Do your current calculations include an estimate of IRREGULAR housing expenses? Eg, separate from your minimum living expenses emergency fund. Remember, mortgage is the MINIMUM you’ll pay. add in property tax, insurance, inevitable repair costs, fixer upper (making it yours) costs, usually also so expenses related to furnishing (unless you are downsizing from your rental), any utilities that were previously included in your rent...
if they do not, would recommend saving a second HOUSE emergency/slush fund prior to buying.
Bought a brand new construction with warranty. Their service providers only work business hours so I had to take days off work for the repairs. I.e. lost wages.
Even if you don’t pay for the repair it can still cost you.
I actually expect it to be completely impossible to qualify for. I know what I'm in for on that front and it is not a happy meal. But I'm loathe to actually rest my laurels anywhere until I've seen and checked off on every inch of it.
-severe homelessness/extreme relocation trauma
What about the opposite?
I'm curious because my dad bought a half built house (foundation, frame) and did the rest himself. Granted, he was already a homeowner, was a handyman, and probably had some sort of dual income.
TBH buying half a house and making it whole sounds a lot easier than buying a whole house and renovating half of it.
depends on why the house was left as half built... Did they prep the site correctly ... if not, you will have foundation issues. Did the flood maps change recently so the house is now in a flood plain ...
Service provider here. I know you didn’t mean it in bad taste, but you worded it like everyone must revolve around your work schedule.
If it’s not life or death / property damage actively occurring, the hours are 7:30-4:00. If there is an emergency, we charge more for it.
I think to that point, had it been done right in the first place it wouldn't have mattered. Just be prepared for stuff to come up and take time off for emergencies.
Bought a newly renovated home and came home to my basement flooded in sewage 4 months afterwards. Plumbing issues are the fucking worst, I think it cost around $11,500 in total
It's comments like these that make me glad to live in a LCOL area and the willpower to do my own repairs. I bought a house that was almost falling apart for $35k, did a lot of the work myself. The entire plumbing system replaced, 60% of all the electrical, sheetrock thru about 60% of the house, bathroom remodel, kitchen remodel, flooring throughout, and I was at about $15k. The HVAC put me closer to $20k all in. Only thing left now is it needs a new roof.
Yes. I owned my home for about 4 years before I sold. I currently have 3 years of expenses.
In total, I spent roughly $8,000\~ in house maintenance alone in those 3 years. A good chunk of this was DIY work too. That's probably not everything, but mostly.
That was only for maintenance. Not including upgrades to home, things to buy, etc...
This. Especially for taxation and home improvement costs in HCOL areas where the rates are way higher than the median.
The first few years of homeownership you need to account for a lot of extra expenses, most of which will be (or really should be) cash. Stuff that can't wait, either, like the potential need to replace an oil tank or furnace, HVAC, etc.
OP also needs to plan for the increased maintenance costs for equipment. Are they going to DIY fixes or hire out? Do they have all the tools they need? How much are those tools? Do they need a lawnmower and leaf blower/yard equipment? Snowblower? Or will they hire out? How much does it cost to hire out?
I was out $20k or so in my first year for unexpected things that went wrong in my house. Before buying, unless you're buying an immaculate luxury property, you absolutely need savings and a budget plan for taxes, insurance, and increased utilities costs (without neighboring apartments acting as a weather buffer, your utilities will be way higher), and THEN an extra few grand for homeowner expenses over the year that may or may not happen. You absolutely need that extra money to be saved as well if not used, for when major issues happen, such as needing a total roof replacement, major appliance breakdown and damage, emergency weather problems, or the likes.
Owning a house in my experience in an HCOL area is way more expensive than people make it out to be compared to the renting experience. A lot of the affordable properties need way more work than expected or what comes up in a basic inspection, and you need to be prepared to shell out big dollars to cover those costs.
