Purchasing real estate has become a popular Blind topic in Silicon Valley given the high salaries from engineers (average base salary for Google/Facebook software engineers is north of $120,000) and huge IPO stock market returns. It would make sense for FIRE noob members to take that next step in spending those RSU profits to purchase real estate.
Calculate Monthly Spend
Best to start with understanding your monthly spend. You can feel free to use my own monthly expenses as a baseline for adding up yours. Leaving out my rental expense details, my monthly expense total is $7,250. It breaks down into the following:
Related Post: How RSU IPO Taxes Work
Spending 35% Income on Mortgage Payments
After understanding your monthly spend, we can move on to understanding how big of a loan you can borrow.
Americans are now spending more than 35% of their median income on monthly principal and interest payments on that median-priced home. Historically, Americans spent closer to 25% of their median income on payments.
https://www.cnn.com/2022/09/17/politics/housing-market-questions-what-matters/
In June 2022, the 30-year fixed mortgage rate moved up to 6.28%. This is almost double from where it was at the end of 2021 when the same rate was 3.25%. Now let’s do some math!
Using Levels.fyi, the median salary of a L5 Software Engineer (SWE) from Google is $357,840 before taxes. (You’re rich!) Taxes will probably be close to ~40% so that will reduce the spend amount down to $214,704.
- $214,704 divided by 12 equals $17,892 income per month (after tax)
- 35% of $17,892 equals $6,262
The median home price in the San Francisco metro area costs $1,460,000. After a 20% down payment, the borrower would need a loan amount of $1,168,000. At 6.28% interest rate, that equates to a monthly payment of $7,214. To afford this house, the L5 SWE would need to spend closer to 40% of their income $7,214/$17,892 = 40%.
Quick Summary
Americans are now spending more than 35% of their median income on monthly principal and interest payments on a median-priced home. The median home price in the San Francisco metro area costs $1,460,000. You will need to make a down payment of 30% or $438,000 to make the monthly payment closer to 35% of a L5 SWE monthly income at $6,312. And remember that payment does not include property tax (1.1%) and insurance (approximately $150/month).
I made the below chart of monthly loan payments based on 6.28% interest rate to help with quick calculations while house hunting. Feel free to bookmark this page and happy house hunting.
| Loan Amount Borrowed | Monthly Payment @ 6.28% mortgage rate | % of Income L5 SWE |
| $750,000 | $5,126 | 29% |
| $1,000,000 | $6,834 | 38% |
| $1,250,000 | $8,543 | 48% |
| $1,500,000 | $10,253 | 57% |
| $1,750,000 | $11,961 | 67% |
| $2,000,000 | $13,670 | 76% |
| $2,250,000 | $15,378 | 86% |
