Can we afford a 2.5M home? Help me check my thinking
Hello! We are planning to buy in the red hot market of SF South Bay area, and would like to hear people's thoughts on my thinking. (Whether to relocate is a separate discussion we are having, and I'd like to focus on just affordability check in this thread.) Household TC: 500, conservative round-down. (We max out our 401ks) Stocks: $1M (not including unvested ones) Cash: 230k. (not including emergency fund) Goal: Buy a SFH with decent schools in the South Bay. Plan to live for 10+ years, and if it's good enough we will pass it down to our child. Question about our maximum budget: Can we afford a 2.5M house? Ideal budget is 1.7M but that's like daydreaming now :( For a 2.5M house, with 20% down payment, the monthly would be $8200 mortgage + $2600 property tax. Just the monthly mortgage itself would be ~50% of our monthly take-home. This is obviously stressful, and this is where spouses and I diverge in opinions. - Spouse is concerned with the now. She would rather stick with the 1.8M budget and willing to move farther (40-50 minutes commute) or buy a townhouse to make the monthly comfortable. She is willing to pay more downpayment to bring down the monthly, but we did the math and it's not worth it. - I am looking at it from a bigger picture. It will be stressful initially, but our base pays will gradually go up with inflation adjustment, so 10 years from now, the monthly payment will become more doable. For now, we'll use our take-home pays for the monthly 8k mortgage, and for property taxes and unexpected expenses, we can cover with yearly bonuses or by selling a few stocks. We effectively have $10k worth of stocks vesting every month. And selling stocks to pay for the house is diversifying, not wasting money. Worst case if things become really stressful, we can always sell and relocate and not lose much or even have some gains (yes, I'm bullish that Bay area home prices will only keep rising.) If we dump all our assets (1.2M) into a 2.5M house, we'll take on a 1.3M loan. For a household TC of 500k, I don't see how we cannot pay it off in 30 years. But of course, instead of dumping 1.2M in downpayment, we *choose* to only pay 20% down so as our stocks could keep appreciating. This is a decision to borrow more money from the bank to let stocks appreciate, which results in high monthly payment, which makes us think we cannot afford the monthly of a 2.5M house, which is not entirely true. Am I crazy for thinking this way? Please help me checking my thinking! From talking to people who bought years ago, and looking at house price appreciation, my stance is to stretch ourselves now to lock in a decent house that'll appreciate much more. Spouse's stance is to buy what's comfortable for us for now (far, much smaller or townhouse), which I think won't appreciate as much, and years down the road when we want to "upgrade", the nice houses will be even more unapproachable. Would love to hear people thoughts on this. Thank you! #mortgage #housing #sanfrancisco
No, don’t push your life to 2.5M house. You will tie to the mortgage for 30 years. You need to have emergency fund, kids, other expenses. When all these added up, you are so stressed that you can’t afford losing a job while the market turns south.
Why South Bay? You work at FB, just move to Fremont instead and take the company bus to work in Menlo.
Sq ft and year house was built?
+1 to wify. No point stressing yourselves, and degrade quality of life. Better to get what you need. If you trust your ability, you guys will be able to afford more expensive one later.
Yes you can. South Bay is way better than Fremont. We bought one with 25% down payment.
In what way s bay is better than Fremont? And which part of s bay?
Lower crime rates in Sunnyvale than Fremont.
have you considered significant expenses when you have kids?
I really think you shouldn’t sell your stocks , you’ll make more in the long run compared to the return on the house after mortgage interest. Just rent what you need / want and build equity elsewhere. If you need to diversify, put your money to work in real estate outside of the Bay Area (Charleston, Cape Coral , Philly look good right now on rent vs own calculations).
What about tax benefits on primary home? How much if a difference would this make?
I’d doubt it will be greater than the opportunity cost to selling the stocks to make down payment
Makes no sense at all. Lots of money tied up with the downpayment plus your mortgage is so much more than what you’d pay in rent. You’ll be trapped by that home. You’re far better off renting, and investing the rest in index funds.
No you can’t afford it. You will be slaves to your jobs just to make ends meet and feel poor. Bay Area housing is in a bubble. It happened in 2001 and 2008, and if you look at the Zillow zip code level data it’s abundantly clear we are in one again. People who think “this time is different” clearly have not learned the lessons of history. The way to build wealth is to live below your means, not to mortgage yourself up to wazoo.
Exactly this!
You could say the exact same thing about the stock market too. Primary home is not just an investment but a place to live as well. My suggestion would be to take the middle ground and go for a home that they can afford with 20-25% down.
Smaller down payment. Don’t waste your money paying off a 2.5% loan when inflation is at 6%.