Because moving seems to bring unplanned incidental costs, and so does a new home, I'd hold back another $100k from the down payment as long as that didn't cause a need for PMI.
JM$.02W

You need to have an integral plan for your situation regarding relocation, career changes, asset allocation, short term and long term goals.

Do you have a financial planner? If you don't have one, it sounds like now is a good conjunction for you to hire one when you are relatively young, children are very small and you are at the early stage building financial future.

This post was edited by azmom on Sun, Jan 4, 15 at 9:23

Why not rent for a year so you can get a feel for the new location first before spending that much money in a new area?

Well, it's not really a "new" area as it's the area where I grew up and where my extended family lives. So it's not completely unfamiliar, though renting for some time is an option. My new job will pay moving expenses, but point taken that we will take on additional expenses such as furniture, etc.

We did go to a financial advisor (independent) a few years back. He told us we were doing fine and to keep doing what we're doing. My spouse was not pleased we paid ~$1000 for that advice. Then he went out of business. Guess others were not pleased with his advice either. I guess we need to find someone better.

I guess what I am trying to decide is between the following three options:

1) spend $1 million and be sure it is our forever home. Pros - don't need to move twice, enjoy nicer house for longer, interest rates are good; Cons - will have larger mortgage at jumbo rate, have to make the decision of spending a lot of money under time pressure
2) rent for a year or several and buy/build a $1 million house. Pros- longer to figure out ideal location/school system, can save longer for bigger downpayment, smaller mortgage, Cons - move twice, if longer than one year will need to start my son in kindergarten and potentially switch schools, interest rates will probably go up
3) Buy interim house around range of $500k that is not as nice as I would like, Pros - can pay it off quickly then save for a bigger downpayment a forever house, probably would be nicer than renting if we stay 3-5 years; Cons - have to move and sell twice, if longer than one year will need to start my son in kindergarten and potentially switch schools, interest rates will probably go up
4) live in my parents' basement…JK!

"1) spend $1 million and be sure it is our forever home."

No way that can be guaranteed....

With your income, you really should have a lot more in savings. 6 months of living expenses? How about long term investments? Life insurance?

I'd concentrate on building up a more balanced balanced sheet, considering your salaries, so I'd opt for #2 or #3 scenario.

Western pa - right, I shouldn't have used the word forever. I meant long term plan, rather than the other two choices which are designed to be temporary.

Sushi pup - we have only been making good incomes (>$50k) for 3 years, and the move is a substantial raise for us. And we have paid off >$200k of student debt. We have term life insurance, disability insurance, and aforementioned retirement savings. Our intent was to pay off our house then invest in rental property, but then this opportunity to move came up, which is why I'm wondering these questions!

If you've done all of that in 3 years, then I'd say you and your husband have extraordinary budgeting abilities.

Will your relocation package pay for closing costs on your old and new houses, as well as temporary living expenses? If not, then you might have less to invest in a new house than you think.

I would also agree with randy427's advice to hold back more for emergencies and contingencies. At your income levels it might take more than 6 months to find a new job if things don't work out. If I were you, I would hold at least a year of living expenses in reserve. I don't think the 6 month rule really cuts it in today's economy.

But even with a $250K down payment, I think you can easily afford a $750K mortgage. With a 4.1% 30 year fixed mortgage, your monthly payment would come to about $3,600, or a bit more than 9% of your gross income. Back in the early 1980s (when banks were more conservative), the rule of thumb was that you shouldn't spend more than 28% of your gross income on mortgage, property taxes and homeowner's insurance. This was for middle income people - higher earners obviously have more discretionary income to spend. Any way you look at it, a couple earning $476K with good credit and a 25% down payment should easily be able to afford a $1 million home.

You didn't mention how much insurance you have, but I'd like to offer a few suggestions:

You and your husband should each have $2-3 million of life insurance. If you're able to save and invest on your own, then there's no need to get any of the whole-life type policies. Just get 30 year level term policies (SBLI is a good source). It won't be any cheaper than it is now.

Are you getting disability insurance through your employer, or do you have your own policies? You need to look very carefully at the definition of a disability in your policy. Most employer-provided policies don't provide all of the benefits that you might think you're getting, and the benefits are generally taxable. What you want is an "own occupation" type of policy. This will provide benefits if you're not able to perform any and every requirement of your current job. If you pay for the policy, the benefits will be non-taxable. The general recommendation is to get coverage equal to 60% of your income. Northwest Mutual and Mass Mutual both offer good disability policies, but they're expensive.

At some point you might also want to consider long term care insurance. I believe that Northwest Mutual has a policy that you pay into for 10 years and then you're covered for life. It's very expensive, but it might be a good idea to get this out of the way during your peak earning years.