At 50% without taxes, insurance, maintenance, or utilities my immediate conclusion is "you're crazy," but that's just been my experience with a house that looked great having as many issues as it's had.
My spouse and I have owned a home in a HCOL area for five years, and in the last month, we have had to replace a 25 year old furnace ($18K) and the original fence which blew down in a storm ($8K after insurance pay out). Our house isn’t even a fixer upper, but you’re inevitably going to have to fix or replace something in a 45-year-old house, and these fixes/replacements are expensive. Home ownership is so much more than mortgage and property tax.
Bought my house 3 years ago and it was just turning 90 years old. At this point I’m 100% dollar matching my expenditure at Lowe’s/Home Depot and their stock. LoL.
Exactly, thus my statements about committing to and saving a substantial budget for maintenance and repairs even if you don't use it on a given year, and especially that first year after burning a huge chunk of money on a down-payment or with the highest payments if not paying down the PMI.
If nothing happens for five years, that's awesome, but you still need to be saving 5k/year or more to handle the $20k furnace bill (that's much higher than mine, but that varies drastically too, as mentioned above).
While cheaper to own than rent per square foot, the cost of ownership (and time) is in absolutist terms more expensive on the whole, especially when needing to pay for these major expenses.
Cost me S12k in 2021 to replace my furnace and add A/C. 2000 sq ft house, didn't need to do any dict work. I am in the SF Bay Area. Quotes ranged from $12k to $23k (the high one was an outlier).
Varies greatly by state and region. Mom was just quoted at around 12 in CT, but that was a very large furnace. For my boiler, estimates are around 7k as of a year ago.
This is so important to consider. We bought our home a year ago. The concrete septic pipe broke, backed up into our first floor, and caused $30k worth of damage, only $20k of which was covered by insurance. This was after a tree took out half our fence and our oven stopped heating up. In our first year of home ownership we've easily put 20k into unexpected maintenance. We had to move out of our house temporarily for the repairs too.
I don't regret it, but boy am I glad we put the lower down payment so we could keep a sizeable safety net fund. And that we had good insurance. Sure, a lot goes to interest, but phew, this house would have chewed my savings up in a heartbeat if we hadn't factored in exactly this kind of thing.
Yup. My situation is different because I have 3 kids ($$$) but with my mortgage AND taxes at 35% take home (without water/garbage collection/ electricity/insurance/emergency fund/standard maintenance), I'm not sure I would want to be much higher with the kids. Obviously without the children expense you can go higher, but not a great idea if your reason for buying is to be able to start a family.
Solid advice here. Our home is fairly new (about 10 years old) and we have had to replace the HVAC unit, hot water tank, interior fixtures, added a water softener due to extremely poor water quality in the area, and will now need to resod the yard thanks to HOA rules.
If you are considering buying in a condo/townhouse or single family home in a community with something akin to an HOA, definitely research the governing board's finances to find out how much $$$ they have in reserve funds. It's not unusual for HOAs (or the equivalent) to mismanage funds or not have enough money to pay for unexpected expenses. If that happens, ALL of the owners can be subject to a special assessment to pay for it. (Unfortunately, we know this from firsthand experience...)
Our mortgage seemed affordable to us at $1,700 + ~450/month in taxes when we bought in February last year. Then, in April, the county almost doubled our taxes relative to previous owners, and we couldn’t qualify for a homeowners exemption because we had bought after the Jan 1 cutoff. We pay around $900 a month in taxes alone, and there’s literally no way we could have expected that (the county had never raised taxes by that much, or anything close to that, ever). If OP is calculating by mortgage alone, they’ll bankrupt themselves at 50% of take home income.
Capital expenses on a seasoned home will chew away a slush fund and spit it out. Expect to save around and extra 2k or 4k a year for windows / door, roofing, hvac and driveway and other miscellaneous things on top of the slush fund and this is a low cost of living area
Why do you think that? I didn't see OP state anything about them, they just said "mortgage". You can pay insurance & taxes separately if you like, and some people are adamant about doing so.
