Received small lump sum of money

[lili487]

I (32m) received a lump sum of 100k settlement. My wife and I want to buy a bigger house than what we are already in for our growing family. I put 17k and cleared my CC debt immediately and added 8k to CDs along with my existing 2k for an emergency fund (all different life terms).

Key takeaways:

I make just over 80k, contribute 5% to a traditional 401k and 3% to a Roth, employer matches up to 6% I think.

Receive 100% P&T VA compensation.

Wife is a stay at home mom.

Really considering putting 10k into treasury T-bonds at 6% return I think because of our short term goal of buying a house in 2-3 years.

What else should I do? Treasury maxes out at 10k. Pay her CC debt? Some of it is before our marriage at it’s 13k

We live in an expensive school district, upgrading to a 4 bedroom is easily 800 to 900k.

I have a rough budget and track it the month prior to see how we are spending. Put mostly everything on a cash rewards cards for fixed costs.

What should I do? I don’t wanna blow this chance

 

[yeshuaisadorable]

@lili487 I make more than you, by about 20% and I couldn’t imagine trying to buy a $800-$900k house.

Move somewhere cheaper.

 

[patrickburns]

@yeshuaisadorable I make 4x as much and couldn't imagine buying a house for that much. Especially not anywhere in PA.

 

[lili487]

@yeshuaisadorable That’s not really an option, wife wants to stay in the same school district and me we both like that our district is ranked in the top ten in PA.

 

[nzmusicmissions]

@lili487 According to a calculator to see what you can afford at 80k. If your credit score is 780 and above and you put 60k down it says you can afford a house in the 350-400k range

 

[james3248]

@lili487 Have a friend who just bought a 5br, 3ba in Bucks County(top 25 school district) for $550k. Still out of your budget in my opinion unless your wife went back to work, but way less than $800k. I think if you think you can afford a house that expensive, you REALLY need a reality check. Considering you had $30k combined credit card debt in your current home, I don't see an upgrade being feasible in the slightest....

 

[333grace]

@lili487 What’s “not really an option” is affording a $900,000 on a $80,000 income. You need a reality check.

 

[thatbusfromspeed]

@lili487 Can you build on your current house?

 

[ref]

@lili487 Shouldn’t you get 100% property tax exemption and real estate transaction tax exemption for your 100% status? If so you should mention that it changes your situation on how much house you can afford.

 

[cintasatu]

@ref It depends on the state/county. Still I make more than that guy without a family including my VA and wouldn’t fathom thinking about how house poor I would be.

He makes 80k, VA we will call 4K/month so 48k untaxed. So 128k/year. His normal job is roughly 6700/month pre tax and deductions.

I’ve been looking at another house in the 500k range and that would put me in a mortgage of roughly 3-3,500 and did a rough look a 800k house would be in the 6k/month range. OP is looking at moves that will make him house poor IMO

 

[ref]

@cintasatu Oh I agree. I’m from Jersey though it makes a big difference. Can talking 10-20k a year saved. Still not enough to be able to afford in the 800-900k price range.

 

[yeshuaisadorable]

@lili487 It has to be an option. You can’t afford the area you’re in. Especially with your wife being a stay at home mom.

 

[newway]

@lili487 "Treasury maxes out at 10k" -- That's specifically for Series I Savings Bonds, a.k.a. I-bonds. There is no limit to Treasury Bills or various other T products.

Pay all of your credit card debt and resolve not to enter that status again. It will crush your financial goals if it's a habit.

A lump sum is great, but you need reliable, recurring income to support your housing expenses. A gross income of $80,000 supports a recommended housing expenditure of $24,000 annually, or $2k per month - based on 30% of gross. Housing includes rent/mortgage, tax, fees, and utilities.

You have no chance of buying an $800k house with that limitation.

House aside, do you have retirement savings? This is a terrific chance to get on the right foot with that critical aspect of your personal finances.

 

[matthewck]

@newway This guy is a guy to listen to @lili487

I’d learn more about investing into index funds. That will go way further in pushing your wealth up. It’s good you have 100% pt from the VA… but future you could be doing a lot better.

 

[lili487]

@matthewck I agree, but a bigger house is necessary as well unfortunately

 

[lili487]

@newway Yeah, almost 100K combined, my employer fully matches and has 5% return.

800k topping out for the housing market here, obviously I wouldn’t be the only one working and right now I’m almost at 140k annually combined with my VA comp.

 

[agdane]

@lili487 I do not see a path to a $900k house unless you significantly increase your income or have like 60% down payment.

You also should keep in mind how expensive it is to maintain a house. One very rough rule of thumb is 1% per year, which on a $900k house would be $9k/year. Of course this is a very rough rule of thumb and will be highly variable, for example a newer build should be way less maintenance. Wife and I bought a $750k house 10 years ago and have put in close to $200k in improvements and maintenance in that time (including a $50k kitchen remodel and $70k deck replacement).