[USER]

I think I need affirmation from the community before I make this financial decision
Background: 32M married (wife 30) with a newborn. Combine gross income ~250k.

Take home ~8500/mo after maximizing 401k and HSA. Also owned a rental property that net ~300/mo

Problem: we found our dream home in Houston, but comes with a hefty price of 900k (probably means nothing if you live in HCOL).

It estimates ~6500/month including mortgage, insurance and property tax.

I’m able to pay 20% down payment and we live pretty frugally, so we could live under 1500/mo.

However, I’ll be selling around 80% of my stock from a personal brokerage (not retirement) account to fund the 180k down payment.

I did pretty well the last 2 years in stock market, around 35% gain.

It seems like a bad investment to put all that money now into my primary home.

My gut tells me this is a very bad idea. Can someone please confirm or deny.

I appreciate your feedback!

[Noa]

We did almost the same thing… Bought a $750k house 1.5 years ago. Cashed out all non retirement investments to put 10% down. Our payment was about $5k on a $10k take home (after retirement contributions and other deductions).

Less than a year in, the bank adjusted our monthly payment to reflect increased taxes and insurance, and we went from $5k to $6.3k.

Also, the house cost us a ton in small fixes here and there, we added a bathroom which cost us maybe $30k.

We got super lucky and were able to refinance and get back to $5k/month, and recently moved out and are renting it for $4500. The house is probably worth about $950k.

I don’t think it was a bad move long term, but it was definitely not fun. Also, it is not our dream home.

[Nikolay]

Do it man, tomorrow is not promised. Worst case scenario you miss out on some returns but you have your dream home.

[Maureen]

This needs to be a long game decision. In my experience a balance between real estate and stock market investments are two great ways to build long term wealth.

If you believe in the area you are interested in, and its future growth potential, then buying in that area at your age is a good part of the overall plan.

I would question whether you need your first home to be your “dream home”, though.

I’m 55 and only got my dream home a few years ago.

[Lauren]

I doubt you will be approved for a mortgage at these interest rates and debt to income ratios.

As a general rule banks want the house to cost about 2.5 to 3 times your annual income.

[Sam]

Living on $1,500 per month.
Sounds like you’d be eating beans and rice one night, rice and beans the next. Thermostat on 84 in the summer and 60 in the winter.

And layers of sweaters from Goodwill.

In your “dream home”. Sounds delightful.

[Josh]

$6500/month mortgage payment on $8500/month income?
Unless I’m missing something this is a terrible idea.

One job loss and you are sinking fast.

[Dave]

Only you can say what value to put on your dream.

You’re young; you have plenty of time to build towards your dream of FIRE while living in your dream home.

Of course there are trade offs
But enjoying life NOW. Has immense value.

You don’t know what will happen in the future – hopefully not something terrible but don’t assume you’ll both live long healthy lives.

[Robert]

Dude, you are only 32 years old. You’ve got many years to find another dream house.

Find something that will meet your needs in the “here and now”; and later on; find your “dream home”.

[John]

If you ditch the ‘saving money’ part of your monthly expenses, you’ll probably be ok, because your after taxes income would around $15k?

This means, if you pull the trigger, you’d be acting like, probably most Americans (fomo, yolo, “the income effect”), but you won’t be acting like FIRE folks.

32yo is pretty young for ‘dream home’.

True dream homes should be paid for in cash (or financed in very favorable interest rate markets) once you’ve earned it.

[Robert]

I think we may need more information here. Given your current scenario with no other information I would not say to buy the house and here’s why.

A lot of FI is based on percentages and to buy a house we usually use 28% of gross pay which would be a max of 5800 a month.

If you look at conservative estimates like Ramit sethi who say you should add 30-50% for phantom costs (maintenance, fees utilities, HOA, updates), and you can very quickly see that this could be well over 10k/ month.

Last thing to consider, what if you lose your job, would you have enough to float the mortgage on 1 income?

I think the most realistic way to buy the house is you either have 6-12 month emergency fund, or put down a very large down payment to get your monthly below 6000.

