Are you planning to have kids? Daycare can easily be $1000 a month per kid, and a lot of couples choose to have one parent stay home instead. I would want a lot more breathing room with the mortgage if kids are in the plans.

We are in the next 5 years or so. We have lot of family nearby and are hoping that they can offer some help with childcare, but obviously we need to plan as if we won’t have any help.

Agreed. The numbers Op gives seem perfectly reasonable right now. But that budget requires 2 incomes, unless OP has a substantial raise.

I’m pretty conservative with money and I think your combined salary is too low to afford a house at $400k with an interest rate a 7%. Your mortgage shouldn’t be more than 2 (ideally) to 3 (HCOL) times your annual salary.

You’re not saving enough for retirement now and if you have kids you will have expenses for childcare, supplies, 529, etc. Also, you have to budget for necessary home repairs. I spent over $30k on necessary repairs my first year of home ownership.

You need more money saved to buy a house. Even if you only put 5% down, you’ll need money for closing costs and money for repairs/emergency fund. Having only 10% of the purchase price to cover that is not enough. I’d save for longer and hope the housing market continues to head down before buying.

I’d agree with this analysis I just saw today:

https://finance.yahoo.com/amphtml/news/much-money-earn-annually-comfortably-181013084.html

Yeah I would be a lot more conservative then until the kids are out of the daycare years or until you increase your income substantially.

Your total monthly housing cost should generally not exceed 35% of your monthly income. You may qualify for more, but you will feel stretched.

I would hold off on getting a house until you pay off the debt and have a good 3 to 6 months worth of expenses in savings. Then 20% Down on a 15 year loan to avoid PMI.

Is this pre-tax or take home? I have heard that a reasonable target is 28% of pre-tax monthly income.

If you have good credit PMI is almost nothing per month. On a $350k loan our PMI is $40 a month. Hardly worth putting off buying a house until you can afford 20% down.

You're netting 94k on 128k gross? This shocked the hell out of me. Filing single stinks.

Based on calculators that prospective lenders have given us, with our credit PMI would be less than $100/mo.

It's take home. Note that it's for housing cost, not mortgage- this includes all of the repairs and ongoing maintenance on a home that will now be your responsibility. More of that can be mortgage if less of it is spent fixing an old roof or a flooded basement.

I appreciate the response, and thanks for sharing that article. We have used multiple house affordability calculators from places like nerdwallet, Freddie Mac, and various banks, and the range we have seen is from around 375-440k with a monthly payment of 2800-3300. I’m curious as to why these are so far off from the analysis in this article? Also, how much should we be saving for retirement? There is a tool in my Transamerica account that estimates how much income we will have once we retire and with my current rate and our current Roth balances/rates it shows our projected income being well above what we currently make. I had understood that you want to save 20% of your gross, and currently we are putting about 10% into retirement and about 14% into savings.

I also want to add that we are concerned about being priced out of the market and never being able to buy. We live in a desirable area and house prices have dropped a little bit, but based on demand it does not seem like they will ever drop below the levels they were a few years ago. We also have roots here and are not considering moving to a lower COL area, as it would require both of us to quit our jobs and leave our families and friends.

A $3300 mortgage payment would put you at 31% DTI. This is pretty affordable

If you can put 10% down PMI is a bit cheaper, and you are financing a little less so the payments would be a bit lower. But then waiting longer, saving more to cover closing costs on top of the down payment probably means increased home prices so it is a wash.

One other thing I didn’t mention was that my parents have made comments about being willing to give me a loan to help with a down payment if needed. I haven’t pushed this idea because I don’t want to burden them, although they are doing well financially.

As others have said you can do it on paper but if either one of you were to lose your job for an extended period you would be screwed with the amount of savings you have. You mentioned about 50K in cash, do you have any investments that can be liquidated if needed?

I personally would not be comfortable with a mortgage that high and $1000 in car payments. I assume you are not saving anything for when you need to replace the cars or major maintenance. If you buy a house that is more than 20 years old, things will need to be replaced. A new roof is 20k, HVAC 5-10k, ect., rule of thumb is about 1-2% of house maintenance per year, more if it's older for the first couple of years. Also if you are coming from a smaller place you will need furniture and a bunch of misc household items that you will need if you don't currently live in a house. It all adds up.

Will you be able to replenish your efund if you have to drain it?

7,800 - 2800 - 3400 = 1600, estimate increased utilities and housing costs at another $500 and you are left with about $1000 for all the discretionary items, are you comfortable with that?

You could ease back on the Roth contributions if things get really tight, but I personally would not be comfortable being in that position. Especially if you are planning to have kids down the line.

