5 ms·

I live in the Bay Area. My wife and I, early thirties and a few years out of grad school, make about $300k combined and in our area (Sunnyvale) there are maybe

I live in the Bay Area. My wife and I, early thirties and a few years out of grad school, make about $300k combined and in our area (Sunnyvale) there are maybe 2 or 3 houses for sale at any given time under our rough budget of $1.2 million, which would be below the median list value for a house in the city. I say this as dispassionately as possible, but I would really like to know more about who is able to afford these houses. The article gives one example (doctor married to an engineer, no age given), but I wonder if that case is typical.

ec109685 10y ago
Your mortgage on that 1.2M house is 5k a month (assuming 20% down). And most of that is tax deducatable. How did you determine 1.2M is the most you can afford?
- wapz 10y ago
  1.2M is also going to have ~14-16k/year for property tax and insurances associated with it. He said his budget is 1.2M not the max he could afford. I was looking in housing in the east bay and the cheapest over there in a decent neighborhood was 650k. Far, far more than I can afford.
- georgeburdell 10y ago
  Our jobs are high stress, evidenced by the median tenure at our jobs being about 3 years. The people that leave are not job hopping, they're having existential crises and changing career paths. Basically, we don't want to risk being shackled to our jobs to pay the mortgage.
  - Xcelerate 10y ago
    > "Our jobs are high stress" — georgeburdell Georgia Tech grad by any chance?
  - dpark 10y ago
    Then, honestly, why are you looking to buy? Why do you have a budget of 1.2MM if you don't want to be shackled to your house? If you legitimately don't know what you're going to be doing in 3 years, buying an expensive house is a terrible idea.
    - georgeburdell 10y ago
      We don't want to be shackled to a house we can only afford if we make at least our current salaries. A $1.2 million dollar house would not be such a house, as even if we made only $200k we could likely afford it. We are planning to live in the Bay Area long term for personal reasons, so buying something makes sense.
  - pfarnsworth 10y ago
    Buying is not the right choice for you then. Renting, albeit high, is worth it in your situation.
  - btian 10y ago
    Why don't you buy a 2 bedroom condo in Santa Clara or Milpitas for ~half of your budget.
- dpark 10y ago
  Mortgage deduction doesn't change the numbers by that much. People tend to overestimate how much of the mortgage will be offset by the deduction. With a good interest rate (which you have, if you're paying $5k/mo on a 1.2M house), about 65% of the P&I payment is interest (and this declines every year). If you're earning $300k married filing jointly, your top tax bracket will be 33%. So your $5k turns into $1072 that the government basically gives you back for owning a house. But don't forget that claiming this means giving up the standard deduction, so back up and take $12600 out of your interest for a more accurate number. Instead of 39K for the first year, it's more like $26.4k. So now you're down to $726/month saved. That's about 14.5% saved due to the deductibility of mortgage interest. So if you could afford $1.2MM without the deduction, you can afford about $1.37 with it, which is a decent jump but it's not putting you into even a $1.5MM house. If you're earning $300K/year, you can likely afford a 1.2MM home without too much trouble, but it depends on whether you have kids (if you live somewhere expensive, childcare is also crazy expensive), have student loans, need two cars to commute, are investing for retirement heavily, etc. $300/year can easily put a 1.2MM house at the top of the budget for many couples. I say that as someone with a family income in that ballpark and a home that cost exactly that much. I cannot imagine trying to make ends meet with a higher mortgage payment, and we don't have student loans, or a second car, or a drug habit.
  - sparky 10y ago
    If you're earning $300k/year in California, you're paying ~$22k in state income tax, so you should be itemizing on your federal return with or without the mortgage, and subtracting the standard deduction from the benefit doesn't seem right.
    - dpark 10y ago
      Looks like you're right. I thought state and local taxes were deductible without itemizing but I was wrong. I've been itemizing for years so I guess I got that mixed up. (And I have no state income tax so it hasn't been a factor for years either.) So that puts you back at the ~1000 mark for savings which probably gets you close to 1.5MM.
merkleee 10y ago
Thousands of Google engineers make $300k a year.
elastic_church 10y ago
> grad school well there's your problem. I hear from real estate agents that the typical buyer is a couple making $300k/year. They've just been in the workforce longer and have the downpayment by now. Your profile would suggest "a few years working and a decade of student debt".
tnt128 10y ago
This is typically only a problem for first time home buyers. If you already own a home in the bay area for more than a few years, you will have a significate amount of equity that will allow you to move up in more expensive area with a larger downpayment and a similar monthly payment. So try buy a home in the less expensive area first.
- stbtrax 10y ago
  how does that work? as your property appreciates so would the one in the more expensive area
  - throwaway40483 10y ago
    Exactly. Rising house prices are only a plus if you plan on selling and move outside the bay area.