Sorry if I am killing the dream, but I don’t want you to be house poor.

[Chris]

Wait, but not for the reasons everyone else is giving, but for family reasons. Sure, dreams change and it sucks having a high mortgage to income ratio, but that isn’t the reason to wait.

Wait to see if your newborn has any life changing disabilities. Nominally known by age 2-3. Also wait to see if you have any other kids in the near future.

On the off chance they have an issue, it could be costly (but worthwhile) to fix and you don’t want to put yourself in a position where you need to choose between selling your home and your kids wellbeing.

For example, I know someone with a kid who has an issue which is easier to develop coping mechanisms around when young and that is costing them about $50k/yr for 3 years.

You would not be able to swing that in your situation.

Also, lets talk daycare. Who is taking care of the baby? One income or two for your household? Total liquid assets? Value of rental property/monthly costs if there is no tenant ($300 is pretty slim, especially if vacant).

You have a choice to center your life around this home, your family, or a rock solid financial future. It is a choice, but we can’t make it.
FWIW, I am 36 w/2 little kids and we earn solid income. My investments and sacrifices in my 20s and early 30s have given us a very nice financial foundation. Now at age 36, we have decided to not quit working, but to more freely spend outside frugality.

Our investment balances continue to outgrow our spending. Our NW increases by more than our gross income every year. This is a solid position to buy a dreamhome or make splurge purposes.

Our income is for today and our investments for tomorrow and we can turn that ‘tomorrow’ spiget on anytime. To me, I like the FI part and not necessarily the RE part. FI is powerful.

We bought a very nice home on a quasi-splurge moment, we bought nicer new vehicles, we can buy what we want for kids and hobbies, and our retirement balances should grow to $10M+ in our 60s and our taxable investments grow more than we spend each year (7 fig porfolio).

We have reached the point where we don’t feel the need to excessively invest.

If we would have bought a dreamhome with your numbers 5 years ago, we likely would not have had the financial security we have today and still be grinding instead of appreciating.

That is a trade off for your decision.

[Jeremy]

You’ll be broke in 3 years. 100% completely swimming in a hole of desperate longing for a buck and a half margin in your checking account because property taxes went up 9% again and the car needs brakes or tires or an alternator and the kid’s school supplies and dance or sports equipment fees are due next week.

Dude, you’ll hate that house and everyone living in it for talking you into buying it.

[Kristen]

It’s too high a percentage of your income. You would be house poor; any disruption to your income or surprise large expense would have you stressing and likely to take on high-interest debt.

[Molly]

No… aside from financial consideration, there’s lots of water table issues in the area that will get worse over the next decade that will have a negative affect on housing

[Thompson]

Been there last year, sold most of my stocks to put down 20% which was the only way I could qualify on a single income at that. Did it for the family and do not regret it.

Was it a mistake, maybe if your only looking at it from the numbers, but if you are doing this for your family wellbeing etc, it’s well worth it.

[Jill]

That is way too expensive and for only 3 people you don’t need an extremely large home.

Thats a crazy high mortgage. I would not.

[Janelle]

In the mortgage industry, I’d warn that your mortgage payment will absolutely fluctuate because of increases in taxes and insurance.

Not down, but it will go up.

[Jim]

To me, it hinges on the meaning of “dream home”.
If it’s dream home in the sense of “this is like we were living in an HGTV show”, I’m not that inclined.

If it’s dream home in the sense of “we don’t like our current neighborhood, have to move within 3 years because of XYZ, but would love the new one and would plan to live there 30 years”, then I think you could/should prioritize the place that you spend over 50% of your life.

[Lori]

What about closing costs? What about the expense of furnishing the home? What about all those unexpected expenses that come with homeownership? What about child care costs associated with having a baby?

If you are getting a mortgage, there may be PMI, escrow funding, water bills, milage increases, landscaping costs and many other unknown and unexpected expenses.

Are you depleting your retirement investments solely for the purpose of owning a “dream home”?