You can't take a loan from your parents for a down payment on a house and get a regular mortgage. If you lie and say it was a gift when it is really a loan that is mortgage fraud.

Gotcha, I am definitely not planning on committing fraud. That’s why I’m asking questions here.

> Daycare can easily be $1000 a month per kid

Was $2k/mo for us. $1k may be low depending on COL.

You are not taking into account the expense of kids in daycare or any kind of emergency or home maintenance. It's not every month but houses need regular maintenance and it's usually not on your personal savings schedule. Our water heater just needed replacement, that's $1500 right there. Fridge crapped out, that's $2000. That's not even getting into the really expensive stuff like HVAC, roof replacement, etc. That combined with the costs of kids is going to eat up that extra $1300-1800 real quick.

I would recommend taking a month or two to "practice" living on less discretionary income. If your rent is $2100 now and you expect a mortgage to is etimated at $3400, then pretend you're paying the full amount now (put the difference in savings). See how tight it feels to not have wiggle room for hobbies, restaurants, whatever.

If that feels okay, then do it again the following month but subtract yet another $1000 from your monthly budget to cover the unanticipated costs of first-time homeownership: repairs, maintenance, higher utilities (due to more square footage) or simply buying things like ladders and lawnmowers that renters don't need. Eventually these costs might decrease but by then your childcare costs may be a reality.

If both months feel like sustainable budgets to you, then go ahead and buy a house as planned. Otherwise, adjust your purchase price or increase your earnings or postpone your purchase.

First, your emergency fund should be liquid and it’s not. Next, why are you underfunding your IRA?

I personally wouldn’t feel comfortable spending more than $2800 on mortgage with your incomes, but that’s just me. My fiancé and I have a gross income slightly above yours and we are looking to keep our mortgage around $2100, but we have student loans. We wanted to save room in our budget after the mortgage to be able to afford daycare for children. Children are about 5 years down the road but we don’t want to be house poor once we have kids

If your parents would gift you some money you could put 20% down and avoid PMI, pay less in interest because you are borrowing less. Your payments would be more affordable.

Yeah, if OP is in a location where there's no "livable houses under $400k", $1000/mo for daycare is probably unrealistically low.

> Then 20% Down on a 15 year loan to avoid PMI

There's a math problem here tho. Simply avoiding PMI could cost them in the long run.

How long will it take to save 20% while spending $2100/mo on rent? vs buying sooner and spending ~$200/mo on PMI?

20% isn't always the right call, though is ideal if you can swing it.

It would have to be a gift. Can't take a loan on down payment.

The ibonds are past their 12 month holding requirement and are liquid. I am underfunding my Roth because I want to save more quickly for a down payment so that we can buy a house.

But your house budget doesn’t seem to have room for fully funding the IRA or funding a home repair fund. Correct?

A $3k mortgage would give us about $400-$900 leftover for savings, so using that to max out the Roth would leave 0-$500 for home repair. However, the $1200-1400 portion of our budget that’s more fluid goes towards unexpected expenses if needed. If something comes up, we reduce those nonessential expenses and put it towards whatever is needed. However, it is not being consistently put away for some large expense so as you’re pointing out we would need to put a chunk of that aside every month for home maintenance. I have read to expect 1% of home price per year for home maintenance. How much would you recommend?

There's the conventional wisdom/ideal scenarios for home-buying and then there's real life. Worrying about being priced out is a real concern, but FOMO is never a good driver for decision-making. It's all a balance. Some people here will tell you to forget it, others will say it's OK.

I'm in a fairly similar situation as you (combined income is about $8900 a month). I bought a home ($385k) in 2020 while engaged and if you went off of "convetional wisdom," we would have been told not to buy because our income was about at your level, but we had my now-wife's apartment to finish paying for (4 more months, couldn't break the lease) and a new car and wedding to pay for. We were tight for a bit but made it through. Friends in the same range have recently done the same thing, and it's tough at times but they adjusted well.

Now we've increased our income and have plans to try for a kid in the next calendar year, which would tighten our budget quite a bit, causing us to re-think our location to move closer to family. Because you have family nearby, that will decrease child care substantially for a lot of factors.

By budgeting and doing all of these calculations, you are already ahead of a lot of people in similar scenarios. My advice to you is to look at homes, but don't rush into home-buying. Try budgeting for a few months with what a mortgage would be like ($3k or so). Homes are expensive and kids even more so, though that's a problem for later on. Because you have no interest in moving, maybe look at more "forever" type homes than starter homes, even if it takes you another year or two to find the right one. Fixed rent is fine, homes can become a financial drain extremely quickly. You're fortunate that you can focus simply on your current city and find the exact location and home type you want.

