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My total comp this year is ballpark $240K. I'm still paying student loans. I'd like to buy a home, but in my area, there's nothing in a reasonable commmute from

My total comp this year is ballpark $240K. I'm still paying student loans. I'd like to buy a home, but in my area, there's nothing in a reasonable commmute from work under $750-$800K and anything less is getting bought in cash for some ridiculous amount over asking price. You might argue that $800K is justified on a $240K income. I have anxiety from the thought that I could lose my job, and the barrier to entry in my field at other companies is so high that I would burn through my savings/investments and not be able to pay mortgage, taxes, + insurance.

cylinder 8y ago
You can easily afford that mortgage. It's $4100/mo. Aren't you netting $12-$14k/mo after income tax? Not sure what the property taxes are where you are. Everyone faces the same anxiety when buying, but what's the alternative? Is your rent that much cheaper? If you lose your job, you still have to rent a place to live. You're also missing out on a big capital gains tax exemption. If you do lose your job, you can rent it out. $800k is nothing in a city with $240k jobs. You should see other big cities in the world!
- jacquesm 8y ago
  > If you do lose your job, you can rent it out. Will you pay him back the difference if he can't? If not then why such definitive statements about what someone else should be comfortable with. I could easily borrow a million or more from the bank to buy a house, but that wouldn't make it a wise decision. Instead I live in a house far smaller and more modest than what I could be living in and I feel better for it knowing that in a downturn (when most likely more people are experiencing a downturn) I will not have to change my life-style one bit.
- bradstewart 8y ago
  While I agree with you, the big difference (I think) is that you burn a significant portion of your savings on the down payment. So that cash is no longer available to cover your monthly costs if you lose your job.
pmorici 8y ago
The Zillow home affordability tool[0] was helpful to shape my thinking about what is "affordable" at a certain salary. Even if you are super conservative you could afford a place up to $1 million on that salary assuming you have the discipline to save for the 20% down payment. [0] https://www.zillow.com/mortgage-calculator/house-affordability/ https://www.zillow.com/mortgage-calculator/house-affordabili...
- yourapostasy 8y ago
  These calculators do not model job stability. GP is correct to be concerned; unless they have a truly unique skill set in high demand for the foreseeable future, steady employment is not a given in many fields. In the US, one needs about 7 years to break even on house purchasing costs (all the fees and commissions outside the titular selling price) before it financially makes sense to buy into another/different house. This is why you hear the rule of thumb that tells people to rent unless they plan to stick around "for awhile", or "for about ten years". We need a forward-projected statistically-inferred probability, based upon historical trends of the field a prospective buyer is in, on their income stability for the next 7 years. It should come out as at 100% of current income, 50% probability they will increase at rate of inflation over next 7 years. At 80% of current income, 60% probability. At 70% of current income, 90% probability. And so on. Then the buyer picks where on the gradient they feel comfortable, given any side hustles, investments, etc. they have going on in their lives. This balances out the traditional DTI ratio that entirely favors the lending side getting their transactional fees regardless of the actual projected affordability. The younger generations around the world are getting completely shafted on real estate asset overvaluation, and many are right to be skeptical of conventional affordability calculations. In the US, there is the triple shafting of higher education, healthcare, and real estate overvaluation. Median asset values are way out of line to median incomes, and only supportable by an over-lenient and captured debt system. The reversion to mean will be painful, and unfortunately most of the pain will not accrue to those most responsible for the overvaluations in the first place.
  - 2sk21 8y ago
    Excellent point about job stability. Its possible to get into a field that looks promising at the moment but then quickly have it become irrelevant. Alternatively, you could get into a field too early and then discover that theres no demand for it. Its a delicate balancing act.
kennyadam 8y ago
After tax I take home $22k. House prices in my area are ~$600k. Your anxiety is hilariously misplaced.
- thomasfedb 8y ago
  Being told that others are better off than you rarely makes anybody better off.
  - Chris2048 8y ago
    Do you mean worse?
    - thomasfedb 8y ago
      I did.
  - loco5niner 8y ago
    $22k/year I assume
aidenn0 8y ago
At $240K, if you have no family to support, you ought to be able to save up enough for a sizable down-payment in 5 years: Assumptions: Health Insurance is funded by employer 50% of total comp as take-home (post 401(k), taxe &c.) -> $600k take home over 5 years $2.5k/month for rent (I'm assuming from housing prices that this would translate to somewhere between a very nice 1BR or a half-share of a nice 2BR in your location) -> $150k over 5 years. $450k after housing. Even budgeting $20k per year for all non-housing expenses leaves you with $350k which is nearly 50% down. Having "not quite a 50% down payment" after 5 years of work puts you in rare company.
tostitos1979 8y ago
Not sure why you were downvoted. I feel the same way. People might be going boo-hoo ... but they don't understand the point you are making. I presume you have a high paying job in a very expensive area. If you moved to a cheaper area, the job would either not be available or be at a much, much lower pay. Also, you probably pay 40+% of your income in taxes. Just because I get a high software salary now, I have no confidence this will be the case 3-5 years from now. I feel the same.
- murph-almighty 8y ago
  Around 100k here, but living at home while aggressively paying off student loans and maxing my 401k. It's weird to effectively not be saving money to knock off debt and shove my money into a retirement account I won't see for a while. I've also been strongly contemplating reducing my 401k contributions because I suspect a downturn is around the corner...
  - tostitos1979 8y ago
    I was "over contributing" to my 401K for years ... I realized this when it came time to buy a house and fork up a down payment. I was rich in 401K but not in liquid cash :( Still no house but do have dependents, etc. Depends on your situation of course. Btw ... kudos for living at home while making good income. It is very, very easy to go on the hedonic treadmill and rent a fancy apartment, but a nice car, etc. The longer you can maintain a student lifestyle, the better off will be your pocket book.
claydavisss 8y ago
You should be much more anxious about the risk of losing a great deal of your lifetime earnings (more than enough to buy a house outright) to rent. Some people rent out of necessity; for you that is not the case. Everyone who has purchased a home lives with economic risk. I am very concerned that an entire generation that has flocked to expensive urban centers will wake up at age forty five as renters and realize it is basically too late to enter the housing market.
- ska 8y ago
  There is nothing wrong with not entering the housing market so long as you have an alternative savings plan. Depending on lots of factors, of course, but you may end up much better off in the long run by renting + saving. In the US particularly there are a number of incentives that help tilt this toward home equity, but it's not a given - it does work as a reasonable forced saving plan for people who are not thinking long term.
  - JKCalhoun 8y ago
    People are bad at saving for retirement. I suspect a lot of life-long renters are going to be anxious when they get older and realize they also have no savings — home owners with no savings will at least have their one asset.
    - ska 8y ago
      No doubt it works as a default strategy for people who didn't' think it through. But by all means, think it through.
  - claydavisss 8y ago
    These arguments treat putting a roof over your head as optional. It isn't. You will either spend a variable amount of money on rent that you cannot recover, or a fixed amount on a home purchase that you can recover. People haven't run the numbers of a lifetime of renting. You will more than pay for a home outright...you will simply have nothing to show for it other than shelter. On a five year horizon, it is a questionable if you should buy or rent. After that, there is basically no rationale for renting. There is also no rationale for renting past age forty-five. If you are in this situation, move immediately to a place you can afford to buy. In the US, it is assumed that retirees live off their home equity. Your 401k will probably be spent within five years. Without home equity, people are going to be in big trouble. And to preclude a popular counterpoint: you are paying for maintenance and property taxes implicitly in your rent.
bitcoinmoney 8y ago
you work on FANG? can you expand on the line of work you're doing?