Are your saving for your kid's college through state savings plans? Some are better than others. I believe Morningstar rates most of the state plans.

Investing in rental property can work if you know what you're doing, are handy with repairs and have the time to devote to dealing with tenants. Otherwise it can be a nightmare. I would suggest simply investing in good low cost mutual funds instead.

"We did go to a financial advisor (independent) a few years back. He told us we were doing fine and to keep doing what we're doing. My spouse was not pleased we paid ~$1000 for that advice. Then he went out of business. Guess others were not pleased with his advice either. I guess we need to find someone better."

This financial advisor should have paid YOU! You don't need an advisor, IMO, you are doing everything right. Just read the same stuff they do and you won't need to have anyone hold your hand (wallet).

"I guess what I am trying to decide is between the following three options:

2) rent for a year or several and buy/build a $1 million house. Pros- longer to figure out ideal location/school system, can save longer for bigger downpayment, smaller mortgage, Cons - move twice, if longer than one year will need to start my son in kindergarten and potentially switch schools, interest rates will probably go up"

I'm for option #2.

You could always purchase a double and live in half of it while renting the other half until you build the house of your dreams. You would get a tax writeoff, plus have an extra unit under your control that could be used to either rent out or put guests in the future.

If you choose well, you might have a nice investment property to leave your kids in the future.

Good advice from several on this thread...

Will provide you with actual experience and some additional information to consider.

Since 1981 my family have built or renovated nine homes. We had several adjustable rate mortgages in the '80's @ 12.5%. When we sold we tried to end with a positive return on funds invested. I was able to retire in '05 in my early 50's after selling a multi million dollar home with little debt. You and your husband have excellent incomes considering the economic debacle the country experienced beginning in late '07....
Instead of retaining a financial adviser I would advise moving your cash assets and investments to a firm like Vanguard or Fidelity or Tiaa/Creff. These firms charge extremely "low" commissions and they have advisers who will assist you in attaining your financial goals.
I have been with Vanguard since '05 and have been gratified by their attention to detail and services offered.
I manage and actively trade my own portfolio.

I have two homes, one on the coast and also in the NC mountains. You mentioned that you were relocating. A great deal on the level of risk you want to take depends on where you will be moving. If the area has a vibrant and diverse economy, that will be good for real estate investment. As was mentioned earlier, it is a good idea to rent in the area you are relocating for several months to get an idea in what area or neighborhood you want to invest. I rented for the first twelve mos. when I originally moved in 1981. In retrospect, that was one of the best real estate moves I could have done. Good Luck!

If you get 680K for your home and owe 380K on the mortgage, that leaves you with 300K ... not counting real estate, lawyer, land transfer, appraisal, home inspection, etc. fees, some of which may have to be paid by the new owner, but you may be billed for some of them ... or have to cope with price reductions.

If you get 650K, reduced by 380, will leave you with 270, and I doubt that you'll walk away with 250K.

I think it'd be wise to take a while to get settled into the new place, get to know the territory more fully ... now that you're a family, which is different from your experience of that area when somewhat younger.

Also, I'd suggest not overbuying, as it's almost for sure that interest rates will rise before long, and what looks like affordable now may be much less so, possibly impossible, if they rise substantially.

It appears that you have acquired some smarts in the financial field, and my suggestion would be that for investments you purchase quality stocks on your own.

Perhaps Exchange Traded Funds, if you want a passive management situation at substantially under 1% management fee, but most mutual fund managers, despite their vaunted financial skills, underperform the sections of the market in which their various funds operate about 85 - 90% of the time, but they usually charge from 1 - 1.5% management fee (in the U.S. - usually 2.5% or more in Canada).

I bought a bank stock 48 years ago for $4.17, paying annual dividend of 10 - 12 cents at low tax rate . In June of '07 I could have sold it for $107.00 and it was paying me $3.08 per year at even lower tax rate, which they increased by 40 cents that fall, almost 10% of my cost - granted, 40 years earlier, when a Dollar was worth a Dollar.

They were involved with the Big Bank developed financial mess several years ago, almost went broke, stock skidded to about $40.00, some said that they'd cut the dividend, but others said if they did it'd slaughter the stock price even more: they didn't, the dividend stayed at $3.48 for four years ... but on a price of $40.00 - 50.00, that was a fairly high rate of return (even better on the $4.17 original cost).

The stock has recovered to about $105, and increased dividend to $4.12 ... if I can stay alive a little longer ... maybe it'll make annual payment of the $4.17 that the share cost me, 48 years ago. Slipped a bit last month to under $100.00.