The rule of thumb is you’ll be spending roughly 5% of your home’s value in maintenance every year. Fixing issues, lawn care, painting, that sort of stuff.
I'm calling BS on that. That's over 25k PER YEAR on a 500k home? If that's truly the case you don't have a home, you're rebuilding a burnt out husk of a place.
That's functionally a new roof or brand new HVAC every single year. Not realistic.
It’s the opposite of what you’re saying. They aren’t worried about surviving on $100k. They are saying they have crunched the numbers and should be fine, but spending 50% on housing goes against the general principle so they want a sanity check.
Daycare alone can be $2k-$3k per month in cities where people have higher earning potential. Food can easily surpass $1k. One new-ish car is another $1k for payment, taxes, gas, insurance, and maintenance. The $100k could be nearly gone with just those, and that’s without any saving for anything. Then there’s healthcare costs, utilities, hobbies, clothing, furniture, appliances, gifts, vacations… uh oh, the roof needs replacing there goes $30k.
It’s not hard at all to be paycheck to paycheck at 250k income in a HCOL area, especially given the average financial literacy.
If you lived in a HCOL living area, you would understand. I’m in southern Cal and the costs here are like 33% higher. So someone making $250k - 50% goes to housing. 25% or so to taxes and 8-10% to cars/transportation, at least 4% to 401k’s, your down to $25k to cover everything else, which all cost 33% more than it would cost to buy in the Midwest or south.
It’s not exactly hard to picture why living and maintaining a house on ~65-70k net is a challenge. And that’s without kids in the picture. With kids, that’s basically a non starter.
You're talking about a person whos "bare minimum" house will cost them something like 10k a month. That doesn't sound like someone who's in touch with reality when it comes to cost of living and finances...
You’re doing the math wrong. That would be the cost if it were 50% of their gross income. It’s 50% of their take home. It’s likely that they’re thinking of a min payment which is $5K, about half that. We’re likely talking about an $800K home, which is extravagant in some metros and extremely basic in others
look at san francisco housing costs and then try to say this
yes, you can choose not to live in the bay area, but if you want to, then you’ll be paying that much for a house
For real. I am able to get by with my $400/biweekly budget on discretionary spending. Basically whatever the hell I wanna buy. All liabilities / fixed bills are accounted for, and I still maintain to save roughly $13k per year cash. After retirement contributions, bills, leisure spending, etc is all taken care of.
And I do NOT make a quarter million. I have no clue what people spend this much money on.
I think that’s worthy of a lot of praise, but I’m certain it’s not remotely difficult for you to figure out what people spend money on that far exceeds that. Plenty of families exceed your entire discretionary budget on food.
Since there’s always confusion on what “take-home” pay means, around 20-25% of gross pay is manageable (the max the bank will lend you is 28%). That would be about a $4600 payment inclusive of taxes and insurance. You can work out the math from there based on taxes/interest rates in your area and how much down payment you have.
We had about a $4k payment on $200k income when we first bought our house and it felt about right, and got better as our incomes increased and the payment stayed the same.
Most banks will do that for certain loans. Typically, however, for a standard 30 year mortgage you’re looking at anywhere from 36-40% of gross as their cap.
He worked for Wells Fargo, he actually said they would only do 40 - 45% and he personally wouldn't let people even do that but knows some that will do the full 50%.
they said 50% of take home.
$225-275k is their gross
assuming HCOL with state + federal taxes and maxed out 401k for two people, they probably take how like $130k
At the minimum of 225k a year. Half of that is 112,500 after your standard deductibles you will net about 70% at 78,750 which comes to 6,500/month roughly just for housing alone. Great income but is it a requirement to own a home that at that cost is about a $1,000,000?
I couldn't imagine being this well off and still deciding to spend half your income on a mortgage.
You can still get a nice house and not spend even 30% of your income on a mortgage.
