how much should i spend on my 1st house?

[nap$ter]

assuming ballpark 450k household income?

is 7-800k realistic?

thanks

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[urge]

You can swing it.

 

[excalibur]

Lot of factors depend on this.

How long you plan on living in this house? How much debt are you looking at? What are your monthly expenses? How much money do you plan on investing in retirement and/or taxable accounts per month?

Some important factors there. Things you need to consider before one could say if it's reasonable.

With that salary and that price of the house, sure it's reasonable. However, if you are several hundreds of thousands of dollars in debt, and you spend a lot on expenses per month, it's probably not a good idea.

Just

 

[survivordo]

Can you spend 800K? Sure, I'm sure someone will give you a loan. SHOULD you spend that kind of money? Hard to say without details... how far in debt are you, how are you looking to live etc...

Survivor DO

 

[aneftp]

Depends on location.

Rule of them. Never been the most expensive house in the area. Asking for disaster.

$500k doesn't buy much in many areas. Whereas $500k u can live like a king in some parts of the country.

Live the upper middle class life. Don't live or try to hang with the Jones.

So which location are u in? Real estate is all about location.

 

[deleted126335]

How much other debt do you have? How secure do you feel about your position and income security? How hard will it be to sell? If you live in an area where that number is in the top 5% of home sales, think twice.

 

[btbam]

There is so much more to buying a house than saying I want this house that costs $X and I make $X amount.

 

[sevoflurane]

assuming ballpark 450k household income?

is 7-800k realistic?

thanks

It's like answering the boards.... If this... then that.

What happens if this... and what happens if that? What is your risk tolerance? How solid is your group and are you a full partner?

Slavin, it's a great time to buy a long term home.

2.5%, even on a second home, is very doable. That is what the market has been giving us and I think we should take it if the circumstances are right.

Once you get in though, you are in for a while or you are going to take a loss if you get out in the short term (less than 4-5 years... although I see a big up potential in the real estate market and living in the home of your choice does have value). That's how it goes. If you don't have time (not a partner, sketchy group), then don' t go all in.
I've seen several other anesthesiologist go through this (800K+ house) and loose big time. My first house cost me 260K. I'm debt free and my home was bought originally for 365K during the height of the housing depression.

If you research and do your do diligence, you can profit from these deflated prices. Values really picked up after Nov/2012ish in certain areas... good deals are still plentiful though (AZ, FL... CA is picking up fast).

My second property this year is up 14% since I bought it (based on recent state appraisals). It's been a good investment, but it could (or can) have gone down as well.

If you are sure you are where you want to be and your employment conditions are right, then do it. It's like the stock market... the long term should be good (especially in this real estate market).

Otherwise, get out of the whole, get some FU stash and find that perfect job before you settle in.

Cheers.

 

[shopsteward]

From what I've seen, it's better to go for quality than quantity. Unless you have scads of kids hanging around, don't go for the massive mansion, but for a smaller house in a great/spectacular position and location, and with a decent amount of land for the area.

Most of the people I know who have big houses end up using a few rooms to live in and a lot of rooms to store furniture in. And even for those who have kids, having too many rooms means the family scatters into different rooms rather than spending time together -especially now that everyone spends so much time on electronic media. If you want to keep your family together while you are at home (and what's the point of having family if you don't?) it's best to have no more than one, or at most two, spare bedrooms. You could also consider having one fewer living rooms than there are members of the family.

 

[aneftp]

It's like answering the boards.... If this... then that.

What happens if this... and what happens if that? What is your risk tolerance? How solid is your group and are you a full partner?

Slavin, it's a great time to buy a long term home.

2.5%, even on a second home, is very doable. That is what the market has been giving us and I think we should take it if the circumstances are right.

Once you get in though, you are in for a while or you are going to take a loss if you get out in the short term (less than 4-5 years... although I see a big up potential in the real estate market and living in the home of your choice does have value). That's how it goes. If you don't have time (not a partner, sketchy group), then don' t go all in.
I've seen several other anesthesiologist go through this (800K+ house) and loose big time. My first house cost me 260K. I'm debt free and my home was bought originally for 365K during the height of the housing depression.

If you research and do your do diligence, you can profit from these deflated prices. Values really picked up after Nov/2012ish in certain areas... good deals are still plentiful though (AZ, FL... CA is picking up fast).

