From the Bay Area, my partner and I are considering buying a home priced at $1.15M. Our household income, including year-end bonuses, totals $350K. We have no debt and are planning on buying a new car soon. We don’t have children yet but are considering one in the future. With a $350K down payment, we would still have $75K left for an emergency fund. According to various budget calculators, this is within our reach, but the large numbers are daunting. What are your thoughts on our financial plan?
Consider your property taxes and state income taxes, especially with California’s rates. Even with a higher income, these factors could significantly impact your budget, especially with current high interest rates.
@Mal
Our property tax rate is about 1.2%. The high California income tax and the current interest rate of 7% definitely make it tougher.
Your financials seem close to working under the 28% housing rule, even potentially with a child. However, I recommend boosting your emergency fund, especially considering the size and associated costs of the property you’re considering.
@Bennie
Interest rates are about 7% right now, which adds to the cost. Thank you for the advice on the emergency fund.
Willow said:
@Bennie
Interest rates are about 7% right now, which adds to the cost. Thank you for the advice on the emergency fund.
If you can secure a better interest rate through good credit or down payment bonuses, that might help manage costs better.
Make sure to consider all housing-related expenses, not just the mortgage. Utilities for a large home can be substantial, and having a robust emergency fund is critical in such a financial commitment.
It’s crucial to understand what percentage of your total take-home pay would go towards mortgage payments to fully assess the affordability of this home purchase.
Ellis said:
It’s crucial to understand what percentage of your total take-home pay would go towards mortgage payments to fully assess the affordability of this home purchase.
About 55% of our combined take-home pay would go towards the mortgage, which we recognize is quite high. We plan to reduce other expenses to manage this.
@Khai
That’s quite high. Consider looking for homes in a lower price range to reduce financial strain.
Personally, I would avoid being ‘house poor’ by ensuring that home expenses don’t overwhelm your budget, affecting other life aspects.
Is it necessary to maintain jobs in the Bay Area given your income? Reducing commute costs and stress by finding closer employment might also help manage your finances better.