Wow, thanks for all the information. Definitely the kind of “meaty” information I’ve been looking for as part of my fascination with this bubble. Here’s my question for you: can you please give me advice based on my current situation? (I rarely ask for financial advice because I’m convinced I’m smarter and more competent than most people, but you seem to really have a handle on things and you write well, which is SOOOO rare!)
I am a single professional in Irvine with an MBA, a rock-solid job and a 3 year old child. My current annual income is $109,000 with a 10% annual bonus and I anticipate annual bonuses of 3-5% for the forseeable future, along with a promotion or two. I have $85,000 locked up until 02/07 in a 4.85% 12-month CD, and another $10,000 in several individual stocks. I have $10,000 in my checking account. I have no credit card debt, I own my 2002 Volvo and will keep it at least 3-5 more years. When I do buy another car it will be with cash because after I paid off my Volvo I decided that I will never take out a car loan again. My student loans are all paid off. I receive enough child support to fully pay daycare tuition, with about $200 extra each month. I put about $2000 a year into my son’s 529 college fund which is at about $6000 right now. My 401k balance is $150,000 and right now I still contribute 15% to it but I would consider reducing my contribution level to 5% if I needed to (more on that in a minute).
Here’s my dilemma: I desperately, obsessively want to buy a house! I’ve been in an apartment for 8 months, since separating from my spouse, after having been a homeowner for 8 years. (We sold our home in December ’05 and you’d think I’d have more money than I do, however my husband and I spent pretty freely the whole time we were homeowners, both on major improvements to the place -it was practically unlivable when we bought it – as well as extravagant stuff that I regret now but what’re you gonna do?!!) Anyway, after splitting the profit in half and then furnishing my new apartment, etc., it is what it is.
I want to get my son into a house before kindergarten, in September 2008. I want him to stay in the same school from K-6 and then move right into the local high school. I want him to have that stability. So I want to buy a house that will be our home for the next 15 years. So I know that I have LOTS of time (2 years, basically) before I need to make this move. However, I find myself going to open houses every weekend and salivating over the brand new developments like Portola Springs, and gagging at the 30-year old Brady Bunch houses that are just STUPID over-priced. I don’t want a Brady house!
I have pretty much convinced myself that I can’t do a thing until at least February 07 when my down payment money becomes available. I want to be financially pragmatic and not lay awake at night worrying about paying the bills. But I also want to be able to stay in the same house for a really long horizon over which my odds of promotion and salary and bonus increases are really, really good. (Unless people stop having high cholesterol and heart attacks, my job is as good as guaranteed.)
So assuming I start looking to buy a house in the middle of 2007 (and god only knows what prices will be doing at that time!!!), what is a reasonable “stretch” mortgage amount and type that someone in my situation should be looking for? Keep in mind that I’ll probably end up buying something in Woodbury or Portola Springs that comes loaded with high HOA and Mello Roos payments. Hence my earlier comment about reducing my 401k contribution level. I want a newer home in a newer neighborhood badly enough that I’m willing to compromise by extending my retirement out a few more years.
Thanks for any advice or words of wisdom you or any of the other folks on this blog can impart!