My second property this year is up 14% since I bought it (based on recent state appraisals). It's been a good investment, but it could (or can) have gone down as well.

If you are sure you are where you want to be and your employment conditions are right, then do it. It’s like the stock market... the long term should be good (especially in this real estate market).

Otherwise, get out of the whole, get some FU stash and find that perfect job before you settle in.

Cheers.

FYI. There are very few "good deals" left in Florida AZ CA. The bottom for those market was late 2010/early 2011.

 

[nap$ter]

thanks for the replies.

it is quite like a "choose your own adventure" book - if this, then turn to pg 34...

i've isolated my debt to a 150k student loan that was consolidated at a super low apr - ie it's essentially a free loan that i probably won't try to pay off early.

i live a modest life - i still live like a resident in most regards.

i'm starting a new job this summer - so i wouldn't really consider buying for at least another year. it's my dream job in a great location for me and i'm fairly secure that i will make partner, so i'm in for the long term (but nothing in this world is certain).

it's tough to figure out where to start - i'm sure the bank will approve me for more than i actually want to spend. i still want to have enough left over to add to my FU fund etc...

my best guess is that a 7-800k house would represent a modest house investment in keeping with eggs in separate baskets, but this is my first time...

i appreciate hearing your experiences and reasoning.

 

[deleted126335]

thanks for the replies.

it is quite like a "choose your own adventure" book - if this, then turn to pg 34...

i've isolated my debt to a 150k student loan that was consolidated at a super low apr - ie it's essentially a free loan that i probably won't try to pay off early.

i live a modest life - i still live like a resident in most regards.

i'm starting a new job this summer - so i wouldn't really consider buying for at least another year. it's my dream job in a great location for me and i'm fairly secure that i will make partner, so i'm in for the long term (but nothing in this world is certain).

it's tough to figure out where to start - i'm sure the bank will approve me for more than i actually want to spend. i still want to have enough left over to add to my FU fund etc...

my best guess is that a 7-800k house would represent a modest house investment in keeping with eggs in separate baskets, but this is my first time...

i appreciate hearing your experiences and reasoning.

Are you married? kids planned? If still single (unless engaged) there is no way I would buy an expensive house...unless I wanted to use it as bait 🙂. Again I would ask how hard would this thing be to sell. 700-800k in the Boston suburbs, not so hard. Western Mass, different story.
Also, Taxes, insurance, maintenance, landscaping, add up.

 

[IlDestriero]

As mentioned above, it all comes down to your location, housing cost, and your job security. You don't want a problem selling the house to be an anchor keeping you from moving to a other job. And don't forget that the 6% commission on 800k+ is nothing to brush off lightly. You can always rent it out, but that's a big commitment, particularly if you leave the area.
The best of the best school district always sells. I've always lived in the best school district, even before I had kids with my 1st home. It never fails to generate interest, and they always command a premium.
With prices still down in many areas and 3% interest rates, it's a great time to consider a long term investment. Look for a good deal at the end of the summer when people are more willing to deal. I suspect prices will continue to stabilize and increase in many markets by next year. My area didn't take a big hit and is already increasing again with nice homes selling in a week or two with multiple offers. If your area is similar, you don't want to miss the boat.

 

[BADMD]

assuming ballpark 450k household income? is 7-800k realistic?

You can do it. The better question is do you want to do it?

Don't listen to the crap that your bank or your real estate agent tells you. Figure it out on your own. They use formulas that base what you can afford on your gross income. Obviously that is silly and you want to do it on net. If you buy as much house as your bank/realtor says you can, you will be house poor.

The question is not "How much can I afford?"

Ask, "How much do I want to afford?"

Figure out how much you want to pay a month and then figure out how much house that translates into. Keep in mind that whatever the mortgage payment is, you need to add 30-50% more for taxes and insurance. Build yourself a realistic budget that takes into account real life and the future (payment for services is a fickle thing right now).

Since you are thinking of delaying for a year, save as much money as you can. The more you put down, the less you pay in the future. Keep in mind closing costs, furnishing and emergency fund. These are my numbers and not "official" in anyway, but I want to have at least 10-15% of the total price of the house in available cash, after the downpayment when going into closing. That may mean not putting as much down and paying PMI for awhile.

