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.

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Comments (60)

Most Helpful
Aug 16, 2020 - 1:33pm

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!

Array
  • 6
  • Analyst 3+ in IB-M&A
Aug 16, 2020 - 1:51pm

Thanks, those are all great points. Think one of the main challenges is looking ahead beyond 5 years and what our life and priority's will look like.

Aug 16, 2020 - 6:22pm

Transaction costs (brokerage fees) and the act of selling a house can make the process difficult, and if you're looking for a quick exit it can make it costly. I think most people underestimate how much transaction costs are (you have to pay brokers,originators,etc when you buy and sell).

There are tax benefits for first time buyers and those who only own one property (I may be wrong, please do your research), but I think you have to own the house for a minimum threshold before selling.

Array
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Apr 17, 2021 - 5:17pm

Because renting isn't a guaranteed cash flow. There are a lot of associated risks with that. There's also a non-monetary value to owning a place (call it "goodwill" if you want). Isn't this the sort of stuff people in consulting have to think about?

Array

  • Analyst 3+ in IB-M&A
Aug 16, 2020 - 2:05pm

Thanks, we both come from modest but comfortable backgrounds and are generally pretty frugal. Moving into together after university and not having debt definitely helped. Also went 2-2 job wise, both make similar $

Funniest
Aug 16, 2020 - 5:01pm

I bet your tax returns will be fun with those capital gains this year.

  1.  
  • 5
  • Analyst 3+ in IB-M&A
Aug 16, 2020 - 7:24pm

Thanks, agree not putting everything down and dollar cost averaging in. It's been hard putting money back into the market these days, thinking about just doing some kind of monthly direct deposit into SPY every month.

Aug 16, 2020 - 10:14pm

My SO and I purchased our house a few years back with 20% down, though we were not in your impressive financial situation. While it certainly feels good to have something substantial and you both can call it home, I did feel a bit strangled of not being able to move "easily", for the exact reasons you highlighted, such as moving cost, selling cost etc.
This is just one consideration and I was glad to put the investment down since the house appreciated 50% over past 4 years and I refinanced at pretty low interest rate now.
When my SO left her job to business school, I was nervous because we then have only one person keep the check going.
With that being said, I think at the end, buying at the house in a good neighborhood, good school around is always good investment as that is one of the largest purchases in our life.

  • Analyst 3+ in HF - RelVal
Aug 17, 2020 - 11:29am

I was in this exact situation, wedding ppd and looking for a house with my Fiance.

We bought a $650k house w/ fiance. Put 20% down, got a stupid cheap mortgage (~3%), couldn't be happier.

Just make sure you are confident in your marriage prospects and are picking a home that's close to work.

Feel free to PM if you have specific questions.

  • Analyst 3+ in IB-M&A
Aug 17, 2020 - 4:54pm

Thanks, you are a good "comp" that the idea isn't too far fetched! What was the process like getting your mortgage, did you use a mortgage broker or did your agent (assuming you used one) help with that?

Aug 17, 2020 - 2:33pm

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.

  • Analyst 3+ in IB-M&A
Aug 17, 2020 - 4:47pm

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.

Aug 17, 2020 - 4:56pm

you're saying all of the right things. and yes, during covid having some room has been great. I can converse with someone on video chat, play music/podcasts, and my wife can't hear shit in her office upstairs. I'm sure we would've figured it out, but riding this thing out with 4 digit square footage is better than our cramped apartment

also, looking at your question above. if you work for a bank, see if you can use them. if not, then ask your mortgage person their preferred lender. some smaller lenders can work a quicker closing and look more favorable to sellers. for example, I was STRONGLY encouraged to not use quicken loans. apparently they're like the Northwestern Mutual of mortgages

Aug 17, 2020 - 5:35pm

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.

Aug 17, 2020 - 5:45pm

Whose name is going to be on the papers? Both of you? If you're not married yet you could set yourself up for a mess if you don't make it to the altar. Only do this if one of you can pay for the home on your own should something happen, otherwise the breakup will be an absolute nightmare

  • Analyst 3+ in IB-M&A
Apr 16, 2021 - 8:39pm

Put down more than +25% (+$200k)...some might disagree that was the move given 2.50% interest rate but there is more to this.

1) I wanted loan to be a conforming loan (means it fits in the mold where Fannie or Freddy will buy it). We closed at the end of 2020 so at the time conforming loan amount had to be less than ~$510k to be conforming. If your loan is conforming your rate will be cheaper. Got a memo literally 30 days after we closed that Fannie bought the paper.

2) I didn't want to pay private mortgage insurance

3) as mentioned like +6 months ago had some cash and didn't know what to do with it. Putting that much down made the all in payment like $700 more than we were paying in rent so felt comfortable. Hindsight would have said keep that money in the market but home buying is a combo of a financial decision and life stage decision.

  • Analyst 3+ in IB-M&A
Apr 16, 2021 - 8:39pm

Put down more than +25% (+$200k)...some might disagree that was the move given 2.50% interest rate but there is more to this.

1) I wanted loan to be a conforming loan (means it fits in the mold where Fannie or Freddy will buy it). We closed at the end of 2020 so at the time conforming loan amount had to be less than ~$510k to be conforming. If your loan is conforming your rate will be cheaper. Got a memo literally 30 days after we closed that Fannie bought the paper.

2) I didn't want to pay private mortgage insurance

3) as mentioned like +6 months ago had some cash and didn't know what to do with it. Putting that much down made the all in payment like $700 more than we were paying in rent so felt comfortable. Hindsight would have said keep that money in the market but home buying is a combo of a financial decision and life stage decision.

Apr 17, 2021 - 4:43pm

Brokers have middle man fees and are worse to work with compared to banks. The reason is their fees go on TOP of the bank they are working with.

