on 450k your interest will be well over $5950 for many years...
property tax: $5000/year
Total deduction from taxable income: $20750
Standard deduction from taxable income: $5950
Difference between house vs standard deduction: $14,800

what am i missing here? itemizing and deducting interest + property tax from your taxable income greatly exceeds the standard deduction's effect on taxable income. assuming a 25% tax bracket the difference in tax paid is a $3700 savings with itemizing. if you own a house why wouldn't you itemize?

if your narrative is towards renting vs house + property tax + other fees, that's one thing, but you seem to imply that mortgage interest tax deduction is not worthwhile for pharmacists, which i think is incorrect.
 
psychoandy said:
the problem with pharmacy is that there is no cost-of-living adjustment. look at the BLS stats...a pharmacist in florida vs new york makes the same money, even though new york state as a whole is way more expensive place to live. if anything, you sacrifice pay to live in the larger cities, which IMO is mainly a lifestyle choice (but also where the majority of jobs are)

also, i'd rather buy a 500k 2 bed in SD and risk an earthquake/ridiculous tax increases than have to deal with mosquitoes, hurricanes, rick scott, george zimmerman, crappy schools, etc. maybe i'm just biased.



a myth? I think you have it wrong. i'm pretty sure mortgage INTEREST tax deduction is the #1 reason why people itemize each year (which lets them add on more deductions such as property tax deduction, charitable donations, and etc). you failed to calculate the interest/year on 450k, even at 350 basis points this exceeds single standard deduction by a lot.

of course you shouldnt buy a house just because it's a tax deduction. but it's definitely not a myth.
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I am not sure where you got that mosquitos stuff from...I live in the suburb of Fort Lauderdale, which is close to Miami and I never had to deal with mosquitos...I have never heard that Florida has a mosquito issue...I am not sure where you got that from. Hurricane happens but I have been living in FL for 12 years and I had to deal with that twice.. It can be stessful. There are bad schools everywhere in the US...You have to do your homework when buying a house...Buy the house in a good school district, which is what I did when I bought my house last year. I understand that people wanna live in certain places because they are use to them or there are a lot activities in these places or it is easier to find employment....But I think many are commiting financial suicide when they got a 500k mortgage on a 100-200k salary because they wanna live in NY, SD, LA, DC etc...All I can tell you that my mortgage is $1,300/month everything included (150k home for 15 years mortgage) on 105k-110k salary and it make my life so much easier financially...I will give you the Rick Scott part. Most people in south FL dont want to deal with that corrupted buffoon...Then again we are about to elect Mitt Romney president of the US--there is not much difference.
 
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pinipig523 said:
Wife and I are both working - we gross a little over 400K per year. Even we're not looking at $1M homes.

That's just waaaay too much for a single pharmacist. You will be severely tied down and working overtime just to make ends meet. That's not a way to live your life.

For a single pharmacist - I suggest between 230-350K for a home.
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Too expensive for a single pharmacist making 90-120k....180k-230k is a better target price for a home with that salary range.
 
Temperature101 said:
Too expensive for a single pharmacist making 90-120k....180k-230k is a better target price for a home with that salary range.
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Completely agree, just because you can 'afford' more, does not mean you should do it. Partner and I gross about 400k and hoping to convince her that we need to stay in the 500-600k range even though she is looking upwards of 800k....:rolleyes:
 
PumpkinSmasher said:
Completely agree, just because you can 'afford' more, does not mean you should do it. Partner and I gross about 400k and hoping to convince her that we need to stay in the 500-600k range even though she is looking upwards of 800k....:rolleyes:
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At 250k house, your mortgage is pathetically cheap 1200/month for 30 years. And you bring in 5k net /month. Taking some leverage risk is good. Your job has bond like characteristic, you don't see doc and rphs mass layoff. Something you should take into account.

I'd go for 800k if I make 400k for sure only twice my yearly salary.
 
PumpkinSmasher said:
Completely agree, just because you can 'afford' more, does not mean you should do it. Partner and I gross about 400k and hoping to convince her that we need to stay in the 500-600k range even though she is looking upwards of 800k....:rolleyes:
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My wife and I started the buying process looking at 4/2.5/2, ~2500 sq feet, <10yr old houses in middle class neighborhoods. But her standards kept on drifting upward with each trip, and we ended up buying one that was 20% more than we had initially set out to get. Now it's kinda embarrased pulling into the neighborhood in my 2000 honda accord. I would've been happy with a small mancave! Blah, girls and their emotional needs... :smuggrin:
 
xiphoid2010 said:
My wife and I started the buying process looking at 4/2.5/2, ~2500 sq feet, <10yr old houses in middle class neighborhoods. But her standards kept on drifting upward with each trip, and we ended up buying one that was 20% more than we had initially set out to get. Now it's kinda embarrased pulling into the neighborhood in my 2000 honda accord. I would've been happy with a small mancave! Blah, girls and their emotional needs... :smuggrin:
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There's nothing embarrassing about a 2000 Accord.

:thumbup:
 
For people who know about investment....Is it ok to buy a house pay cash for it even if you have three times of the amount of money you plan to purchase that house for?
 
Temperature101 said:
For people who know about investment....Is it ok to buy a house pay cash for it even if you have three times of the amount of money you plan to purchase that house for?
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If you know how to invest, you wouldn't even consider doing this. Definitely wouldn't have 3x house price sitting around in straight 'cash' earning 0-1% interest. It would already be invested in something like stocks, bonds, property, business, etc earning way more. Then you can get a 30 year mortgage for like 3.25%, and deduct the interest reducing it by 25-33%, which is practically free money for you to invest in your other ventures.
 
xiphoid2010 said:
My wife and I started the buying process looking at 4/2.5/2, ~2500 sq feet, <10yr old houses in middle class neighborhoods. But her standards kept on drifting upward with each trip, and we ended up buying one that was 20% more than we had initially set out to get. Now it's kinda embarrased pulling into the neighborhood in my 2000 honda accord. I would've been happy with a small mancave! Blah, girls and their emotional needs... :smuggrin:
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When it comes to finances, you gotta be tough with woman because they are so emotional...That happened to me last year...My wife kept moving the target but I stood my ground, We bought a house way cheaper (35% cheaper) than what we initially set our mind to buy...The best financial decision we have ever made. Our 15-yr mortgage (everything included) is about 14% of our gross income...My wife is so happy that now she has so much disposable income to go shopping all the time.
 
pezdispenser said:
If you know how to invest, you wouldn't even consider doing this. Definitely wouldn't have 3x house price sitting around in straight 'cash' earning 0-1% interest. It would already be invested in something like stocks, bonds, property, business, etc earning way more. Then you can get a 30 year mortgage for like 3.25%, and deduct the interest reducing it by 25-33%, which is practically free money for you to invest in your other ventures.
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It is kind of an investment...I will buy the house (move in) and then rent the one I live in right now...I would be mortgage free.
 
Temperature101 said:
It is kind of an investment...I will buy the house (move in) and then rent the one I live in right now...I would be mortgage free.
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The problem is that your mortgage would be super low rate, and your money could earn a higher interest rate if used otherwise. Sure being debt-free is liberating, but in terms of total net worth, you could make bigger gains by keeping the low rate mortgage and investing the excess funds you have.

In both cases you can rent out your old house.
 
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