Jmuhnie

Justin
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Jun 17, 2004
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My wife and I are having a terrible itch to buy a home. Brief summary of our financial/family setup...I'm 3 years out of training in emergency medicine and she is in her last year of a toxicology fellowship after going EM/IM combined. She will more likely be in IM than EM when finishing. We have a not quite 2 year old. I make a conservative 400K a year as an independent contractor and she makes about 65K a year as an employee. Combined that gives us about 38K a month pre-tax from that I max my SEP IRA and my wife's 401k before below expenses. Currently we spend about 14-16K a month on expenses such as

rent 2600
nanny 3000
student loans 4000
disability/life 700
utilities 700
Health 500
Food 1000

There are a few categories missing and we probably buy too much junk on amazon and seem to have a "one time" expense about every month for a pretty consistent 14-16k. (that is everything except our retirement amounts to 14-16K per month on average)

Debts
Our current student debt is $87K @ 3.5% for me. $160k @5.5% for my wife. We've refinanced my loans with DRB for a five year plan about 1 year ago and will likely do the same or similar for her loans when we figure out this house thing.
12k left on a Hyundai Genesis at 1.8% (bought it used including taxes for 19K, I have never felt bad about this purchase. I drive 76 miles a day to my workplace.)

Assets

Retirement plans - about 160K all combined
Bank accounts - we have about 30K for an emergency fund and another 55k that can be used in any fashion (house down payment).

So down to the home buying part, sorry for the long setup (maybe not long enough)

Our lease ends in June 2016 so we are definitely in the planning stages but would consider moving now if the "perfect" house came on the market.

We are trying to decide on a reasonable price range. The area we are looking at will likely have a minimum of 300K for a house we would consider but we could probably get everything we want and more for about 500K.

The trouble with the immediate situation is 55K for a down payment on 300K is pretty close to 20% and could easily be 20% in the next 2 months. 55K for a 500K home is going to land us in PMI land or a doctor's loan and this is where the itch to buy burns a little. I don't expect to be able to save more than about 6K a month extra while we are preparing to buy. This will give us about 90k by mid March-April for a down payment.

Part of the problem here is that we see houses go on the market, sell quickly and we develop a fear that our best option will be gone when we get around to buying.

Any advice? Are we looking to spend too much at $500k?
 
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Plastikos

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Short answer no. Especially considering the time you'll be looking you might already have a contract that will show your double income. I wouldnt necessarily worry about the 10 or 20% doctor loan issue either. I just bought and actually chose the doctor loan so I could put less down and roll the PMI into the APR so the whole thing became tax deductible (and get to keep more money). I bought a house that was about 60% of my salary though. The other thing is even if you went convential with some PMI you'd be very close to the equity requirement and could just make a couple extra payments and have it removed (make sure there arent any difficult clauses or minimal terms, usually not). This could ease the pain of opportunity cost. I wouldnt let a little PMI keep me from getting my dream house. Maybe I screwed up the math but however I ran the numbers it always seemed to come out the same, down payment and total pmi to equity levels is the same dollar amount one is simply amortized. After that, it never bothered me (as I'd rather have the cash in the emergency fund and leave the risk to the bank), you just have to remember to have it removed.

Caveats to more expensive house (if that is expensive in your area), is you're unlikely to be in your forever house and if you do sell in a few years the more expensive house you buy the smaller the potential pool of buyers becomes and the less liquid it is. That and of course all bills increase with a bigger house.
 
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Jmuhnie

Jmuhnie

Justin
10+ Year Member
Jun 17, 2004
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Attending Physician
The concept of a forever house is always tricky to me. Our current plan is to be buying in a place where schools are good with the intention of staying put until our daughter and any subsequent children go through school. We are a little over 15 months renting near the area we are planning to move to and we both have a pretty severe aversion to moving frequently. We know from medical school a that 680 sqft rental is not enough. From residency 1530 sqft was doable but not quite ideal when we are flipping days/nights as you just cant keep a kid quiet enough. The 2900 sqft we have in our rental house is plenty. The trick from going to any bigger of a house is all about wants/niceties that come with bigger houses (3 car garages, large kitchen islands, big back yard,etc..). When we first started the discussion we were talking about 300k as the mark and to just have a bunch of money to save...then we started looking at houses. It is so easy to rationalize up in price.