Always try working with a bank directly. I did a lot of this research along with my parents and have friends/family go through with them. There are a few I generally know of but one in particular that genuinely offers the lowest rates in the market (as in, the absolute rock bottom if not within $500 which over a 30 year loan is like $1-3 a month).

If you PM me I have a friend who's younger brother works at a pretty big bank that I did my parents refinance, my uncles refinance, and a few of our mutual friends parents home purchases and refinances through and did an amazing job. I can give you the contact information and you can check everything out. PM me.

Also I saw someone comment Quicken is expensive. They along with Chase BAML etc offer up to .25-.5% above market. Sometimes they don't lock their rate or closing costs (it's expensive to and a lot of borrowers don't notice). And they can get away with it because people don't shop around and also just want to go with them because they 'trust them' (even though every bank is regulated out the ass).

Also Id recommend putting less down considering the market. What you care about is monthly payment, and the prices right now are SUPER inflated. So, the interest rate basically is traded for the mortgage / value of house being so high. E.g. interest in normal year is 4-5% but your house value is 150k less. Right now, Invest the money and pay off a lot more later while your investments can bring you greater than 2-3% interest/year. Just pay extra monthly today and put in 100k 2 years or 10 years from now.

Apr 17, 2021 - 11:34pm

Unless your taxes are nuts the only real variable is how you feel about commuting to work vs living in the city.  Monthly payments will not be that much more than rent and you're building equity, all while getting much more for your money.  
 

Frankly: only put 20% down and save the rest for investments.  When you run the number you realize there's very little advantage between a 20% and a 25% or 30% down payment, the monthly difference is negligible compared to what you could make if you plowed that into a rental proprty or decent investments.

Get busy living
  • VP in IB - Gen
Apr 18, 2021 - 5:25pm

It's pretty funny, 600k won't even get you a 600 sq ft condo downtown Toronto (where I lived for many years, but no longer) - as such, the people there buying $600k places are generally in far more precarious financial situations than you.    

  • Associate 2 in IB-M&A
Apr 18, 2021 - 5:43pm

It's a surprisingly easy equation. Your decision should be based on which path maximizes your net worth.

Compare 1) Rent + Utilities vs. 2) Interest expense (not the total mortgage payment...just interest) + Property Taxes + Insurance + HOA

Also remember you can make a big down-payment or pre-payments to minimize interest and make the math favor buying.

So if you think you'll come out ahead renting vs. buying in the next ~5 years, then go do that. Simple.

I'm ignoring a few things like liquidity (assuming you'll have cash to make payments), personal financial situation/age, price appreciation (don't count on it), etc. If your goal is to maximize net worth, it really does come down to that. 

Apr 18, 2021 - 9:35pm

Given the price ranges you're describing are you based in Charlotte?  If so, then definitely buy.  Great market to get into.  Put down as little cash as possible to avoid PMI.  I bought a house last year and it has been one of the more rewarding experiences.  While it is a lot of work, it is worth it.  I've actually come to really enjoy doing mindless work/projects outside the house and in the yard.  Helps me unplug while staying within my property line. 

"That was basically college for me, just ya know, fuckin' tourin' with Widespread Panic over the USA."

  • Analyst 3+ in IB-M&A
Apr 19, 2021 - 12:20pm

Agree, it has been very rewarding. I'm not blind to the fact that there was a scenario where I rented for the next 5-years and could have put that down payment to work in the market to and maybe earned more money, but it has been nice to "settle" into a nicer place, buy nicer furniture, and know I'll be at this place longer term. You know something has changed when Home Depot gets you excited. Charlotte is a good guess, but it's actually Chicago. More of a mature market so won't see as much appreciation vs sunbelt but we did buy during peak of covid when people were heading to the suburbs so there may be some upside long term (again, didn't buy this as an "investment").

Apr 20, 2021 - 9:40pm

Your love for Home Depot and Lowe's will only grow.  Don't want to say it is the highlight of my week but it gets me pretty fired up.

"That was basically college for me, just ya know, fuckin' tourin' with Widespread Panic over the USA."

Apr 18, 2021 - 9:45pm

what are the property stats?

beds, baths, square feet, lot size, commute time to nearest metro downtown area

annual taxes, HOA fees?

what is the property condition? (new, run down and in need of lots of repairs / renovations)?

just google it...you're welcome
  • Analyst 3+ in IB-M&A
Apr 19, 2021 - 12:28pm

Condo, less than 10 units in building, building less than 3-years old, sellers retreated to burbs, commute like 10 minutes from proforma office

3 bedroom 2 bath, ~1600 sq ft, RE taxes like $15k, HOA like $300/month. No renovations needed.

Some people would disagree with this, but I think people are often too willing to do a "fix up". I think if you have the time and skills to do that then it makes sense, but we purposely were willing to pay more for a turn-key place with new appliances. If you plan to do any renovations, you have to pay cash for that upfront after you close to pay contractors, pay for new appliances, etc.. If you just buy a nicer place and the price isn't atrocious you just include it in your mortgage and finance it for 30-years.

Apr 19, 2021 - 5:25pm

Good for you on buying a home. Not everything can be quantified in a spreadsheet. 

This may come off harsh but people always crack me up when they mathematically tell me all of the reasons why buying a home is bad. People said the the market was too hot and overvalued on this site in 2014. Truth its that most people can't curb their spending habits enough to afford a home.

You made a great decision. 

Apr 19, 2021 - 5:28pm

P.S.

I too bought a home last year...It was $950k in a gentrifying part of los angeles for a brand new build. 3 bedrooms, 4 bathrooms, ~2100 sf.

People said last year that the market was too hot---Now, the home is worth $1.2M less than a year later (thanks to covid and low rates).

Always good to follow your instincts.

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