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Real Estate Journey in a VHCOL Area

Background: The Challenge of Millennial Homebuyers

As millennials residing in a Very High Cost of Living (VHCOL) area, my spouse and I have faced unique challenges in our quest to purchase a home. Our journey began back in 2019, when we started looking sporadically for potential new listings. Ironically, we had our eyes on a couple of properties we genuinely liked at the time, priced around $900,000 to $1,100,000. At that moment, we thought we could afford to keep searching for something that better suited our needs. Fast forward to today, as we observe those same homes now listed at staggering prices ranging between $1.7 million and $2 million! We often find ourselves reflecting on our past decisions and feeling a sense of regret.

At the time, we weren’t entirely prepared to make a purchase, and we decided to continue saving and searching for a more suitable option. However, the pandemic threw a wrench in our plans, and here we are still waiting, with the market continuing to shift beneath our feet.

Seeking Expert Advice: Preparing for Homeownership

As we aim to buy a home within the next year, I turn to the online community for guidance and advice. Our combined net income after taxes is approximately $15,700 per month, providing a solid foundation for potential homeownership.

Understanding Monthly Obligations

One crucial area that I need clarity on involves monthly obligations, particularly in relation to credit card usage. While we are proud to have no credit card debt (we pay off our balances in full each month), we do charge our daily expenses—like food, gas, and dining—on our credit cards. If we both spend around $1,500 monthly on our cards, would that amount count as an obligation against our mortgage application? Would it be advisable to switch to cash payments leading up to pre-approval to significantly lower our reported expenses? This aspect of the mortgage application process confuses me, and understanding it better would greatly help our situation.

Current Financial Obligations: A Clear Breakdown

Additionally, we currently have $2,700 in monthly payments tied to our vehicles and student loans, the only debts we carry. Thankfully, these obligations are due to be settled within the next 2–3 years, freeing up that monthly amount for other expenses or savings as we approach our home purchase.

Our child-related expenses are around $1,800 each month. We also allocate $2,000 toward our rent, while diligently saving at least $4,000 monthly—although we haven’t been precisely tracking our savings!

Given these figures, I estimate that we could reasonably afford a mortgage payment exceeding $6,000 per month.

Financial Standing: Credit and Savings

Both of us have impressive credit scores over 800. We maintain $400,000 in liquid savings and are planning to put down at least 20% when purchasing a home. Our retirement accounts also collectively boast roughly $200,000, adding to our financial stability.

Avoiding Financial Stress: Insights and Strategies

Despite our healthy financial standing, we don’t want to fall into the trap of being "house poor." From my research, it seems that putting down more than 20% might not significantly affect our monthly mortgage payment. We could allocate that extra down payment to increasing our monthly mortgage payments, allowing us to pay down the principal faster, if we choose. Would this strategy be smart?

Leveraging My Real Estate License

I also possess a real estate license in California, though I have yet to utilize it professionally. I recognize that leveraging my license could potentially save us on various closing costs. Should I explore ways to activate this aspect of my skills for our upcoming purchase? Recent changes in California’s real estate market may have an impact, and knowing how to navigate those could prove beneficial.

Assessing Affordability and Approval Odds

So, here comes the critical question: How much house can we realistically afford? Would a price range of $1.2–$1.3 million align with our financial situation? We are not extravagant spenders and anticipate a significant portion of our income will go toward our home and mortgage. It’s essential to keep in mind that, within 2–3 years, that $2,700 monthly obligation for loans will be removed, providing additional room in our budget.

Strategies for Increasing Approval Chances

Furthermore, what steps can we take to enhance our odds of being approved for the maximum mortgage amount? Would it make sense to switch to a longer repayment plan for our student loans to lower our monthly obligations temporarily, thereby providing us a stronger application? How soon should we initiate that change—perhaps 3 months before applying for pre-approval?

I wish to clarify if lenders prioritize monthly obligations over total debt owed or if both factors carry equal weight. Lastly, regarding that credit card spending—should we consider using cash for a few months leading up to our pre-approval to present lower monthly expenses?

Future Income Potential

It’s important to note that both my spouse and I have the potential to increase our earnings in the future. While we don’t foresee significant raises, any additional income could potentially support larger monthly mortgage payments down the line.

How AI Legalese Decoder Can Help

Navigating the complexities of the home-buying journey, especially in today’s market and financial landscape, can be daunting. This is where the AI Legalese Decoder can be invaluable. By helping clarify mortgage and loan agreements, the AI Legalese Decoder can demystify the verbiage surrounding credit utilization rules, obligations, and loan procedures that may impact our mortgage application and financial planning. Additionally, it can assist in providing comprehensive insights into current market conditions and real estate transaction processes in California, ensuring a smoother buying experience.

Your insights and assistance would be immensely appreciated as we endeavor into this critical phase of our lives!

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