Look into an FHA loan for a lower interest rate. Our home was 400k and we got a killer interest rate. So escrowed our mortgage is 2050 with about $40k down.

We make $13k monthly gross…we have a big family and didn’t find the mortgage painful. We worked hard on clearing any consumer debt, and now only have vehicle payments and student loans.

Child care in the future is such a tossup. It largely depends on your area. It used to cost me $750 a month in one town and then we moved and it’s estimated here at $2000 a month. I know people will tell you to be prepared, but you really can’t until you find out you were having a baby and research the options and your areas. They can drastically differ from place to place.

$3300 for us with kids would have been tight a year or two ago. That mortgage without kids may not be too bad.

I would focus on trying to get the lowest interest rate possible. look into an FHA, perhaps even what you want might be in a USDA zone. If a lower interest rate is not possible, definitely throw whatever chunk you can at a down payment and save for closing costs. It will make a difference over time, and in the equity of your home.

Thank you for the long and thoughtful response, it is greatly appreciated.

Reduce your 401k Contribution to the Max company match.

Put the rest money into your money market or other investments. This will increase your down payment and any money that is left over can be used to bolster your emergency fund until you are comfortable enough to move it back to a retirement fund.

You are not allowed to take out as much money from a 401K as you think you can to buy a house. There is no reason to keep putting unmatched money in there if you have other plans that are just as important.

Thanks for the response. I had thought FHA loans are typically for people with lower credit and lower down payments, and that they come with a higher rate and PMI that stays for the life of the loan. Is this incorrect?

You'll want more money than you expect when you move in. Repairs, paint, furniture. However much you think is enough, double it. Also, things are going to break. Budget for that too. Roofs, siding, central air, hot water heaters.. things are expensive.

Agreed. All our relatives were constantly spouting that idea at us, but when I did out the math for them, we'd have to work over 5 years with zero spending over bare necessities to save the 20%. We didn't want our life to look like that for 5 years just to save. We put 5% down and our PMI is 115/mo.

FHA is many of the things you mentioned, it’s also excellent for first time homebuyers.

There are also limits on the homes. For example, in our area the limit is $479,000.

With our lender PMI was 11 years or 11% of the home was paid off. whichever comes first.

You can also check with any mortgage broker. They will shop around and find you some of the best loans out there.

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It’s not a good time to buy a house. I think once the student loan moratorium ends, you’ll see more foreclosures. Keep an eye out for it then.

A little different of a response: but maybe aim to purchase a “just livable” house. As in nothing structurally wrong with it, but it can have atrocious bathrooms and a terribly outdated kitchen that you can spend the next couple years renovating. My thinking is keep the mortgage payment low, and use my discretionary income for the house. Basically instead of getting a house for $3000/mo that will be my forever home (or like 10yrs) I’m instead looking at $1500/mo homes that I can slowly fix up as my cash flow grows. Currently saving for DP is my largest expense so once that is done, I’ll have about 50% play money each month that could in theory go to pure renovations but in the event I lose my job or daycare costs are incurred I’ll be better off than stuck with such a high monthly payment.

Another opinion: I think you totally could go ahead and purchase that home and be okay - but maybe consider how your budget would look on one income (just to be safe)

I appreciate the response, and we are looking to get something that is a fixer-upper partly so we can increase value with improvements but mainly because that is all that’s available. So far, everything under 400k (with very few exceptions, and those exceptions stay on the market for maybe a day tops) has serious damage that would require a large investment to fix. This could be bentonite damage in the foundation, or all walls and floors need to be redone, or it’s intended to be a complete scrape and being sold for the lot. We would prefer to buy something cheaper and are constantly on the lookout for something, but so far all we’ve seen are houses that need serious repairs.

I think telling us to try to live on our budget as if we were paying the mortgage is good advice. Luckily if an emergency like that were to happen we have family that would be willing to support us through any tough times, but we wouldn’t want it to come to that.

Thanks for the advice. How difficult is it as a first time homebuyer to buy a foreclosed home? I haven’t done much research about it, but the few things I’ve read made it seem like it was risky and difficult to do if you don’t have any experience

Oh that hurts to hear, lol! I’m lucky to be in a LCOL area where 200k gets you something old but no damage. Think you’re stuck with that higher payment but I think you’re perfectly fine at that amount especially since in 5-10 years your income will be much greater as well and it’ll balance out with any extra costs like part time daycare whatnot

TLDR: per the yahoo article- a household will need to bring in between 165-195k a year to afford a 400k loan on a home at current interest rates.

