My wife and I are looking to move and put an offer on a new house. I know this is long, but we would be greatly appreciative of any feedback that can be provided on the scenario. Save us from possibly making a $1M, lifelong mistake!
* Gross Household Income: $270,000/yr
* Free Cash/Pay Period: $6,300 (This is net cash received, after tax withholdings, after retirement funding, after insurances, and after current “Household Debt” below of $417/pay)
* Free Cash/Year: $160,000 (above, but one pay period is bi-weekly and the other bi-monthly)
* Cash in Savings: $100,000
* Investments: $75,000 non-retirement funds but slated for retirement. Let’s consider it unavailable.
* We both own outright Honda vehicles with under 50,000 miles. Don’t intend to upgrade.
* Excess Cash in Mortgage Checking Account: ~$12,000 (monthly we slightly overfund mortgage in event anything happens, bank offered rate reduction for auto withdrawal from paycheck into their checking account for mortgage payments). Let’s consider it unavailable.
* Household Debt: $55,000 family debt (refi’d student loans to private @ 5% $417/pay period or for $834/month). This is held by a family member and not “reported” on credit scores as outstanding debt and intend to disclose to lender.
* We don’t have children yet but anticipate having soon. My wife will continue to work. We are both offered relatively good maternal/paternal leave. 16 weeks/yr (80 days) each to be taken however chosen in the first year after childbirth. Meaning it can be all at once, or she can take some initially, and I can take some after. We could return to 2 days a week work/ 3 days a week off, etc. It’s flexible. The insurance policy we have enrolled in is good, low deductible, and will cover costs of childbirth. It’s expensive monthly but we elected it this year due to our family planning, and the cost is figured into Free Cash/yr figures.
* Estimated Sale Price: $515,000 – $550,000. Agent quoted @ $550,000, but let’s use low end.
* Outstanding Loan: $315,000
* Broker 4.5%: assume $25,000 of $515,000 sale price.
* Cash From Sale: $175,000 (yes there’s closing costs, but Cash in Savings should cover)
* Estimated Purchase Price: $875,000 + $125,000 renovation loan for $1,000,000
* Estimated Down Payment: $200,000 @ 20%
* Annual Property Taxes: $14,000
* Estimated Monthly Payment: $4,539/month including taxes @ 3% for 30 yr mortgage
**Analysis of Proposed Housing Costs**
In this scenario we would need to fund up to maybe $50,000 for the incremental costs between proceeds from sale, closing costs, etc. to move into this new home?
That doesn’t seem unreasonable to us given what we’re receiving. This new house is +1.5 bathrooms, +1 bedrooms, +3 car attached garage (we don’t have a garage), + finished basement (we have slab now), +1.5 acres (we have 0.25 now, this is 1.7+).
In the scenario, the $4,539/month housing cost is $54,474/yr. Our Free Cash/yr stated above is $160,000/yr, so that is ~34% of Free Cash/Yr. This would still leave us with ~$100,000/yr of Free Cash or $8,333/month to do as we wish. Remember Free Cash is after income taxes, retirement, insurances, and “Household Debt” for student loans.
The $54,474/yr housing cost is 62% and 75% respectively of any single individuals Free Cash/Yr. This is a sanity check meaning if anyone lost their job for some time, even a single individual could cover the entirety of the housing cost, albeit at a stressed level.
What, if anything, did we not consider? What additional information would you like to know?
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All the numbers are big, which makes this feel overwhelming to consider, but you clearly have the money to make it work. It sounds like you’ll have some cash on hand even after putting 200k down, which is an important factor. In addition to buying the house you have to consider the increased costs of maintaining a larger home and property. Not only will you need to do daily maintenance that exceeds what you manage now, but you’ll also need to save and plan for repairs that will be incrementally larger. Additionally, children are expensive and you’ll have to cover a lot of new costs when they come into the picture. But even if all those things are expensive, your current incomes cover it.
I think the only question I would have is: if one of you lost your jobs, are you likely to get new roles at similar pay points? Being unemployed for a time is different from transitioning to a lower wage job. If you think your jobs and industries and rather safe then I’d say go for it. Enjoy your new house.
>We don’t have children yet but anticipate having soon. My wife will continue to work.
One tip…do not plan on this. Childbirth is never a guaranteed outcome…and of course I hope things go smoothly for you…but if you are planning to have children, then plan your life as if one income might disappear. If something happens and one person needs to stay with the child full time, will you still be OK?
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