ec109685 10y ago

Your mortgage on that 1.2M house is 5k a month (assuming 20% down). And most of that is tax deducatable. How did you determine 1.2M is the most you can afford?

wapz 10y ago
1.2M is also going to have ~14-16k/year for property tax and insurances associated with it. He said his budget is 1.2M not the max he could afford. I was looking in housing in the east bay and the cheapest over there in a decent neighborhood was 650k. Far, far more than I can afford.
georgeburdell 10y ago
Our jobs are high stress, evidenced by the median tenure at our jobs being about 3 years. The people that leave are not job hopping, they're having existential crises and changing career paths. Basically, we don't want to risk being shackled to our jobs to pay the mortgage.
- Xcelerate 10y ago
  > "Our jobs are high stress" — georgeburdell Georgia Tech grad by any chance?
- dpark 10y ago
  Then, honestly, why are you looking to buy? Why do you have a budget of 1.2MM if you don't want to be shackled to your house? If you legitimately don't know what you're going to be doing in 3 years, buying an expensive house is a terrible idea.
  - georgeburdell 10y ago
    We don't want to be shackled to a house we can only afford if we make at least our current salaries. A $1.2 million dollar house would not be such a house, as even if we made only $200k we could likely afford it. We are planning to live in the Bay Area long term for personal reasons, so buying something makes sense.
- pfarnsworth 10y ago
  Buying is not the right choice for you then. Renting, albeit high, is worth it in your situation.
- btian 10y ago
  Why don't you buy a 2 bedroom condo in Santa Clara or Milpitas for ~half of your budget.
dpark 10y ago
Mortgage deduction doesn't change the numbers by that much. People tend to overestimate how much of the mortgage will be offset by the deduction. With a good interest rate (which you have, if you're paying $5k/mo on a 1.2M house), about 65% of the P&I payment is interest (and this declines every year). If you're earning $300k married filing jointly, your top tax bracket will be 33%. So your $5k turns into $1072 that the government basically gives you back for owning a house. But don't forget that claiming this means giving up the standard deduction, so back up and take $12600 out of your interest for a more accurate number. Instead of 39K for the first year, it's more like $26.4k. So now you're down to $726/month saved. That's about 14.5% saved due to the deductibility of mortgage interest. So if you could afford $1.2MM without the deduction, you can afford about $1.37 with it, which is a decent jump but it's not putting you into even a $1.5MM house. If you're earning $300K/year, you can likely afford a 1.2MM home without too much trouble, but it depends on whether you have kids (if you live somewhere expensive, childcare is also crazy expensive), have student loans, need two cars to commute, are investing for retirement heavily, etc. $300/year can easily put a 1.2MM house at the top of the budget for many couples. I say that as someone with a family income in that ballpark and a home that cost exactly that much. I cannot imagine trying to make ends meet with a higher mortgage payment, and we don't have student loans, or a second car, or a drug habit.
- sparky 10y ago
  If you're earning $300k/year in California, you're paying ~$22k in state income tax, so you should be itemizing on your federal return with or without the mortgage, and subtracting the standard deduction from the benefit doesn't seem right.
  - dpark 10y ago
    Looks like you're right. I thought state and local taxes were deductible without itemizing but I was wrong. I've been itemizing for years so I guess I got that mixed up. (And I have no state income tax so it hasn't been a factor for years either.) So that puts you back at the ~1000 mark for savings which probably gets you close to 1.5MM.

merkleee 10y ago

Thousands of Google engineers make $300k a year.

elastic_church 10y ago

> grad school well there's your problem. I hear from real estate agents that the typical buyer is a couple making $300k/year. They've just been in the workforce longer and have the downpayment by now. Your profile would suggest "a few years working and a decade of student debt".

tnt128 10y ago

This is typically only a problem for first time home buyers. If you already own a home in the bay area for more than a few years, you will have a significate amount of equity that will allow you to move up in more expensive area with a larger downpayment and a similar monthly payment. So try buy a home in the less expensive area first.

stbtrax 10y ago
how does that work? as your property appreciates so would the one in the more expensive area
- throwaway40483 10y ago
  Exactly. Rising house prices are only a plus if you plan on selling and move outside the bay area.