Why stop there? They should just save up until they can buy the house in cash.

/s, saying "just save for 20% down and do a 15 year fixed loan" is not feasible for a vast majority of first-time homebuyers.

Just go get pre approval first then you’ll know what the banks will offer you

See a broker

Thanks for the detailed response. We are fortunate that if we really had an emergency like a lost job and we had to drain our savings, we have family that we know we could lean on until we get back on our feet.

Those are very good points about the high cost of maintenance and repair items. After reading all these comments, a monthly payment of $3400 seems a bit higher than we would want to be stuck with. Cutting back discretionary spending is something I know we could do, but I like the advice of some people here who have said to go a couple months budgeting as if we had that mortgage payment and see how it goes.

One thing we are not taking into account is that I am fortunate enough to be in a very stable government job that gives yearly merit increases of 3-5%. While you can never know for sure what will happen, it is highly likely that my income will only continue to increase.

Our lease is up at the end of March, so we are planning to get preapproval once we are within 90 days of that. I am just trying to be cautious and think things through, because I know lenders will most likely offer me more than I can comfortably afford

Expecting my first born in new years and everyone is telling me it’s 1800+ for daycare

Don’t just hope, make contingencies for daycare. Better to have extra spending money from daycare than start sacrificing expenses for it

Also 2k a month . ONE child .

It's usually pre-tax, not take home.

Age is a huge factor to this. How old are you guys?

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I’m 31, wife is 29

We're currently in escrow right now on a 400k 1300sqft home. We're in California and the county is pretty rural but the area we want to live in is the highest HCOL in the county however there are better kept neighborhoods, great schools, wellmaintained parks, etc. Our income is 120k and we take home about 8400 a month net. Our mortgage is going to be 3200 and were locked in at 7.12%. Not the best rate but we have excellent credit so our PMI is only $50 which suprised me. We have no debt beside my student loan. We're putting 5% down and will have 25k for emergency fund. The house is a mild fixer upper mostly comestic walls doors etc and a few big items like a broken window and barebones yard but roof and big money stuff are good.

We have 1 toddler and are expecting another in a few months. Our apt lease ends in the beginning of this year and this home which was literally on the market for a few hours before I saw it will hopefully be a godsend as we've been looking for a few months.

If you're looking to buy soon I suggest getting in touch with a good realtor ASAP so they can help guide you if your a FTHB. I think the car payments are probably your biggest burdens. Money would be extremely tight for us if we still had ours. We can make having two kids and a house work as we have help from family as well but paying 1k in cars would be difficult. If your not on a timeline to have kids real soon then I suggest paying off the rest of your debt and saving up as much as you can before buying a home. Its probably nice to have a place without kids but I feel like it would be a waste of so much space and money especially at the prices were seeing right now. Also consider property taxes, ours is higher due to the area.

Honestly though if you're not financially inept which it doesnt like you are you'll be fine. You will find a way to make it work.

One of the questions I always have when this question pops up is have you done analysis of what the income vs cost of living is vs other places? If 400k is your floor and you make $128 combined that doesn't sound like a place you probably can afford living in. I personally dont think you make enough money to make it work.

When we first got here we thought we needed a 350k home to be happy (this was nearly 3 years ago so thats like a Florida McMansion) and we didn't get approved for it so we had to reduce our search to 250k houses. We found one and it was just as good as a 350k (at the time and in our opinion).

Have you opened up an app like Trulia and zoomed out and looked at houses that are more affordable and see if you can have a slightly longer work transit time to save a crap ton of money?

I wish you luck

They can give you a pre approval without a hard credit check or ask them to estimate it without a credit card check etc

But of course it’s just an estimate

It can be tricky. Usually is the bank has the home on their books and is trying to “dump” it. The home could be abused by the old owners and the banks do very little to fix it up. You could get a perfect home and be lucky or get something where the pipes burst (if you live somewhere cold) and everything is broken, it’s a gamble sometimes.

How is take home at $8400 with 120k gross? I always follow these posts because I’m in a similar situation. Wife and I combine gross is about $170k but our take home is only like $7600.

I could definitely make this higher with some retirement accounts changes but not by much.

Personally feel you should have 6-9 months of EF saved up with a minimum 20% DP (doesn’t include closing costs) in addition to minimum 25% retirement savings and 5% of the area’s median home value for repairs to start thinking about buying.

I personally wouldn't go beyond $3,200/month if I were you.