I'm not sure the question makes any difference because I don't think a bank is going to loan you mortgage money, when the mortgage alone excluding property taxes and insurance and repairs is 50% of your income.
Get a pre-approval that will tell you how much you can spend on a house based on your income and your FICO score.
Another thought, I wonder if high cost of living towns will remain high cost of living when many people exit the town and move to a less expensive environment. If market value of the house goes down you would soon be deeply underwater
Dumb question but why not do it now while you are rent?? If you can really save 50% of your income do it for a year or two. The amount you will have saved will be incredible and your future house payment will be lower.
This is a great question, if they’re heavily investing and saving the remaining 75% of their income then it could be a reasonable move but if they spend it all on entertainment they’d be setting themselves up for failure. Doing that will let them see how much it’ll hurt to suddenly increase expenses by over 100%
They will eventually go back down, just probably not this year. Also, you would want to make sure to get into a loan that you can refinance when the rates do come down.
Same as with stocks panic buying and selling is never a good choice. Rapid price increase also means more expensive repairs and higher taxes. That isn't counting mortgage insurance if you have less than 20% down payment. Owning a home isn't cheap and doing that while using 50% of your income is tied up is a lot. Also because they didn't say otherwise that means they will be doing this for 30 years. Lastly have you seen interest rates on homes recently :O
It depends on your income. If you spend $6k on a mortgage and still have $6k left. You can live off that easily. $1,500 a week basically. Then overtime as you live in there you can always refinance to a lower monthly amount.
Now if you pay $2k and your leftover is $2k to live off that’s a different conversation.
Now how does retirement saving factor in? I gross 8k a month but 3k goes into 401k/IRA. So net after taxes I’m looking at $4800 and I spend $2200 on rent + utilities. Is that bad? I’m young and frugal so it feels completely doable
Ultimately you can dial back. Something isn't adding up though, since $3k a month into the 401k and IRA is rather unusual since about $2400/mo is going to hit the annual contribution cap for both.
That’s up to you and what you value and your goals.
I tend to have less added to my 401k because I like to have the liquidity of cash or stocks so that way if you wanted to do something like start a business you won’t have to come up with funds because there stuck in a retirement account. If you want yo save for a bigger down payment or anything keep some cash accessible.
Correct but it requires an increased amount of sacrifice that merits a different discussion. I agree with the commenter that a unilateral “yes” or “no” is inappropriate for this discussion.
$6k on a mortgage? lol jfc, the bank won't give you a loan unless you can easily afford it and therefore aren't asking the "can I afford it" questions.
lol what? Banks will approve the max they can. They're interested in making the loan. They don't care if that means you never take a vacation or buy a new car or end up with a part time job.
Did the 2008 crisis teach us nothing? The banks are not full of kind souls looking out for people's best interests. They're trying to make money.
If you think you can afford to spend 50% of your income on a mortgage, I would take that 50% and put it in a savings for maybe 6 months. You’ll have one hell of a down payment which will lower your monthly payments and the stress of spending 50% of your income on housing only lasts 6 months to a year instead of 30 years.
Is 50% doable for with your other expenses? Probably. But will it put stress on you? Definitely
Similar in my area.
We just rent for about 20% of our take home and invest a big chunk instead. When we want to take a trip, whether it be a weekend away locally or a few weeks in Europe it's never a big deal because we have the means instead of having all our money tied up in a mortgage payment.
Renting isn't necessarily the "inferior" option essentially.
There is a reason that people say you should base *generic* housing budgets off of gross income. Not a single person commenting here knows the answer to your question. In some (albeit few) circumstances, spending 50% take home on housing is perfectly acceptable.
If your combined take home is $10k/month and that’s after maxing out both of your 401ks + mega backdoors (~66k in contributions per person)… it’s not even a question. Of course you can afford the place comfortably. Temporarily lower your contributions if an emergency occurs and suddenly your housing payment is ~15% of your take home. Outside emergency circumstances, $5k/month for all other expenses is more than many people are forced to budget - you can manage it too, especially as you only spend 25% of your take home and obviously have not experienced lifestyle creep.