I ask because I have been there done that and it was a nightmare! I know understand the comment about having anything you want, not having everything you want.

There are trade offs and you get to choose what you’re trading off.

[Lee]

No way! Property tax in Texas will keep going up. That little $$ u have left will disappear very quickly with little baby.

The repairs and maintenance cost alone already stresses me out.

Bad idea. Not a dream home.

[Ignas]

That gut feeling is the one you have to listen to and exercise if FIRE is a goal. $6500 is about right, maybe on the low end for Houston. No HOA?

Be aware our home insurance has tripled in TX over the last five years and more companies are pulling out every day. We are on our third roof in ten years.

Our property tax has gone up fairly consistently 10% every year with the increased property valuations. When the structure didn’t appreciate, they adjusted the land value up.

Assuming the newborn is your first, you don’t even know yet how much kids cost Newborns are cheap. For perspective, underfunded public schools has made private education an unexpected priority for a couple of our kids. Vouchers will not help the situation.

Medical costs on high deductible plans can add up with young kids: OT is $150 per visit, weekly per kid. Sick visits can be $50-150 per visit depending on insurance.

Have you switched to the spouse plus dependent insurance plan btw? Typically a significant monthly increase.

Does your spouse plan to return to work? Childcare in a higher COL area of TX is $1000-1500/mo per kid.

I seem to remember a couple years where after retirement funding and childcare I was barely taking home any money at all. Activities run $200-500/mo per kid (probably wildly underestimating).

Are you planning to fund college education? Have you looked at tuition rates inclusive of room and board lately?

You are at an age where if FIRE is important you have to make a habit of saying NO to lifestyle creep. Constantly ask, “is this a Want or a Need?”

Can I check most of the same boxes for an option that costs less? Build that muscle now and saving becomes easier.

When unexpected financial burdens pop up, and they will, you can cut back on activities, on eating out, on vacations, on savings, etc. You can’t cut back on your mortgage.

Living so close to the edge of your income limit will require financing any unexpected costs. That’s how people typically get into debt they can’t climb out of.

Now that we are in our mid 40s and we can afford the dream home (on paper), afford more of the “wants”, we say no less often but it’s harder to say Yes.

Saving is such a habit that spending money unnecessarily feels uncomfortable.

[Elizabeth]

Your “dream home” will soon turn into your nightmare. Plenty of wonderful homes that don’t cost $900k and you’ll actually be able to live peacefully enjoying your family.

What if you have more children and your wife wants to quit working outside the home?

[Christina]

I am more concerned about the $6500/mth payment on a $8500/mth take home than selling 80% of your investments for the down payment. What are you going to live off of? $2000/mth? And a bank actually approved this?

What if one of you lose a job or couldn’t work? Who is going to make the payment? What if you need a new roof? What if property tax and insurance goes up (they are guaranteed to increase)?

Your $2000 leftover is not enough to cover the unexpected. Do you even have an emergency fund?

I honestly would not do it and be house poor. $250k is a good income but it is not enough to afford this dream (sounds more a nightmare) imo.

[Donna]

The houses in Houston are huge already in the range 350k to $500k you can find a lake house with 2000 to 3000 sq ft, $900k is a dream house for sure but always trust your gut the fact that you are even asking this and have to sell investments is already a hint that it will bother you.

Why not look at houses in the price range where you don’t have to sacrifice your investments, you might be surprised to find something, may not be new construction but fits the vibe you are looking for.

I did look for a house in Houston before and familiar with the houses there.

Houston has high taxes, traffic, flooding, winter episodes, HOA, high car insurance but a great place to invest in a home but at first you might think it’s a deal but hidden costs are present for sure, make sure that you add those in calculations.

If it has a pool factor that in too, big house means high utilities too. The new constructions there have smaller yards and too close to each other.

[Bryon]

In my opinion, it’s a bad idea as your mortgage will be a very large percent of your take home pay. If it were me, I would get something much less expensive 400k-500k range and put 20% down to avoid PMI or I would rent longer while saving and hope for lower interest rates.

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