Buying a home post graduation.
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Tell us more, what kind of job do you have?
Is the job stable? Are you floating? Has an impact on whether you buy a new house...
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Okay some back of envelope calculations:
You gross $10,416/mo, so that means your maximum mortgage payment (since you have zero debt) can hit 43% of that amount, therefore if your only form of down payment is the equity in your home (let's say it's $50k flat, after paying for transaction costs like the RE agent fees and whatnot).... You can safely afford a $500,000 house. Here's how I'm calculating it:
House price: $500,000
Down Payment: $50,000 (10%)
Mortgage @ 3.75% 30 year fixed: $2084.02/mo + $500/mo for taxes & insurance (I did 1% of the house value, will vary)
Total payment/mo = $2600/mo (25% of your gross income, super affordable)
I omitted PMI because you'd be putting < 20% down payment, so I just upped the interest rate by 0.25% to compensate, so these are rough numbers.
There are programs that let you go down to 5% and of course 3.5% (FHA), but I like to see 10% at least to cut costs. 20% if you can swing it, that would be best, but not an absolute must, especially if you need to move due to family or if rent and mortgage are similar in costs.
So money aside, you said you're graduating in May, with a $125,000 job offer? Depending on the lender, they might be picky about how much income you can prove. You'll need at least a month's worth of pay stubs showing your income AND documentation that you've been in the field 3 years (easy if you can show transcripts/diploma for 4 years of school, that's "in the field.")
Not knowing anything else about you, start looking in the fall (browsing ads, driving around areas, etc...) while you get all your ducks in a row (RE agent hired, clean up any credit dings, keep your checking accounts clean, save money for closing costs and to help with down payment). Once you figure out what you want/need, your agent can write a contingent offer so you can simultaneously sell the townhome/buy the house.
How much is your town home's mortgage + insurance/taxes? I'm thinking you're able to support both and thus don't need to write a contingent offer when submitting (as in you can sell the town home later after your new home closes).
You gross $10,416/mo, so that means your maximum mortgage payment (since you have zero debt) can hit 43% of that amount, therefore if your only form of down payment is the equity in your home (let's say it's $50k flat, after paying for transaction costs like the RE agent fees and whatnot).... You can safely afford a $500,000 house. Here's how I'm calculating it:
House price: $500,000
Down Payment: $50,000 (10%)
Mortgage @ 3.75% 30 year fixed: $2084.02/mo + $500/mo for taxes & insurance (I did 1% of the house value, will vary)
Total payment/mo = $2600/mo (25% of your gross income, super affordable)
I omitted PMI because you'd be putting < 20% down payment, so I just upped the interest rate by 0.25% to compensate, so these are rough numbers.
There are programs that let you go down to 5% and of course 3.5% (FHA), but I like to see 10% at least to cut costs. 20% if you can swing it, that would be best, but not an absolute must, especially if you need to move due to family or if rent and mortgage are similar in costs.
So money aside, you said you're graduating in May, with a $125,000 job offer? Depending on the lender, they might be picky about how much income you can prove. You'll need at least a month's worth of pay stubs showing your income AND documentation that you've been in the field 3 years (easy if you can show transcripts/diploma for 4 years of school, that's "in the field.")
Not knowing anything else about you, start looking in the fall (browsing ads, driving around areas, etc...) while you get all your ducks in a row (RE agent hired, clean up any credit dings, keep your checking accounts clean, save money for closing costs and to help with down payment). Once you figure out what you want/need, your agent can write a contingent offer so you can simultaneously sell the townhome/buy the house.
How much is your town home's mortgage + insurance/taxes? I'm thinking you're able to support both and thus don't need to write a contingent offer when submitting (as in you can sell the town home later after your new home closes).
Why would anyone want to own a half million home? That would be enormous in my area.
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It would be very hard to even find a 2BR condo at that price where I live. My friend just bought a regular 3BR 1 car garage townhouse for 1.2 million.
Also probably a better idea to have 20% for down payment so you don't have to pay mortgage insurance.
Sounds like another bubble? I thought Texas (even the major metro areas) were relatively less expensive.