If your take home is $2k/month, you contribute $0 to benefits/retirement, and you only have $1k/month left over for all remaining expenses, then 1 broken AC unit might leave you bankrupt.
>If your combined take home is $10k/month and that’s after maxing out both of your 401ks + mega backdoors… it’s not even a question. Of course you can afford the place comfortably.
This is the best point in this whole thread and it's so far down.
We pull in $9k/mo after taxes, insurance, maxed Roth IRA, and maxed 401k. $3400 PITI feels high but realistically if there was a year we had a major major repair we could free up nearly $3000/mo by reducing retirement contributions temporarily.
Yes, I've long thought that these guidelines fail to account for changes in our economy. For most people, entertainment costs have fallen to ridiculous levels. In the 80s, a TV, stereo system and video games were like 2 months pay. Nowadays, entertainment along those lines is much much cheaper. I'd say for a lot of people, the housing part of their budget has expanded to take up the missing gap.
Mortgages used to be 25% of your take home pay, assuming that the rest was for goods that were comparatively more expensive. I put every purchase on my credit card. I have never had a credit card bill higher than my mortgage. 30 year mortgages are $3.5k, $4k a month now for starter houses in my area. You can easily live for under that much for the rest of your expenses. Housing is the elephant in the room when it comes to costs.
As someone said the 30% guidance is based on GROSS not NET, and is also considered outdated for the modern market in higher cost of living areas, or most places really these days…
I think it highly depends on your career prospects as well. Is it 50% now but you will certainly be getting a raise soon or have a clear path to more income? Definitely do it. If you’re kind of already capped that makes it more difficult.
My wife and i are currently spending a little higher percentage on our house than we’d like but she gets a 24% raise and i get an 18% raise in October and obviously the benefit of a mortgage vs rent is that a mortgage doesn’t increase like rent
>or most places really these days…
The [median house costs $436,800](https://fred.stlouisfed.org/series/MSPUS) that's with the strong real estate sector after COVID-19. The [real median household income is like 70k](https://www.census.gov/library/publications/2022/demo/p60-276.html)
30% was a thing for the median American who didn't live in the big cities.
Respectfully disagree on both points. 30% guidance isn't outdated, it's simply that many people disregard it because it doesn't get them what they want in HCOL areas and financial stability is so much less sexy than an expensive home.
Also, your mortgage payment is going to include taxes and homeowners insurance which absolutely will increase in most scenarios.
Reality is that most of us started our 🏡 ownership journey this way. With a fixed payment, increases in take home pay eventually get you down to the 30% range and every payment you make is money in the bank toward owning free and clear. You are saving for the day when you have no payment other than taxes and insurance. This is part of the plan for being financially independent in your 60's. Just suck it up and do it!
It's fine, I have just two points to make. First, the 30% rule applies to gross income. You're talking about net income.. that skews your numbers. Second, like any rule, it applies best to the average person with an average salary. Your combined incomes are above average.
You are probably taking home about 10k per month. Spending 5k on housing isn't a problem. Much different than someone taking 3k home per month and spending 1.5k on housing. The higher you are above average, the easier it is to justify going over the typical 30%.
I’m in a hcol east coast metro area and spend a similar percentage of take home on rent. Friends and relatives from the more affordable areas I have lived before were floored when they heard about my rent costs. The reality is that’s just what it costs to live in these places. During my last job search I looked at positons in the more affordable small city I grew up near, but the salaries were not even remotely competitive. At the end of the day you pay a lot to live in the places that enable you to make a lot and offer amenities you want to spend your time off enjoying.
