‘I never thought we’d be able to afford a million dollar home’: I have a high income and little debt, but how do I make sure I’m not overextending myself when buying a house?

Hi Money Minder,

My partner and I are looking for advice on setting a budget for buying a home.

We thought we could only afford an $800k home, but after talking with some financial folks, they told us we could actually comfortably go for a $1m+ home. The estimated monthly mortgage, including PMI, tax, and insurance, would be around $6700.

We’re excited about the possibility of expanding our search, but we’re also worried we might be overlooking some important factors. Can you please help us see the bigger picture? Coming from low-income backgrounds, the idea of affording a million-dollar home is still sinking in.

Some background: My partner and I (not married yet, but soon) have a combined gross income of $350-360k/year. After deductions and 401k contributions, our net income is around $16k/month. We also have school loans totaling $215k each, with a combined monthly payment of around $2000. This may change in the future. Luckily, we don’t have any car or credit card debt, and we both have excellent health insurance through our healthcare jobs.

We would truly appreciate any advice you can offer. Let us know if there’s any other information that would be useful!

Farewell,
Financial Dreamers

Response from THE MONEY MINDER:

Hello There,

Hello,

First of all, congratulations on the exciting prospect of potentially being able to afford a million-dollar home! It’s always encouraging to discover that your financial situation may allow for more than you initially thought.

Considering your combined income of 350-360k/year gross, it sounds like you and your partner are in a strong financial position. With a net income of about 16k/month after contributing to your 401k and making student loan payments, you have a good amount of disposable income.

However, it’s important to approach this decision with a practical mindset. While the lender/loan officers have stated that you could comfortably afford a 1m+ home with a monthly mortgage of ~6700, it’s crucial to consider other factors. Make sure to account for other expenses such as utilities, maintenance, and unexpected costs that come with homeownership.

Given that you both come from conservative spending backgrounds, it’s wise to continue that mindset when making this decision. Take the time to create a comprehensive budget that includes all your expenses and factors in potential changes in your financial situation in the future.

Additionally, since you mentioned that you have school loans, it might be beneficial to consider how those payments may change over time and how they will impact your overall financial stability.

Ultimately, while it’s exciting to consider the possibility of purchasing a higher-priced home, it’s important to make a decision that aligns with your financial goals and comfort levels. Take the time to thoroughly analyze your financial situation and make a decision that feels right for you both.

All the best from THE MONEY MINDER.