Keep in mind if you switch houses, be prepared to stay there for 5-10 years.
Same here. It would also cost far more than an average $500/month for taxes and insurance. Interesting how much this varies by state/region.
Not exactly $10,416 take-home pay per month. A fourth of that disappears in taxes and can't be used to account for monthly expenditures. $1,875 for mortgage is more appropriate.
And we haven't even discussed if you owe student debt as a graduating pharmacist, which should leech 2k or more. All of this napkin math above still might be possible if your spouse works and makes about 30-45k per year.
If possible, always, always choose 15 year. Unless you have a portfolio somewhere making bank at your much higher percentage and need your capital in action.
And we haven't even discussed if you owe student debt as a graduating pharmacist, which should leech 2k or more. All of this napkin math above still might be possible if your spouse works and makes about 30-45k per year.
If possible, always, always choose 15 year. Unless you have a portfolio somewhere making bank at your much higher percentage and need your capital in action.
You could get a 3 br, kitchen with an island, garage, a yard and a man cave for almost half that price.
You are asking the question backwards. Don't say "how much can I afford?" Ask "how much do I need?" I'm in a 3Br, 2Ba 2000sqft house that only ran me $247k in a very desirable suburb of Philly. Sure, I could ave bought a McMansion for $200k more, but why? Just more in taxes, heat, and upkeep.
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Don't be a fool and borrow the maximum amount that the bank will lend. You'll be in debt and paying bills for the rest of your life, you won't be able to get ahead, and one bad event like job loss or medical bills could destroy you financially.
I recommend being conservative and putting at least 20% down, 15 year mortgage with a payment less than 25% of take-home pay. So for a $125k salary, take-home pay is around $6k/mo. A payment of $1,500 would get you a 15 yr 2.75% mortgage of $220k then add at least a 20% downpayment to that of $55k+ = $275k+ house. Then I would even recommend paying extra on the mortgage so that you can pay it off in 7 yrs or less and be totally debt free. Just think of what you can do with $6k/mo take-home pay and no house or debt payments to make.
I recommend being conservative and putting at least 20% down, 15 year mortgage with a payment less than 25% of take-home pay. So for a $125k salary, take-home pay is around $6k/mo. A payment of $1,500 would get you a 15 yr 2.75% mortgage of $220k then add at least a 20% downpayment to that of $55k+ = $275k+ house. Then I would even recommend paying extra on the mortgage so that you can pay it off in 7 yrs or less and be totally debt free. Just think of what you can do with $6k/mo take-home pay and no house or debt payments to make.
^This guy smells like money. But once again, if you have student debt, prioritize those over your home mortgage (depending on how much you borrowed for the house). For me, an FHA first timer's loan will be at 3.5% but my non-subsidized Stafford will be at 6.8%. Granted I'll be borrowing a lot more money on the home than student debt, once the amount owed on the home and student debt are somewhat equivalent, I need to start doubling down on student debt to clear out that higher percent.
I'm still pretty mad I missed out on the foreclosure bubble. Sure I feel bad people lost their homes, but hey, many of them shouldn't have been approved in the first place or made poor decisions with no breathing room. And flipping/renting out was easy money.
Mortgage qualification is always based on gross.
The OP said zero other debt.
15 year makes sense if you can afford it. But rate differential is such that I prefer people select 30yr and pay more each month to allow leeway for emergent circumstances (temp job loss, medical issue, disability, etc...)
Sounds like you can carry the cost of the town home through escrow without having to sell...
How's rental market in your area? Are you remotely interested in being a landlord? It's more involving than people think, and count on an empty unit 1-2 months out of the year to be conservative.
You can always hire a management company, usual fees are ~10-15% of the cost of rent each month.
Lenders use gross pay, that is all well and good. But you should be making financial decisions based off net income/take home pay.
We chose not to exceed 25% of take home pay for our max monthly house payment including tax/insurance/mortgage.