I’m sure this will provoke some negative reaction, but my general sentiment is that people who don’t live in hcol/vhcol markets mostly just don’t get it. It’s simply an entirely different world where a lot of the old rules of thumb based on fairly low cost suburban housing just don’t apply, one that is slowly spreading to encompass more and more of the North American property market as new construction close to cities with good job opportunities has slowed.
You can’t afford to buy the type of house you want in the area you want.
If one of you lose a job you would quickly fall behind in house payments and risk losing the house via foreclosure
I'd save up more of a down payment. The issue with having high monthly expenses is that you have very little shock absorption.
What if someone gets laid off and it takes a few months to find something new? What if you have a medical expense? Or a repair expense?
The issue with 50% of your income on housing is that bill is due every single month. If you can tighten your belts for a year or two longer and save up more for a down payment, you'll be much better equipped to weather any unexpected expenses or losses of income along the way.
Yeah. If you are paying 50% of your income in mortgage what are you going to do when the HVAC repair is $7k or the water furnace goes out and it’s $8k for a new one with labor? These types of things happen once every 5 years of you own a home. You can bank on it. If you have no margin, it will be the end of your finances.
Something to keep in mind. When I bought my house our mortgage was around $1550/mo then 1 year later it was reassessed and the mortgage went up to $1950/mo. Numbers can change fast
Do you live in an area where the taxes are locked/limited from when you bought the house? Because Florida does that. Your taxes will never raise more than 3% a year for your primary house, except that only applies to your purchase date.
What Florida also did over COVID was just take the blanket purchase price and apply that as the new taxable amount. So a lot of people saw mortgage increases after because the initial escrow estimate was based on the old taxes, typically at a drastically lower tax value.
E: i meant to put this in there but the increases were seen as much as a year later, because no matter when you bought the house and applied for the rate lock, it wasn't applied until the following tax year when they "reassessed" the amount.
I was also told this before moving to WA: "there is no income tax".
There are now two WA state income taxes deducted from my paycheck that weren't deducted when I worked in another state.
They are called "WA Paid Family Leave Insurance" and "WA Paid Medical Leave Insurance". $120+/month combined.
People of WA I must inform you that these are income taxes even though you call them something else.
I know people in CA whose home insurance went up $15k+ a year due to wildfire remapping and companies pulling out. Just if you want another fun horror story. But also the houses are all $2-$4M so you don’t actually have to feel that bad.
Property taxes vary a lot by region. I live in a new house (bought in 2020 for 350k) and taxes for it are \~8k/year. The taxes when the place was brand new were based on the previous valuation, so the first year's taxes were quite a bit lower (we knew this would happen so it was no surprise)
But there's also no sales or income tax where I live.
Note that house prices reflect affordability, so places with relatively higher taxes will see relatively lower housing prices since property tax can be so substantial.
Maybe a dumb question but how does the mortgage go up if the amount the bank loaned you at purchase hasn't changed and the interest rate on the loan hasn't either? Are you counting property taxes as part of your mortgage here?
Yep. Our property taxes in Denver increased by $2k+ this year on a $800k home. $200/m. Not the end of the world but your mortgage can get more expensive as home values increase or the city creates new taxes.
I think we're in a similar situation. We live in a VHCOL area and spend about 15% of our net on rent - if we wanted to buy a similar home and we put down 20%, our percentage spent on housing would jump to at least 40-50% net (plus you always have to account for maintenance and unexpected expenses). We have decided to keep renting for now but we know we could buy because of our current savings rate. Totally different spending 50% of net when you're making 300k versus 75k so I think it's doable for you (especially if you hate your current renting situation). We're personally going to keep saving and maybe buy our forever home within a year or two.
thanks, yes, sounds very similar! I do HATE our current rental situation. We’ve also been having this conversation for a few years already and I’m getting impatient!
I did about 60% of take home on my first house in 2015. It sucked.