Had a mutual fund been managing that money - I'd have paid them about 2.5% fee annually ... as it was, I didn't pay a cent to anyone for management.

I like them apples better.

Also you might want to check the possibilities of a potential for further slippage in prices of housing in the area to which you plan to move as our anemic economic recovery persists. People in the third world work for less ... in less safe conditions.

ole joyful

Thanks for all the advice!

Greasetrap - thank you! We do have term life insurance at $1.5 million each, I think. Our disability is own occupation through Northwest mutual. Our kids' college funds are in a PA 529 plan right now, someone told us that is better as we are able to deduct from our state income taxes since we're in PA. We're moving to south of Boston (Sharon, Canton, Easton area).

Dreamgarden - that's a very interesting idea of purchasing a double - is that the same as a duplex? My spouse would love that idea. There look to be some we could come very close to purchasing in cash. I will discuss this with him.

tbird - yes, our retirement savings are in a combination of TIAA-cref and vanguard funds, mostly index funds…so we are not paying high fees. My spouse's employer forces him to contribute into a managed fund with high fees but he rolls it over as soon as possible.

joyful - thanks for the investment advice!

Thanks all for the helpful advice. We are going up there next week set to look at some places priced from $500-$900k. I think our real estate agent thinks we are crazy to be looking in such a large price range. Difficult to figure out what we can get for our money from photos though.

It sounds like you are doing well and have gotten some great advice in this thread. I have a 9 year old and I would not worry about switching schools in the future, at least during the elementary years. Kids at this age are very flexible and adapt quickly to new schools. You may also find that you may not be happy with the school curriculum and put them in private school, even when you are in a top rated school district. I think you are doing the right thing by looking in a wide price range. I think you should look for maybe not a forever house but one you could be happy in for a long time. Rates are low and prices will continue to rise. Most importantly IMO is for you to like the community / neighbors. These people will be your and your children's friends and support structure. We probably have a way too big home for just the three of us, but we LOVE our community and both our and our sons best friends live here. It is so nice to have a support system like that, especially when you do not have family in the area.

With the options you've set out above, option 3 seems to be the most reasonable one, but maybe go a little higher than $500k, maybe more in the neighborhood of $750k. As much as you think you would be buying your "forever" home in your mid 30's, many circumstances may change ie. job changes again, taste in houses, and a variety of other things change over time. Buy something that will make you happy for the next "several" years. Buying and selling isn't really that big of a deal nor is changing schools for your young children.

Just an aside: "... when he becomes a partner" raises the possibility that he won't, unless there's some contractual obligation. There are likely many reasons beyond your control that might result in that partnership share never materializing.

So be prudent when including that in your planning.

Our financial profile is similar to yours. Our mortgage is 10% of our gross yearly income and though it is a lot of cash every month, we love our beautiful home with a view and can comfortably afford it (even with student loans). So, given our own experience, I don't see why you couldn't afford a $1mill home given you have no debt, have high salaries, and home equity that will make your payments more manageable.

Many of our friends with two kids in Seattle/Bellevue are paying 1 million for a 4 bedroom home in nicer neighborhoods with good schools. We don't have kids so needed less house.

Someone mentioned it earlier in this thread however I'll say it again. Whatever you do, make sure you put aside an emergency stash equal to at least 50% of your (current) gross annual combined income. Talking from experience, our lives only became safer and stress free, once I was able to achieve that. There are good years and bad years and one needs to be prepared for them. Don't speculate and rely on what may be, but what is. As suggested by others, sell, move, rent, settle down, then go about purchasing your next dream/forever home; you will have a much broader and precise view of your finances and environment, hence better equipped to take a sound and wise decision.

"Forever home"?

You're in your 30s ... young children ...

... when you're 60 and the kids grown and, most likely, gone ...

... maybe the house will look different: maybe you'll want to downsize.

Or - if not then ... when you're 70 ... 75 ... and don't need a large home or the chores of doing or overseeing maintenance, repairs, etc. ... that "forever" home may look somewhat less so.

As some have said ... community and friends are important, as well.

ole joyful

You need to make sure that you account for the total cost of living associated with the home: property taxes, insurance, repairs, remodels, etc. These are things that homeowners do not often account for when purchasing a home. Take the monthly expenses versus the monthly income and make a decision.

Best,

Chris Shafer

ZeneHome

You have obviously put a lot of thought into it . But you need a financial planner or a broker to find you the best rates and deals. I always go to The Financial Forum for help when it comes to home mortgages and loans.You have two small children, You can’t predict the future expenses especially when they start schooling.And if i were you ,i won’t spent that much on down payment right away.You are moving to a new place. Just wait for some time before making big investments.