Anything wrong with my budget?

[latenightsd]

[img_assist|nid=15856|title=Anything wrong with my budget?|desc=Hi all, can you help put me the two and two together? i’m married w/ 2 preschool kids looking for a good home in north county inland. Single income in a low 100k w/ no debt. My budget looks like this (image attached), which put house price i can afford no more than 490k, no hoa/mr and 30% down. We’re looking for 2k sqft and like the 4s ranch area, but there’s nothing at this price level. Are those ppl living there just making way more or is my budget too conservative? (i’ve not updated the tax pct to account for mortgage interest deductible, not sure how much it’ll save.) Thx for ur input!|link=node|align=left|width=92|height=100]

[CA renter]

Quite frankly, I think you’re not being conservative enough. I’d increase discretionary spending and “emergency savings.”

Of course, this kind of thinking is why some of us get called “perma-bears.” Most people probably cannot afford their housing costs if they budget this way, but they don’t try. They just hope and wait for some magical fairy dust to land on them. It’s like they close their eyes and roll the dice, hoping they won’t lose. Unfortunately, these are the people who set prices in a “free market” economy, so the more conservative types either have to play the game or sit it out — and risk having their savings wiped out by inflation.

[Cube]

For 490K with 30% down (a 343K first trust deed at 3.75%), my spreadsheet puts out $2,507 in total monthly cost of ownership (PITI + Maintenance set-aside), plus I’d need ~193K cash to close (including down, closing costs, and rainy day fund/remaining savings). So to me, that looks a little more like 30% of income going to housing.

For retirement, we’ve been maxing the 401K and Roth(s), and skimping on the college savings for now. (We plan to make up for it later, possibly by skimping on retirement; as a friend of mine says, you can take out a loan for college, but not for retirement. Also, there’s that whole higher education bubble that needs to work itself out in the next 15 years, hopefully…)

Otherwise, things seem to add up reasonably. However, discretionary is mighty small, and general, non-tax-deferred savings is missing entirely (is that accurate?). Are you comfortable skimping on the charity component if times get tough?

[latenightsd]

Thx for the feedback! Yes, the dicretionary part (more for things like big vacation, not everyday discretionary which is part of living expense) is non-existent, but i’m expecting combination of annual raise+bonus will make up for it. In tough times, reducing charity is a possibility but would really be the last place.

I’m just wondering if the budget is typical of people at my income level and if that’s the case is good areas like 4sranch is really beyond us. Even 1700sqft selling for 450k but with $400 hoa/mr would put monthly cost equal to (roughly) 530k!

@CA Renter: I share your sentiment, but is that really true for the majority of educated, middle class folks buying home in recent years?

[an]

Your budget seems fine to me. It’s just, you’re looking at a more higher end area than you’re willing to pay. If you’re talking $490k w/out HOA/MR, and you want 4S Ranch, then to have similar monthly payment, you have to get them for high $300k. That’s a good ~30% drop from where it is today. I think most people are much less conservative than you, which is why you probably can’t compete for 4S at that size and price. Are you fixed on 4S?

[CA renter]

[quote=latenightsd]@CA Renter: I share your sentiment, but is that really true for the majority of educated, middle class folks buying home in recent years?[/quote]

Yes, unfortunately. From everything I’ve seen and heard, the vast majority of people — irrespective of their income levels and education — spend way more than they should and don’t put much money (if any!) toward savings other than retirement and perhaps some college savings. IMHO, that’s still not conservative enough, as other expenses always arise that will quickly chip away at any discretionary category (water heaters, new cars, new roof, etc.).

[Cube]

I agree with AN.

Very broadly, I take monthly MR (and usually HOA as well*) and multiply by 200 and consider that a hidden amount financed (200 is tailored to current interest rates). I mentally add that to the purchase price when comparing to a house without MR/HOA. Non-scientific, doesn’t scale with changes in interest rate, but quick and easy to mentally calculate.

My concern with 4S is that there are a sufficiently large number of “owners” that have not thought through the long-term impact of the MR (and HOA) fee burden. I feel like until that area is better seasoned it may suffer from an out-sized drag on values as people weigh the fee burden vs. their enjoyment value of the infrastructure it provides.

Also, we’re probably at the worst end of the rate spectrum in terms of how good of a deal MR should be. (In theory, the MR CFD bonds are at better rates for financing the infrastructure than if the builder passed it directly to you in the purchase price and you had to finance it yourself. At current low rates, that’s not a win with respect to existing MR; as far as I’m aware, MR can’t generally be refied by the CFD.) As rates (eventually) rise, the MR-financed portion will be a better deal compared to financing the rest of the house (and in some senses could be considered an assumable mortgage at an older, by then more favorable rate).

*HOA probably never ends and probably can only go up or have special assessments. For that matter MR may never end if at the end of the term enough people succumb and vote for a new CFD bond issue to replace the (by then) crumbling infrastructure.

[HenryPP]

Interesting, we are in VERY similar situations. I also looked at 4S because I work very close by, and it looks like I’ll be saying nyet. The MR was just too high and frankly the prices themselves are still a bit high. But frankly, all the relatively new homes in that whole general area are quite expensive, unless you go out to Ramona, Escondido, the shadier parts of Poway, or Mira Mesa.

Your budget looks fine – I did a very similar budget. But your Discretionary portion seems too small, and I’m not sure what Living means and why it’s so large.

Congrats on having 30% to put down. That’s pretty unusual unless you had a big score from something earlier.

[latenightsd]

My living breakdown is this:
Children needs 3%
Education 6%
Groceries 5%
Dining Out 2%
Entertainment 1%
Clothes 2%
Incidental 2%

Would be good to know if I budgeted this too high which seems to be what you’re implying. Not really getting a handle on what raising 2 kids would cost – wife likes to buy them all kind of ‘learning’ toys and plans to put them in private lessons.

[(former)FormerSanDiegan]

[quote=CA renter][quote=latenightsd]@CA Renter: I share your sentiment, but is that really true for the majority of educated, middle class folks buying home in recent years?[/quote]

Yes, unfortunately. From everything I’ve seen and heard, the vast majority of people — irrespective of their income levels and education — spend way more than they should and don’t put much money (if any!) toward savings other than retirement and perhaps some college savings. IMHO, that’s still not conservative enough, as other expenses always arise that will quickly chip away at any discretionary category (water heaters, new cars, new roof, etc.).[/quote]

Another way to protect yourself is to buy your house at a price level and area that rent out at a small profit if you ran into problems later.
This way, if you get transferred, have a career change, beomce ill or otherwise lose income, you can go rent a 1 Bedroom flat and rent out your house. Of course, you will still need a reasonable cash cushion. Just one more factor to consider.

[permabear]

[quote]Are those ppl living there just making way more or is my budget too conservative?[/quote]

Most people are still buying as much house as they can barely afford. Your income is pretty much inline with 92127 though:

http://www.clrsearch.com/92127_Demographics/Household-Income

Your budget is pretty conservative for CA real estate. I’m not criticizing, as I tend to take the same approach, as do many Piggs. But you’re definitely on the conservative end compared to the average Joe.

[quote](i’ve not updated the tax pct to account for mortgage interest deductible, not sure how much it’ll save.)[/quote]

15-20% of the total payment, depending on other deductions, total income, dependents, etc. So figure a $2500 mortgage = $2000 rental. How close this is depends on how much money you dump into the house in paint, blinds, carpet, tile, countertops, etc over the years.

Regarding 4S Ranch specifically, I think there are better values to be had with low or no Mello-Roos/HOA in Scripps Ranch, Poway, Rancho Penasquitos, and Rancho Bernardo.

[Author]

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