You really don't want to lock yourself up with no cash flow if you can help it. Just because they will give you the money doesn't mean you should take it. Bank was willing to loan us twice what we wanted to spend. I have no interest in paying 50% of take home pay on housing if I can avoid it. Not everyone has that option but if you do then embrace it.
Most people will always worry about finances, retirement, college savings, etc, so why makes matters worse by overspending on a home
We chose not to exceed 25% of take home pay for our max monthly house payment including tax/insurance/mortgage.
You really don't want to lock yourself up with no cash flow if you can help it. Just because they will give you the money doesn't mean you should take it. Bank was willing to loan us twice what we wanted to spend. I have no interest in paying 50% of take home pay on housing if I can avoid it. Not everyone has that option but if you do then embrace it.
Most people will always worry about finances, retirement, college savings, etc, so why makes matters worse by overspending on a home
Generally agreed, my numbers are conservative. I think if OP had enough of a down payment, they could technically afford like an $800,000 house.
But only they can answer what they can/should afford. $750k house makes sense over $500k if you have 3 kids and the school district in the cheaper house sucks and you're forced to use private school, for example.
Anyways, I would not buy a house until you have worked for at least 6 months. Save 6 months for emergency fund. You don't want to be house poor.
You want flexibility in case you have another job opportunity or your job doesn't work out as planned.
You want flexibility in case you have another job opportunity or your job doesn't work out as planned.
Anyway, there are plenty of calculators and articles online to figure out what you can afford based on your cash flow, lifestyle and retirement goals. It is going to be different for everyone. Personally I love having extra cash flow and diversified investments opposed to dropping another few hundred grand on a house.
It is not prudent to purchase a 750k home on a 125k/year salary (even using 20% down payment). We are talking about 3.3k+ monthly payment (tax, insurance, HOA included)... Purchasing anything above 400k with that salary is financially reckless IMO.
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Maybe it's a California thing....but spending 35% on gross income is pretty damn reasonable.
Most of the time you don't have a choice, just be happy you're not pushing 43-45% (loan limits), or even 50% in rent.
Median house price in Silicon Valley is like $1M (980k to be exact), but gross pharmacist salaries push $160k locally. That's 36% of gross. Prudent purchase unless you want to sit in commute traffic an hour each direction.
Some things are more important than money.
Yah, it's such a personal decision (it's literally where you sleep at night), everyone replying has different wants, needs, and preferences.
Some people want to rack up $$$$ and love cheaply, other people don't mind the commute, others still will pay for sunshine/no commute, and others value sunshine over rain, yoga bars over school districts, etc...
Heck people choose to live in SF for $5500/mo in rent and Google bus it to campus an hour away.
Most people are in between. Afford is relative. Someone above is incensed about a pharmacist paying 36% of gross pay in housing...to me that's super affordable.
It's all relative.
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You guys need to borrow that "The Rent is Too Damn High" dude. The stupid laws preventing tall buildings are what's doing it to you.
There's no law like that in Silicon Valley, you're thinking SF to the north. But there's areas they can develop into towers and there are a ton going up.
Why would anyone want to live in silicon valley?
I still don't understand the desire to live there when im living the same lifestyle yet way cheaper and I'll be able to retire way earlier.
I still don't understand the desire to live there when im living the same lifestyle yet way cheaper and I'll be able to retire way earlier.
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People here are conditioned to believe that it's the best place to live. Also, they are afraid of excessive rain and snow, and weather below 40 degrees or above 90. I moved here because this was the best job opportunity I received at the time. Now leaving, because you are right, living here is overrated.
Maybe because people want to live where they work? People have jobs in tech?
I mean, say you're married to another pharmacist even and you're pulling in >$300k/yr, this place becomes much more affordable.
People don't move here for weather...we have so-cal for that. I presume people in the valley aren't delusional about their motives for moving.
But why? Only thing I can think of is most people who want to live in cal are younger. Once you get to my age, you will realize its been a huge waste of money. I have about 10 to 15 years left before I retire, if I lived in cal that would probably be 25 years.
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I don't disagree with you.
I'm not from California and I'm not enamored with it like people who are from here are.