cylinder 8y ago

You can easily afford that mortgage. It's $4100/mo. Aren't you netting $12-$14k/mo after income tax? Not sure what the property taxes are where you are. Everyone faces the same anxiety when buying, but what's the alternative? Is your rent that much cheaper? If you lose your job, you still have to rent a place to live. You're also missing out on a big capital gains tax exemption. If you do lose your job, you can rent it out. $800k is nothing in a city with $240k jobs. You should see other big cities in the world!

jacquesm 8y ago
> If you do lose your job, you can rent it out. Will you pay him back the difference if he can't? If not then why such definitive statements about what someone else should be comfortable with. I could easily borrow a million or more from the bank to buy a house, but that wouldn't make it a wise decision. Instead I live in a house far smaller and more modest than what I could be living in and I feel better for it knowing that in a downturn (when most likely more people are experiencing a downturn) I will not have to change my life-style one bit.
bradstewart 8y ago
While I agree with you, the big difference (I think) is that you burn a significant portion of your savings on the down payment. So that cash is no longer available to cover your monthly costs if you lose your job.

pmorici 8y ago

The Zillow home affordability tool[0] was helpful to shape my thinking about what is "affordable" at a certain salary. Even if you are super conservative you could afford a place up to $1 million on that salary assuming you have the discipline to save for the 20% down payment. [0] https://www.zillow.com/mortgage-calculator/house-affordability/ https://www.zillow.com/mortgage-calculator/house-affordabili...

