Can we afford house or rent only?

[nilsandiego]

Hi ,

I am new member to this site and following since last few days.

since last 6 month, i have been debating weather to buy house or not.

I am 33 year old Male with wife and 1 kid ( 4 year old).

Here is our financial profile:
Annual Salary : $100K (self) + $65K (wife)
Monthly Take home salary: $3700(Self) +$2500(Wife).
Monthly Expense : $1400(rent) + $350(Gas/Elect/cable) + $50(cell) + $150(gas)+$80(car insurance) + $500( Grocery/Misc) + $1000( Day care)

We both Max out our 401K , plut put $5K in Dependent care and 15% of my salary in company ESPP which are 15% discounted compare to allotted price.

Our current savings are as follow.

$110K ( Savings)
$100K ( ESPP/Stocks)
$100K ( 401K)
$15K ( IRA)

Area we are targeting has townhomes in range of $350K with propery taxes close to 6K-7K per year and monthy maintenance of $250.


Should i continue to rent? Can i do really afford house ? Currently after maxing out 401K , we save close to $2K in savings every month.

[bjl584]

With your combined salaries you should be able to easily afford a $350 house. You have more than the recommended 20% down payment saved as well plus enough for emergencies.

However, as artwest alluded to, you didn't list your debt obligations. That is a critical piece of information to know.

[MonkeyMama]

Agreed with bjl.

It appears to me you have no debts (no debt payment mentioned), so definitely you can afford. Keep in mind that you will also get nice tax breaks for home ownership. So your mortgage payment + fees + property tax minus income tax savings will probably be pretty equivalent to your rent. This would be for a 30-year loan, but I believe you can easily swing a 15-year loan (if you are saving $2k per month).

I do think income taxes have to be heavily factored. I would not necessarily buy a home that I could only afford on two incomes, BUT, given the numbers you provided and factoring taxes, I don't think a 30-year-loan would be a stretch on your income alone. Your income tax burden would be VERY low if you dropped your income down while owning a $350k home. {TO be clear - I would never recommend *keeping* a mortgage for the tax break, but the point is renting is not an apples to apples comparison since you can easily save several thousand dollars in income taxes by becoming a home owner. IT should be factored when figuring the cost of renting versus owning, especially so in higher cost areas}.

[nilsandiego]

Sorry forgot to mention.

No, as of now we don't have any debt. We may need another car but rightnow wife and myself can workout single car and do carpool , so we are ok and don't see it changing in near future.

[theduc]

Your monthly mortgage payment would be around $1,212 for the following:

Purchas Price: $350K
Down Payment: $80K
Amount Borrowed: $270K
Term: 30 years
Interest Rate: 3.5%

Add to that 583/month for taxes ($7K/Year) and you get $1,795. Then add the 250/month maintenance fees and you're at $2,045.

You also need to find out what the $250 covers each month and what type of insurance you need. You may only need to cover the interior if part of the maintenance fee goes to cover the structural insurance.

I've use to live in a condo where I was paying $870/month in maintenance fees (on top of the mortgage/taxes/insurance). My last condo had a $550/month maintenance fees and both covered the structure of the buildings I lived in. They also included cable tv, pool, gym, and more... the $870 one had 24 hour concierge and security on staff as well as part of the electricity was included.

[MonkeyMama]

Add to that 583/month for taxes ($7K/Year) and you get $1,795. Then add the 250/month maintenance fees and you're at $2,045.

IT's hard to say without knowing total tax situation, but these are the numbers I Was figuring, minus a $600/month income tax savings, which puts his at about $1400/month outflow - same as rent. But I am assuming *a lot.*

I personally owned a condo with a $250/month maintenance fee. The insurance was nothing (as we did not even own the walls), so I did not think of it, but I suppose insurance might be larger with an actual townhouse. & of course any repairs and maintenance type expenses would push all these costs up. Clearly OP has low enough expenses to cover repairs, so I wasn't factoring those so much in the monthly expense.

But this example helps clarify how substantial the tax savings can be in a buy decision.

[Diavel_guy]

Your 100k in ESPP scares me. Your way too vested in your company stock. My dad made the mistake of having a substantial amount of his investment portfolio in company stock at a major fortune 100 company he worked for for over 25 years. When the stock went south big time his portfolio was shot. I would never have that much of my portfolio in one investment of ANY KIND. I would sell off 75k of that and invest the money elsewhere.

Just my opinion however. Do what you like! ; )

[theduc]

Your 100k in ESPP scares me. Your way too vested in your company stock. My dad made the mistake of having a substantial amount of his investment portfolio in company stock at a major fortune 100 company he worked for for over 25 years. When the stock went south big time his portfolio was shot. I would never have that much of my portfolio in one investment of ANY KIND. I would sell off 75k of that and invest the money elsewhere.

Just my opinion however. Do what you like! ; )

I agree with this... I've worked for several major business that went south and left a lot of their employees with very little to show. Most notable one was Enron... Yep, and still has been one of my favorite jobs even though the company tanked. I was purchasing stock at $90/share at one point and in the end it was worth pennies. just be careful and don't keep all of your eggs in one basket so to speak. I witnessed lots of coworkers who were close to retirement lose everything they had! Thankfully I was still young and wise enough to keep my portfolio diverse.

In a box somewhere I still have a little book they gave out titled "Enron's Code of Ethics". That's always a good laugh to see... that and my AIG money clip I received after 5 years of employment with them.

[swapnil]

I suggest you to go for purchasing a new house, and yes, also suggest you to borrow house loan from bank and put half or more than that amount from your own this way you can spread your expense on purchase of a house, and the loan amount should be repaid after 10-15 years on installments, as you both have a steady income, and no debt overhead yet, you can afford to purchase a house with $250-$350 range of Maintenance charges, best of luck for the future good wishes to you

[nilsandiego]

I appreciate your concern about 100K in espp. But truth is not all 100K in espp. May be 35% in espp and rest on other stocks which i think are good one and pays close to 3-4% dividend yearly.

Your 100k in ESPP scares me. Your way too vested in your company stock. My dad made the mistake of having a substantial amount of his investment portfolio in company stock at a major fortune 100 company he worked for for over 25 years. When the stock went south big time his portfolio was shot. I would never have that much of my portfolio in one investment of ANY KIND. I would sell off 75k of that and invest the money elsewhere.

Just my opinion however. Do what you like! ; )

[amarowsky]

jesus, w/ 100k in savings and 100k invested, you could just buy the house outright. I'm from detroit area and 200k will get you roughly a 2500sq ft house in a good neighborhood. And thats probably 800sq ft more than I would ever need.

[97guns]

look for a place farther out from work and commute in, often times you can save 100K or more on a better property by driving an hour to work.