But now I have a significant other whose career is pretty rooted here. I will say that as someone who prefers to live in cities, my rent would be the same in LA as in Philadelphia, Portland or Chicago, and would be even more in New York. So that 30+% pay raise I get for being in CA is worth it when compared to other major metro areas.
You are right. Prices here are unaffordable to most people. If you don't want to live in an "undesirable" location, you are going to need at least 600 k for a decent house in Southern California.
Prices have gone up and up while salary has stagnant, largely driven by investors, foreign buyers and easy access to money from the Fed. You are already seeing the bubble slowly popping in SF and in some Asian dominated neighborhoods in Southern California. You are not going to buy a house in SF when your company stock just plummeted 40% overnight. That is what happened to LinkedIn. The Shanghai stock market is crashing and will probably go lower and the yuan will keep on going down which is causing the Chinese government to implement capital control so their citizens can't move their money abroad and further devalue the yuan.
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If you make 30% more then the average pharmacist, never leave. That would put you in the top 10% I would imagine. Sadly that extra salary gets taxed more and you end up almost making the same as me.
You have millions of people making microeconomic decisions on a daily basis that reflect the optimal economic outcomes for that individual while taking into account the value placed on different factors.
Within 90 minutes of each other, you have one of the highest cost regions in the country (Silicon Valley - San Jose; median house price $980,000, source: NAR, 8/2015) and one of the lowest cost regions within the state (Modesto, CA; median house price $226,700, source: Zillow). Theoretically, everyone who has to work in SJ shares the same values as @wagrxm2000 would move to Modesto.
Let's take 3 factors that determine where someone lives:
A = Commute time/traffic encounter
B = Job opportunities for the significant other
C = Cost of living leading to early retirement
x = relative value placed on a particular factor by an individual
1 = Expensive location; 2 = cheap location
if xA1 + xB1 + xC1 > xA + xA2 + xB2 + xC2, then that answers your question as to why someone moves to a particular region.
Case in Study:
Bob and Rob are friends that work at Foogle, Inc, a high flying tech company in the valley. Bob pays $5000/mo to live a bike ride away from work in a snazzy upscale condo, Rob commutes from Livermore an hour away and pays $2000/mo for a modest 4bd/3ba home.
Bob is dating a really hot little junior executive from a local VC firm, who puts in 12-16 hour days. Rob is married with 2 kids and his wife stays at home.
Bob hates driving, he can't wait for Foogle self-driving cars and takes Uber everywhere, Rob really likes to drive (it's his escape from his wife and kids).
Bob really loves his job, he's going to keep working until he's dead; Rob likes his job too, but counts the days like a prison sentence until he can retire and work in his garden all day.
Both economic decisions are optimal in the face of each person's values. Each cannot understand why each other does what they do. "Rob, how the hell do you commute so far? You're a crazy SOB." "Bob, why do you spend so much $#$@#% money on a house?? Why don't you buy a real car you hipster jackass??"
But Rob and Bob are friends anyway, and manage to share a beer at the end.
Right, that's the thing with HCOL areas. Expensive house with a short commute, or move out to the cheaper suburbs but have an agonizing commute.
But the other thing is, this is a pharmacist forum. We're not internet/IT guys in Silicon Valley or finance/lawyers in Manhattan who get drawn to those places for the top jobs and they also get paid much more than us. There are hospitals and pharmacies everywhere, where we can get jobs that pay pretty much the same. So why go to those places and have to compete with them for expensive housing?
There are much better places out there. Here's my example: South Florida, $355k house, 2,750 sqft, lakefront, gated community, good schools, and there's a Trader Joe's, Whole Foods and The Fresh Market all on the next block over for all you yuppies.
Lol you put a lot of work into that but left out something very important in your example. I live a bike ride away from work but live the same lifestyle as someone who lives in the expensive areas of cal. Also, I enjoy what I do and will work part time for awhile but who wants to work until they're 65 full time? Finally my wife is still hot in my eyes.