We are the the dallas-fort worth area so I'm not quite as worried about switching jobs and having to move if something doesn't work out. The general drag of large house bills does weigh in on our decision.
 

Plastikos

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3000 ft is a lot for a small family and you end up filling a house with stuff to make the space go away and find yourself congregated to a smaller portion of the house most of the time. You do get used to a smaller place. I did residency in texas and had a 2000 sq ft house, 1000 in fellowship and was in an apartment for 2 years (contractor so 2 yrs tax returns) at 1400 ft, and now in a house that is 1750. Since its just us and an 18 month old this house feels big and slightly unsused in some spaces. If the space was arranged to our personal likes it would be better, but hard to find that and it wouldnt work for anyone else. The upscale in utility cost from apartment to house is always painful (especially in california).

What I find about house size is the amenities you mention. I dont "need" a ton of inside house space, though i'd appreciate it, but I really would like a 3 car garage (4 car or shop, yes), etc...which can be harder to find in smaller places. We're doing a light rehab and then renting this place out so it isnt our forever home though, but we were excited for more space but realized we dont even utilize it. Though I also detest moving, it will occur soon again.

In reality unless you're in some very upscale area the school districts may change and whats considered the good area will as well, and lets face it people simply get bored living in one place after a while. You'll also have equity that can be tax free after a few years (you certainly hope) and you might want to tap into that. I'd love to be certain I was in a place where I wouldnt move from, and if the house was nice enough maybe thats true but I dont trust it anymore since 10 years is a long time. With your dual income the range youre looking at will be totally reasonable and your finances are already in a good place and youre obviously doing well prioritizing things, so I think you'll do great no matter what you decide to do. If you find and love a slightly more expensive place and are inclined not to feel pressure to move after a few years, then by all means do so.
 
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dynx

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I just went through the process last year so here are my thoughts:
your price range is certainly reasonable. i think 500k would be doable.
-the main points has been mentioned.
1. you'll but more crap, a lot of expensive crap with a bigger house. Dont underestimate the cost of furnishing a large house,
2 and yard care, and electricity will be more. A heated pool etc....wow, i've never seen such an electricity bill
So the cost is more than you think but 500k is doable.

if you're really having 14-16k "come up" every month thats a problem. I hope that was a typo. I cant imagine what could come up each month for that much money when you rent. Maybe you have some medical things going on that would impact the discussion. If thats not a typo you need to figure that out before you buy a house. Really. Cause the unexpected catagory is going to rise with a house and you're allready starting at a mindboggling amount

Buy in a good school district. even if you send your kids to private schools it'll help your home value so dont cross that off your list just because you're going private

Wait for the perfect house...if you can get a month to month lease.
There's really no hurry, i dont think interest rates are going to move much if at all any time soon. Why limit yourself to whats on the market in the month you're ready to move? We were able to change to a month to month then take out time. Took about a year to find the "perfect" house that my wife fell in love with. We were under no stress to find a place so I made a low ball offer. (I really thought they'd turn it down and I wanted to keep renting). To my suprise they negotiated pretty close to what we offered and my wife threatened to leave me if we lost the house so we got a good place at a good price by being under no pressure to close the deal.

Anyway, thats all I got. Seriously figure out that 14K a month that just pops up, thats going to kill you in the long run, especially when you add home owner unexpecteds to it.
edit - reading again, seems like 14-16k with the rest of the budget. I get it now. Im a little slow.
 

dynx

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oh, but. If you tell the realtor your price range is 500k they'll show you 650k houses. So if 500k is what you're willing to do say its 400k.
 