yourapostasy 8y ago
These calculators do not model job stability. GP is correct to be concerned; unless they have a truly unique skill set in high demand for the foreseeable future, steady employment is not a given in many fields. In the US, one needs about 7 years to break even on house purchasing costs (all the fees and commissions outside the titular selling price) before it financially makes sense to buy into another/different house. This is why you hear the rule of thumb that tells people to rent unless they plan to stick around "for awhile", or "for about ten years". We need a forward-projected statistically-inferred probability, based upon historical trends of the field a prospective buyer is in, on their income stability for the next 7 years. It should come out as at 100% of current income, 50% probability they will increase at rate of inflation over next 7 years. At 80% of current income, 60% probability. At 70% of current income, 90% probability. And so on. Then the buyer picks where on the gradient they feel comfortable, given any side hustles, investments, etc. they have going on in their lives. This balances out the traditional DTI ratio that entirely favors the lending side getting their transactional fees regardless of the actual projected affordability. The younger generations around the world are getting completely shafted on real estate asset overvaluation, and many are right to be skeptical of conventional affordability calculations. In the US, there is the triple shafting of higher education, healthcare, and real estate overvaluation. Median asset values are way out of line to median incomes, and only supportable by an over-lenient and captured debt system. The reversion to mean will be painful, and unfortunately most of the pain will not accrue to those most responsible for the overvaluations in the first place.
- 2sk21 8y ago
  Excellent point about job stability. Its possible to get into a field that looks promising at the moment but then quickly have it become irrelevant. Alternatively, you could get into a field too early and then discover that theres no demand for it. Its a delicate balancing act.

kennyadam 8y ago

After tax I take home $22k. House prices in my area are ~$600k. Your anxiety is hilariously misplaced.

thomasfedb 8y ago
Being told that others are better off than you rarely makes anybody better off.
- Chris2048 8y ago
  Do you mean worse?
  - thomasfedb 8y ago
    I did.
- loco5niner 8y ago
  $22k/year I assume

aidenn0 8y ago

At $240K, if you have no family to support, you ought to be able to save up enough for a sizable down-payment in 5 years: Assumptions: Health Insurance is funded by employer 50% of total comp as take-home (post 401(k), taxe &c.) -> $600k take home over 5 years $2.5k/month for rent (I'm assuming from housing prices that this would translate to somewhere between a very nice 1BR or a half-share of a nice 2BR in your location) -> $150k over 5 years. $450k after housing. Even budgeting $20k per year for all non-housing expenses leaves you with $350k which is nearly 50% down. Having "not quite a 50% down payment" after 5 years of work puts you in rare company.

tostitos1979 8y ago

Not sure why you were downvoted. I feel the same way. People might be going boo-hoo ... but they don't understand the point you are making. I presume you have a high paying job in a very expensive area. If you moved to a cheaper area, the job would either not be available or be at a much, much lower pay. Also, you probably pay 40+% of your income in taxes. Just because I get a high software salary now, I have no confidence this will be the case 3-5 years from now. I feel the same.

murph-almighty 8y ago
Around 100k here, but living at home while aggressively paying off student loans and maxing my 401k. It's weird to effectively not be saving money to knock off debt and shove my money into a retirement account I won't see for a while. I've also been strongly contemplating reducing my 401k contributions because I suspect a downturn is around the corner...
- tostitos1979 8y ago
  I was "over contributing" to my 401K for years ... I realized this when it came time to buy a house and fork up a down payment. I was rich in 401K but not in liquid cash :( Still no house but do have dependents, etc. Depends on your situation of course. Btw ... kudos for living at home while making good income. It is very, very easy to go on the hedonic treadmill and rent a fancy apartment, but a nice car, etc. The longer you can maintain a student lifestyle, the better off will be your pocket book.

claydavisss 8y ago

You should be much more anxious about the risk of losing a great deal of your lifetime earnings (more than enough to buy a house outright) to rent. Some people rent out of necessity; for you that is not the case. Everyone who has purchased a home lives with economic risk. I am very concerned that an entire generation that has flocked to expensive urban centers will wake up at age forty five as renters and realize it is basically too late to enter the housing market.

ska 8y ago
There is nothing wrong with not entering the housing market so long as you have an alternative savings plan. Depending on lots of factors, of course, but you may end up much better off in the long run by renting + saving. In the US particularly there are a number of incentives that help tilt this toward home equity, but it's not a given - it does work as a reasonable forced saving plan for people who are not thinking long term.
- JKCalhoun 8y ago
  People are bad at saving for retirement. I suspect a lot of life-long renters are going to be anxious when they get older and realize they also have no savings — home owners with no savings will at least have their one asset.
  - ska 8y ago
    No doubt it works as a default strategy for people who didn't' think it through. But by all means, think it through.
- claydavisss 8y ago
  These arguments treat putting a roof over your head as optional. It isn't. You will either spend a variable amount of money on rent that you cannot recover, or a fixed amount on a home purchase that you can recover. People haven't run the numbers of a lifetime of renting. You will more than pay for a home outright...you will simply have nothing to show for it other than shelter. On a five year horizon, it is a questionable if you should buy or rent. After that, there is basically no rationale for renting. There is also no rationale for renting past age forty-five. If you are in this situation, move immediately to a place you can afford to buy. In the US, it is assumed that retirees live off their home equity. Your 401k will probably be spent within five years. Without home equity, people are going to be in big trouble. And to preclude a popular counterpoint: you are paying for maintenance and property taxes implicitly in your rent.

bitcoinmoney 8y ago

you work on FANG? can you expand on the line of work you're doing?