Finally your scenario sounds like you are comparing a new grad with a 15 year vet. I don't know too many pharmacists that want to live poor in a expensive condo in their late 30s. Like I said before I think most people here are still young and making mistakes with their money but won't realize it until its too late and they're working until they're 65.
Finally your scenario sounds like you are comparing a new grad with a 15 year vet. I don't know too many pharmacists that want to live poor in a expensive condo in their late 30s. Like I said before I think most people here are still young and making mistakes with their money but won't realize it until its too late and they're working until they're 65.
I am not saying there is no good reason for a pharmacist to buy a 1M+ house in a HCOL area. But I think it is very risky.
Tech workers graduate when they are 22 with little or no debt. Top programmers make 200-250 k right off the bat. If he married another tech worker, that is 400-500 k a year. They can put 50% down payment on a 1-1.5M house. They can take that kind of risk.
Most pharmacist couples can also "afford" to buy an expensive house but the risk they are taking is much greater. Many of them have debt. They are in their 30s with a child or two. Their salary is not going to dramatically go up. If the housing market crash, what is their option besides working well into their 60s? They will be house poor.
This is what happened to my friend. He and his wife are both pharmacist. They are in their 30s and they purchased a 1.2M house with 20% down payment. His wife can no longer work due to an unexpected health issue. So it is just his pharmacist salary. There is no way they can keep up with the mortgage payment unless he works 60-70 hours a week. He can do it for a year or two but certainly not for the next 30 years.
Tech workers graduate when they are 22 with little or no debt. Top programmers make 200-250 k right off the bat. If he married another tech worker, that is 400-500 k a year. They can put 50% down payment on a 1-1.5M house. They can take that kind of risk.
Most pharmacist couples can also "afford" to buy an expensive house but the risk they are taking is much greater. Many of them have debt. They are in their 30s with a child or two. Their salary is not going to dramatically go up. If the housing market crash, what is their option besides working well into their 60s? They will be house poor.
This is what happened to my friend. He and his wife are both pharmacist. They are in their 30s and they purchased a 1.2M house with 20% down payment. His wife can no longer work due to an unexpected health issue. So it is just his pharmacist salary. There is no way they can keep up with the mortgage payment unless he works 60-70 hours a week. He can do it for a year or two but certainly not for the next 30 years.
Nah not much work.
Of course a perfect scenario trumps all; unfortunately, not everyone has the same privilege as the next person who is able to leverage low cost of living with premium pay.
I suppose Bob in my example can dump his VC executive girlfriend or force her to be a Starbucks barista in Pittsburg or something, all in the name of maximum economic outcome.
But the new grad vs vet argument isn't the point of my illustration, it's that each person has a different set of values and behaves in an economically rational manner to achieve those goals.
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Much better according to who? If I have zero family in Florida and get married/have kids, the value of being close to a set of parents because I trust no one else with child care makes that nice lakefront town a crappy place to live.
But you're getting drawn into a sidebar here, and follow the false assumption that each person pursues the maximum DOLLAR value for his or her situation.
There are other factors, economic and non-economic that need to be individualized and considered.
Unless you're like wagmrx who has a high paying job in a low cost area with a bicycle ride commute and faces absolutely zero trade-offs in terms of relocation. Reality for most people is much more complex than that or "the weather is nice."
What I'm really getting at is it seems like everytime a new thread is created about jobs its people complaining there isn't anything in la, new york, chicago etc. The outskirts of a major city is the ideal location. Lower cost and you can easily spend a weekend in the big city whenever.
@confettiflyer Regardless of anyone's individual circumstances, it does not make sense to have mortgage expenses >50% of 6k/month take home pay...
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I actually live in the city and work in the far reaches of the burbs. Commute is against traffic and I can get sushi delivered at any hour. That is my litmus test for living in civilization or not.
Also consider a less "major" city. Metro area population under 1 million and it's still all of the city you'll ever need. NYC has 1500 coffee shops and 10,000 restaurants. Do you need that, or could you survive with a fraction of that number and still not get tired of the same old places?
I also love my 14 minute reverse commute, but my sushi joint 2 buildings away is only open until 11. Hmm, maybe I do need a bigger city.