After all these numbers, I suspect that you will find 700-800K doable, but you need to decide if the having an extra $1500 a month is worth it to go down to say a $400K house.

 

[Eyefixer]

What do you guys think about Doctor's loans? I am on a market for a primary residence within a year in LA, CA. I am a w2 employee and my accountant tells me to put as little down as possible to take advantage of max tax deductions. My research show that doctors loans end up .25- .5 higher interest. Any advice on this?

 

[pgg]

FYI. There are very few "good deals" left in Florida AZ CA. The bottom for those market was late 2010/early 2011.

We'll see. Mortgages are still 3.5% ... when they creep back up toward historic norm, that's when I'll believe the bottom has been hit.

A $2000/month payment buys a $450K house at 3.5%.
A $2000/month payment buys a $320K house at 6.5%.

The public won't cram into smaller houses when rates rise. Talk to a 19-yo Marine with his first paycheck - he finances the new Mustang not based on sticker price but on the monthly payment he can "afford." People shop for houses the same way.

There's a ~30% price drop sitting right behind that 3% rate increase. I'd be real careful about calling the bottom of the market now. If 5 or 7 years from now you need to sell, and rates have crept up, there may well be a shortage of buyers.


I would only buy a house
- to live in, if I expected to be there for at least 5-8 years, or
- as a rental, if cash flow was comfortably positive from day 1
And I'm a fan of 15 year mortgages. 🙂

 

[IlDestriero]

What do you guys think about Doctor's loans? I am on a market for a primary residence within a year in LA, CA. I am a w2 employee and my accountant tells me to put as little down as possible to take advantage of max tax deductions. My research show that doctors loans end up .25- .5 higher interest. Any advice on this?

Not putting down as much as you can (within reason- you still need the FYou/emergency fund) and paying higher interest is bad advice. If he's an accountant, have him figure the effect of the AMT on your supposed tax advantage.
Mortgage interest deductions are nice, but paying less interest is nicer. 👍
(This applies to physician income peeps, not Joe punch clock)

 

[IlDestriero]

As PGG pointed out, your primary home today can become your rental property in the future as well. The math changes again when the potential rent covers the total monthly cost of ownership, regardless of property value changes, interest rates, etc.
Pick up a solid rental or two and they fund your future, with equity and eventually a passive income stream.

 

[BLADEMDA]

I don't want to rain on your parade but here are my three cents:

1. Down payment- 20-30% at a minimum.
2. Debt in other areas? What are those payments?
3. Home upkeep can be pretty expensive: electric, insurance, lawn, cable, ?Gas, etc
4. Replacement costs: Roof?, A/C? Appliances? Flooring? New kitchen?
5. Save it then spend it

If I could convince you to spend no more than 1.5 X your income then please listen to me. I prefer 1 X income for your first home so you have extra cash available to pay down debt, save, invest and build the BIG F U account.

But, yes, there is a but, If you find a home which cost 30-50% more during the boom years in a great location then maybe getting a 30 year mortgage at 3% interest rate is indeed a wise move.

I assume you are in a stable job or a full partner. The decision is yours.

 

[reanimatore]

I don't want to rain on your parade but here are my three cents:

1. Down payment- 20-30% at a minimum.
2. Debt in other areas? What are those payments?
3. Home upkeep can be pretty expensive: electric, insurance, lawn, cable, ?Gas, etc
4. Replacement costs: Roof?, A/C? Appliances? Flooring? New kitchen?
5. Save it then spend it

If I could convince you to spend no more than 1.5 X your income then please listen to me. I prefer 1 X income for your first home so you have extra cash available to pay down debt, save, invest and build the BIG F U account.

But, yes, there is a but, If you find a home which cost 30-50% more during the boom years in a great location then maybe getting a 30 year mortgage at 3% interest rate is indeed a wise move.

I assume you are in a stable job or a full partner. The decision is yours.

It's unfortunate, because I feel that I will miss out on a great time to buy. I am only a year into practice, but I am already a partner in a stable group and I live in a very desirable part of the country. Unfortunately, I have a sizable amount of debt, and it requires a substantial amount of money to buy (a condo!) here. It would cost me 2-3x my yearly income. The flipside is that the real estate market here is traditionally strong and I'm sure if I could swing it it would end up being a great investment in the long term. Just can't quite do it at this stage.

