More on the Financial Demands of a Bellevue Home

In our previous post, we examined the financial demands brought about by the purchase of a median value home in Bellevue, WA, by looking at the down payment size and monthly payments associated with 20% down. As we saw, putting down 20% on a median value home in the city of Bellevue is no small feat. The financial capabilities required to achieve this feat are pretty high, and this is especially true for those without outside assistance. If you plan to purchase a Bellevue home entirely on your own, you will need a large lump sum, and employment lucrative enough and steady enough to service a hefty monthly payment for a considerable period of time. Again, this is no small feat.

But what if someone were able to secure outside assistance in the form of gift money for a large down payment? Suppose someone loses their grandparent, and that grandparent was kind enough to leave a large sum of money to this certain grandchild. Suppose that sum of money amounted to a 30% down payment on a Bellevue home; what sort of monthly payments would the buyer be looking at? What if the sum amounted to a 40% down payment? Let’s look at the numbers and see how much easier the monthly payments become when we receive this hypothetical gift money for a down payment. The goal here is to get a sense of just how difficult it is to afford a median value home in Bellevue. If we’re having to dream up scenarios involving inheritance money just to make the monthly payments reasonable, what does this say for the average person in this area?

Scenario #1: Grandchild Inherits 30% Down Payment

For the first hypothetical scenario, let’s suppose that the grandchild inherits a sum equal to 30% of a median value home in Bellevue. As we will recall, the current median value home in Bellevue, according to Zillow, is roughly $903,500. This means that our hypothetical grandchild would inherit $271,050. Needless to say, our hypothetical grandchild had a grandparent who was very generous. If our hypothetical grandchild commits all of these funds toward a median value home, what sort of monthly payments would that person be looking at? Committing the full $271,050 leaves a balance of $632,450. If we assume a 4% interest rate on a 30 year fixed-rate mortgage loan, then we end up with a monthly payment of around $4,066. That figure includes property taxes and homeowners insurance, but leaves out private mortgage insurance (PMI) as that wouldn’t normally be required. Importantly, we’ve also left out HOA dues, as we will assume that the property isn’t a condo or townhouse. We’ve also left out any non-recurring costs, such as repairs and maintenance.

We will recall that the typical after tax monthly income for a Bellevue household is $6,600. This is computed from a yearly after tax income of about $79,200. The median annual gross income of a Bellevue household is about $105,402. Right away, we can see that the monthly obligation with a down payment of 30% is much more reasonable. Still, when we consider that someone who buys a home will incur other, non-recurring costs, a 30% down payment still imposes a big burden on a family with a median household income. Even with no other costs, our hypothetical grandchild would still be left with only about $2,500 after paying the fixed monthly costs. In the city of Bellevue, this isn’t a huge sum when we consider the typical monthly costs associated with food, fuel, entertainment, utilities, and so forth.

Scenario #2: Grandchild Inherits 40% Down Payment

In this second scenario, let’s suppose that our hypothetical grandchild had a super generous grandparent. Let’s suppose that this grandchild inherits a sum amounting to $361,400. If our hypothetical grandchild places all of that inheritance money on the home as a down payment, that would amount to 40% of a median value Bellevue home. This leaves a balance of $542,100 to be paid off. If we again assume a 4% interest rate on a 30 year fixed-rate mortgage loan, we’re looking at a monthly payment of about $3,635. This includes the same costs (property taxes, homeowner’s insurance) as the previous scenario, and also leaves out the same costs. It’s fascinating to think that we only begin to see a reasonable, manageable fixed monthly payment when we see down payments of this size. A fixed monthly payment of $3,635 is doable on a monthly fixed income of $6,600 (or thereabouts). But look at the size of the down payment! How does the market expect the typical Bellevue buyer to come up with a down payment of around $361,400? In this hypothetical example, we’re talking about a grandchild who’s suddenly been given a generous inheritance, but this isn’t a phenomenon likely to be repeated on a regular basis. Given current median values, the market will need to attract quite a few people with incomes well above the current median household income in Bellevue.

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