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Jmuhnie

Jmuhnie

Justin
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Jun 17, 2004
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oh, but. If you tell the realtor your price range is 500k they'll show you 650k houses. So if 500k is what you're willing to do say its 400k.
I like this advice...and I would likely need anti-depressants if I had 14-16k of unexpected expenses each month.
 

Plastikos

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I think I misread that "one time" 14-16k expense as all told, and while that is still high, a random 14k on top of regular per month would be wild. Need clarification.
 

jacksparrow82

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Also, don't forget as soon as you move into that new 500k house you're going to easily find $25K worth of things you want to buy or change (new furniture, new flooring or paint, new bathroom, new kitchen remodel are just a few of the examples). Its best to buy something that you can afford a full 20% down AND have plenty of money left over for stuff like that. I feel funny typing this though because this is totally a case of do as I say, not as I do.
Lets just say my wife and I are quite impulsive and borderline foolish and don't make anywhere near what you two make. You guys are going to be fine.
I'm at a point in my life now that I don't want to own a house anymore at all. I don't care what people say they are money pits, no matter how old or new they are. I wish I would have listened to common sense when I got out of residency and just stayed put in my little condo and saved and paid back student debt. But, oh well...
 
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The most conservative thing to do is to wait until after your wife finishes her fellowship and begins a job. Once you are both pretty happy in your jobs I think that is the time to -consider- buying a house.

There is never a good time to buy a house in my opinion, only bad times and 'ok' times.

-Sensei
 
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The White Coat Investor

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You can afford a $500k house on just your salary, don't be ridiculous. You can probably afford an $800K mortgage on just your income. Doesn't mean you should spend that much, but that's the truth.

Whether or not to buy the house NOW is a different question though and really comes down to how stable your jobs are. What's the plan when she finishes? If it is to stay on as faculty and she has a contract, then sure, buy a home. If that's still in the air, then so should the home buying decision.

And don't let anybody criticize you if you want to spend $14-16K a month as long as YOU can afford it.

However, in my opinion, the fact that you owe money on a car and on student loans tells me you should be spending much less than you are. Pay that stuff off and enjoy the freedom that comes with it.

You're three years out, make $400K, and still owe $87K on student loans? Give me a break. Pay that sucker off and get on with your life.
 

dozitgetchahi

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You can afford a $500k house on just your salary, don't be ridiculous. You can probably afford an $800K mortgage on just your income. Doesn't mean you should spend that much, but that's the truth.

Whether or not to buy the house NOW is a different question though and really comes down to how stable your jobs are. What's the plan when she finishes? If it is to stay on as faculty and she has a contract, then sure, buy a home. If that's still in the air, then so should the home buying decision.

And don't let anybody criticize you if you want to spend $14-16K a month as long as YOU can afford it.

However, in my opinion, the fact that you owe money on a car and on student loans tells me you should be spending much less than you are. Pay that stuff off and enjoy the freedom that comes with it.

You're three years out, make $400K, and still owe $87K on student loans? Give me a break. Pay that sucker off and get on with your life.
Bingo.

I'd plan on getting all that crap paid off before I started dreaming up new ways to take on more debt. Especially since the debt that's there isn't all that substantial.

I guess the $14-16k a month looks better when you realize $4k is in the aforementioned student loans. Probably could chip away at the $1k/month on food too.

At least $14-16k is going into retirement funds every month...I could find plenty of doctors out there who would be spending $30k/month and saving zilch.
 

Doctor4Life1769

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A lot of folks in my residency class have the home buying itch... I think I'm one of the few who is staying in my current 1 bed/1bath apt
 
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Jmuhnie

Jmuhnie

Justin
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Jun 17, 2004
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Attending Physician
Just a long term update:

We did eventually buy a 480k house 20% down. No regrets so far.

I guess I was way under estimating how much we could save each month and over estimating how much we were spending. We ended up with a downpayment fund of about $125K which gave us cushion to paint and re-carpet and still have plenty left over. Those monthly savings are now transitioned to debt payoff... Now if I can just get my wife's new job to verify her employment with SoFi so we can get refinanced while rates are low.
 

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