 

[countingdays]

If you are in a good location in a tight housing market I'd say go for it. If you have to move soon you'll lose 50k to the cartel of realtors, but it's a good risk if you are confident you'll stay there long term.
I'm talking about growing cities with diverse employment opportunities and a house in a mid-upper range for the area, with good schools.
Also the math would change if you have high interest loans.
You could easily afford the payments while having a nice lifestyle and maxing out your retirement.

 

[imfrankie]

More House, Less Time in It; Less House, More Time in It

 

[ssmallz]

It's unfortunate, because I feel that I will miss out on a great time to buy. I am only a year into practice, but I am already a partner in a stable group and I live in a very desirable part of the country. Unfortunately, I have a sizable amount of debt, and it requires a substantial amount of money to buy (a condo!) here. It would cost me 2-3x my yearly income. The flipside is that the real estate market here is traditionally strong and I'm sure if I could swing it it would end up being a great investment in the long term. Just can't quite do it at this stage.

Sure it might be a great investment but will it perform significantly better than stocks? I'm not so sure especially after accounting for expenses and interest. Buy as much house as you feel comfortable but don't overbuy with the excuse that it's an investment. Just use that extra $$ for stocks or bonds and you'll likely come out break even or ahead. The advantage of investing in stocks is that you're more liquid than real estate and if you lose your job and can't invest for a month or 2 banks aren't gonna come after you

 

[countingdays]

It isn't mainly an investment but it has some good investment-like qualities.
Tax exemption of $500,000 gain after just 2 years.
Low interest, tax deductible, leveraged purchasing.
Protection from loss in lawsuits depending on where you live.
Inflation-protected place to put some money.

 

[Trisomy13]

A colleague and I started at the same time, same pay. His house is close to 700K, about twice that of mine.

Guess which one of us goes on way more family vacations? 👍

 

[Mac4]

It really depends on how stable your future job is since you are new. I do not think you have problem getting a loan. However, you are pretty much stucked and can't move with such a big house/loan. I would probably wait for a couple of years.

 

[pastafan]

Times are changing. My advice is to assume that your income falls 40-50%. Can you handle the expenses if that happens? As we have seen in the past decade, worst case scenarios may occur. There is nothing worse than being unable to pay your expenses if all turns to stool. On the other hand, if you live significantly below your means then you have peace of mind and a cushion for life's uncertainties.

 

[Mman]

assuming ballpark 450k household income?

is 7-800k realistic?

thanks

I'm a fan of your first house costing less than your annual income. 450K per year income? spend that or less on a house.


Could you spend more? Sure, of course. You can afford the monthly payment. The question is when the income drops and the taxes go up and the insurance still needs to get paid and on and on and on.

Now to some extent that depends on geography. If you live in San Fran, it's hard to buy anything for anywhere near your annual salary. But assuming your cost of living isn't outrageous, finding a decent house in a safe neighborhood should be doable for under 450K.

I think once you are more financially stable looking to upgrade to a nicer house is a safer bet than going for the fences on the first purchase. Because once you start into purchasing a house for 800K, reselling it is much tougher because the pool of buyers is smaller so if you had to move for whatever reason you can really get screwed if you need to sell quickly.

 

[Random Anesthesiologist]

I am not opposed to living like a pauper until loans are paid off and I can save a substantial amount for land + house (if not be able to pay cash for all).

Assuming I can find a good job in a low COL area, of course :/

 

[Masseter Spasm]

Make sure you address these issues before considering buying an expensive house:

Do you have a realistic plan for paying off your student loans?
Do you have other debts (luxury auto, boat, credit cars, etc.)?
Do you have disability insurance?
Do you have liquid funds in case of an emergency?
Are you saving for retirement yet?

If the answer is yes, then go ahead and figure out how much mortgage you can afford. Otherwise, you will likely spend too much money.

 

[countingdays]

Are you guys smoking crack?
The mortgage on an 800k house will be around 15% of your take home pay.
That's a conservative purchase not becoming house poor.

