Buying a ~$600k house at 25
I’m seriously considering buying a house in the $600-$650k range with my fiancé (Covid has postponed wedding plans for now). We are both fortunate to have $0 in debt, are able to max out our retirement accounts, and both have “well paying” jobs so can easily cover income ratios in that range. Also are fortunate that both of our jobs are secure for now and no indication of any layoffs at either of our firms. We have ~$325k in cash that can be used as a down payment (both sold a lot of stock recently, feeling bearish).
It’s hard to determine if “just because we can afford this much house” this is the right move. Feel anxious having a lot of cash on the sidelines but also don’t feel too optimistic putting a lot back in at the moment, so putting a “large” down payment doesn’t hurt as bad. Think we would aim to put around 30% down.
Wanted to get some outside opinions on buying a house at a young age and see if I’m over looking anything, namely, is this too much to spending at 25, thoughts on how much to put down, anything else I should look into?
Any general comments/suggestions on the home buying process would also be appreciated. Also, no need to comment on mixing finances with my SO, that ship has already sailed.
I would consider the following:
When do you plan on having kids? Consider the house will have to be big enough for both you and your wife, and your kids!
Housing prices in some parts of the US, such as suburbs of NYC have gone up because of COVID. I would wait until next year to buy a house. I think the only place housing prices will go is down. Evictions will start soon, and that will be your opportunity to buy.
What are you looking for in the area you would like to live in? Good schools, transportation, safety, etc What are you looking for from your house? Think long term, you'll be stuck in the house and area where you buy the house for at least 15-20 years for financial efficiency, so take that into account when deciding on a home.
Congrats and good luck!
I bet your tax returns will be fun with those capital gains this year.
anyone who answers "is this too much house" based solely on price is wrong. it depends dude.
my biggest question is this - why do you want a house? do you want a house because you're bearish on stocks and want to put your money somewhere other than cash? do you anticipate having all of your children before 30 and want to have a home ready for them after you get married (congratulations btw!)? are you simply tired of not having a place you can make your own, and want to have something that's uniquely yours?
if your answer is something that's not investment driven, that's a good first step. residential real estate (your primary residence) is not the most efficient use of capital long term, when purely looking at CAGRs.
if you know the area you want to be in, are going to be formally married in the same calendar year you make the purchase (for tax reasons), and can reasonably expect to be in the same geography for at least the next 5y (15-20y is ridiculous whoever said that), start looking. however, if you're unsure you'll still be in your same city, if you're just feeling that cash itching to find a home, and not ready to have kids, I'd wait. while I'm not bearish on resi RE in general, I don't see neither prices nor interest rates skyrocketing anytime soon.
Thanks, that is good insight. For context one of us is from this city and feel like it's where we want to be long term. I think we are looking at the $600k range because it will have extra rooms/space and although isn't exactly the house we need today, it feels like something we can grow into if that makes sense.
As for the investment part, I agree, primary residence isn't a great investment for fat returns. I just don't know where I would park my money right now so I don't feel like the opportunity cost of putting a larger down payment is too punitive. Maybe because I'm stuck inside all day now, but the idea of buying has been stuck in my head the last couple months. I know there are more costs associated with owning vs renting, but P+I+RE taxes+insurance looks like it would only be ~$850 more than what our rent is now. Just feel like it would be nice to build equity in something (convert cash into house) rather than have a pure rent expense.
To echo this I think brofessors second paragraph is a consideration that is extremely important but does not get enough attention. namely, are you reasonably confident on spending the next 5ish years in the metro area where you are purchasing this house (obviously no one knows for sure what the future holds). buying and selling a house comes with certain transaction costs (realtors fees etc.) So a hold period of longer than a couple years is usually needed for the purchase to make sense relative to renting. Assuming your finances and long term relationship plans are in order and it sounds like they are, to me this is THE most important consideration in terms of buying vs renting. What you don't want to happen is to know going in that you will most likely move in the next few years to pursue attractive career opportunities outside of your current city and a large illiquid asset in the form of a house hindering you, because in your twenties your most valuable asset is your earning power and career trajectory, not any house or stock.
Real talk, OP here. Ended up buying something in the low $700's and locked in 30-year rate at 2.5%. Market has been wild the past year.