 

[dhb]

Are you guys smoking crack?
The mortgage on an 800k house will be around 15% of your take home pay.
That's a conservative purchase not becoming house poor.

i agree although putting a little down payment would be nice

 

[imfrankie]

Are you guys smoking crack?
The mortgage on an 800k house will be around 15% of your take home pay.
That's a conservative purchase not becoming house poor.

I know guys that pay $30k a year in taxes on their home. Now that is a baby that never leaves the nest. It aint just the mortgage. And how about when that interest deduction goes away? Modest 10% correction on $800k--maybe you guys have the horsepower to blow that off. No thing is like freedom.

 

[IlDestriero]

At 450 a year, unless you have a nasty hooker and blow habit, you can eat that as well after a few years without breaking a sweat. And if there is another near across the board correction, losing some money to move and buy another house is more of a lateral than a loss as the house you buy will have decreased in value as well.
Though, if the mortgage deduction goes away, prices will come down a bit. The AMT already eats into it anyway for us.

 

[Mman]

Are you guys smoking crack?
The mortgage on an 800k house will be around 15% of your take home pay.
That's a conservative purchase not becoming house poor.

If you take 30 years to pay off a first house as a physician, you should have a smaller house. Our future income is just too unknown.

 

[imfrankie]

Stay single or stay married.

 

[Idiopathic]

What do you guys think about Doctor's loans? I am on a market for a primary residence within a year in LA, CA. I am a w2 employee and my accountant tells me to put as little down as possible to take advantage of max tax deductions. My research show that doctors loans end up .25- .5 higher interest. Any advice on this?

Ive seen as low as 3.6 and as high as 4.0, so yes there is a hit relative to 3.25 or whatever you could get with 20% down. However, i cannot envision a less useful scenario than a 6 figure down payment if you have that money in the bank. it would be just as valuable under the mattress ("the money is in the banana stand?) and would help provide a little safety net rather than saving you a hundred bucks a month on you rmortgage.

 

[Consigliere]

First of all, congrats on landing a $450k gig........those are damn near extinct. That is unless household income = your $300k job plus your significant other's $150k income. Anyway, don't spend that much. Don't be house poor. Salaries WILL be plummeting - expect the new norm to be $225-$250k per annum.

 

[IlDestriero]

Why would you want to pay interest on money you don't need to borrow. That's throwing away 3.5% a year on 160k (20%). $5600 going to the bank manager's beach house instead of your retirement accounts.
If you can't afford a down payment and still have a reasonable emergency fund/FY acct, maybe it's not time to buy a big house. Though buying a smaller house and planning on flipping it in a few years may not be a good idea either after all the fees and taxes, etc.
I just paid down my mortgage by an extra 70k this month because I could. I'm paying that loan down asap. I saved up some cash, and that's the best place for it. If I could guarantee 5+% in a 3 or 5 year jumbo CD like the old days, that would obviously be a better investment, for me anyway.

You know what's better than getting a mortgage interest deduction?
Not paying a mortgage at all.👍

 

[IlDestriero]

First of all, congrats on landing a $450k gig........those are damn near extinct. That is unless household income = your $300k job plus your significant other's $150k income. Anyway, don't spend that much. Don't be house poor. Salaries WILL be plummeting - expect the new norm to be $225-$250k per annum.

There's no way income will get cut by 50%. The only way that could happen is if Mao socialized medicine and made all physicians gov't employees at a universal 200k/yr salary. You could make that income doing 100% Medicaid patients.
BTW, if your job sucks, get another one. You can make 350 in academics getting off at 3 and taking a few academic days a month, with good benefits. Look around.

 

[countingdays]

Why would you want to pay interest on money you don't need to borrow. That's throwing away 3.5% a year on 160k (20%). $5600 going to the bank manager's beach house instead of your retirement accounts.
If you can't afford a down payment and still have a reasonable emergency fund/FY acct, maybe it's not time to buy a big house. Though buying a smaller house and planning on flipping it in a few years may not be a good idea either after all the fees and taxes, etc.
I just paid down my mortgage by an extra 70k this month because I could. I'm paying that loan down asap. I saved up some cash, and that's the best place for it. If I could guarantee 5+% in a 3 or 5 year jumbo CD like the old days, that would obviously be a better investment, for me anyway.

You know what's better than getting a mortgage interest deduction?
Not paying a mortgage at all.👍

3.5% isn't interest. It's roughly free use of the money.
After your mortgage interest deduction it's a little over 2%. That is using money at or below the rate of inflation. Over time that loan may actually be profitable when corrected for inflation.
There are a lot of costs in home ownership, but these days interest is a insignificant one when adjusted for inflation.

 

[nap$ter]

First of all, congrats on landing a $450k gig........those are damn near extinct. That is unless household income = your $300k job plus your significant other's $150k income. Anyway, don't spend that much. Don't be house poor. Salaries WILL be plummeting - expect the new norm to be $225-$250k per annum.

are you an anesthesiologist? or an ICU nurse practictioner?

just curious about your perspective...

 

[imfrankie]

3.5% isn't interest. It's roughly free use of the money.
After your mortgage interest deduction it's a little over 2%. That is using money at or below the rate of inflation. Over time that loan may actually be profitable when corrected for inflation.
There are a lot of costs in home ownership, but these days interest is a insignificant one when adjusted for inflation.

It's not free use of money at all. The price of the asset is inflated by the historically low interest rate; and it's a loser unless home prices are further inflating. The winner in the bet is the one who will walk away from a loss and let someone else cover the downside.

 

[Consigliere]

are you an anesthesiologist? or an ICU nurse practictioner?

just curious about your perspective...

I'm an anesthesiologist with 15 years in the biz; the sig line is a tongue in cheek reference to the inane crap "advanced practice" nurses are calling themselves these days. There are "fellowships" for these fools in GI, ICU, etc., etc., etc. Anywho.....

Salaries will plummet. Mark my words.

 

[countingdays]

It's not free use of money at all. The price of the asset is inflated by the historically low interest rate; and it's a loser unless home prices are further inflating. The winner in the bet is the one who will walk away from a loss and let someone else cover the downside.

It's free use of money whether prices go up or down.
If prices plummet it will prove to be a bad investment despite the free use of money/interest rate near inflation rate.
If inflation increases/housing prices increase, it'll be a great investment.

 

[BLADEMDA]

Why doesn't warren Buffett live in a $10 million dollar home
Why borrow money you don't have based on a future income you may not earn?
Lesson 101: Spend less than you earn and invest the rest (mostly conservatively).

I have no debt. I owe no money. My upper middle class home is paid for. I could buy a mansion and assume a Mortgage like the rest of society. Just say no and live modestly. Live below your means. Pay off your debts.
Of course, you can always HOPE for sunshine and warm breezes but prepare for a blizzard.

Are you ready for winter my friend? Like it or not winter is coming for all of us.

 

[BLADEMDA]

 

[IlDestriero]

Just to reiterate, an 800k house with the standard 20% down is absolutely not living above your means, and wouldn't make you house poor if your 450k was suddenly slashed to 300k. (Unless you're also in very high educational debt and/or have out of control luxury spending habits.)
While 800k may be a tremendous amount of money for a home in some areas, you can't find a place at all in many places for much less, unless you're buying a knock down. In my old hood, you couldn't even get a 2 br condo for 800k. Just don't get a high end house that nobody in the area can afford. There were mansions in my in-laws old hood on the market for years because the buyers for those homes in that area are very very rare.
Do you really believe our income will be slashed by 50%? I don't.

 

[BLADEMDA]

Anyone advising buying a home based on 2x your preobamacare income is being foolish. Don't do it.
Spend no more than 1.5 x your partnership income on a home. If you have a rich spouse or inherited money with no debt only then should you consider 2x your preobamacare income as a guide to buying a home.

If homes cost $900,000 in your area then I guess you will be renting and saving money for a long time.
A home is a place to live and an illiquid investment.

Whoever came up with the 2X income rule was part of the problem and not part of the solution to the housing crisis. Think Dave Ramsey and not Kim Kardashian when spending your hard earned money on homes and cars. A primary residence is a place to live and not an investment

 

[BLADEMDA]

If you have saved $300,000 in cash for a down payment on a $900,000 home that is very different than $45,000 down and financing the rest.

Most people just want to borrow and then borrow some more money to maintain the illusion of a nice lifestyle. A lifestyle predicated on borrowing money you don't have based on an income you may never earn over the life of the loan. Very few want to go old school and actually save money in an account before considering a home.