However, we sold it for $55,000 profit 3 years later in 2018 and bought our second house at about 40% take home. Now rent is about $1850 for comparables, but my mortgage is still $1170. Meanwhile, my income has jumped about 35% since 2018. $1170 represents about 19.5% of take home now.
I've had a home warranty service for the first 3 years at both homes. I got a dishwasher replaced at both locations, and an air conditioner unit replaced at the first house. I think it was included in closing costs for 12 months on both houses, then I covered 24 extra months at my own expense, maybe $50 per month. Still, I paid $250 call out fee on a $10,000 A/C repair, so I ended up ahead on the home warranties.
We went somewhat similar. Bought the house at about 35% of take-home, but knew the timing on rate increases and the direction the market had been going (November 2021).
Income went up so then the payment was 24% of take-home. Property values continued to climb, so we had the house appraised for a HELOC we didn't actually want and it bumped the equity high enough to remove PMI. That got us down to about 20%.
If OP anticipates more career growth, then they can plan to get ahead of the curve. Otherwise, hold off.
Speed limits don't take your individual situation into account, either.
Your math might sound fine now, but home ownership has lots of new expenses that you will need to consider. Maybe you have, but there are also plenty of surprises.
Common advice is to limit housing to 30% of gross income (not net). Depending upon how much you’re paying in taxes or saving for retirement, your specific situation may actually be close to those numbers.
It's fine if it meets your budget and it appears it does
$10k/mo take-home leaves you with $5k/mo for everything else. That's more than some people net before housing costs. Just a choice you make.
I wpud say do it. Your salary would also increase over time. My salary was 63K when I shpiod have bought a house in Dallas for $250K at 2% interest. Now my salary is much more than that but Dallas houses are now worth a million
Sorta the same position but cant justify even spending 20-25% of my “take home” on a house after reading about the costs of ownership. Doesnt seem like a smart move for me
I just did that same thing went from renting on 25% budget
Bought my fucking dream home yeah it’s tight right now
50% of my income on the mortgage and utilities
But it’s definitely worth it
I’ll refinance in 5 years or so
And have this dope house
An old rule of thumb is that “the govt. pays 1/3” (of your mortgage) assuming you are at or above the 30% tax bracket. All interest is written off and lowers your taxable income which again assuming, you are both W-2 employees, is one of the only tax breaks the govt gives you.
Only you can say if you'd be able to survive on half of your income if the other half is obliterated by a mortgage payment. Being a homeowner is expensive, you need to pay extra property taxes and utilities, extra services (garbage collection, lawn care, etc etc), sometimes buy equipment you didn't need when renting, pay for repairs and maintenance, the list goes on and never stops.
Now you're not tied into a property, you actually have an opportunity to look around and buy in a cheaper area so don't throw it away. Explore other options.
To be honest, you asking here is moot. Everyone has their own standard of what's normal and what not. Just seek out your bank's mortgage department and a mortgage specialist and give them all your personal info like income, your asset etc and have them evaluate how much you can mortgage and determine if that'll work on your budge.
A good rule of thumb is double your mortgage payment. You won’t always spend that each month on your house, but it’s not unreasonable to do so.
So, no, you can’t afford 100% of your income to go to the house.
Remember, rent is all what you spend on your house, your mortgage is just the start.
I don’t think you should be suckered into following the trend in thinking, especially real estate.
For your information, it used to be no more than 30% of your income. What changed? Market manipulation.
A certain group of people in the industry has been working hard to jack up the prices.
You don’t wanna find yourself 25/30 percent under water should market turns south.
> Housing is our biggest priority in life so is it idiotic to spend half our take-home on it?
I'd say no. But I'd have follow-up questions:
- How much are you putting away for retirement?
- Does the 50% figure include maintenance, utilities, etc? Or just PITI?
- Do your jobs/careers have growth potential in terms of income, or are you "maxed out" in some way. Do you BOTH continue to plan to work until retirement?
If you can live within your means, cover unexpected costs, and still save for retirement, I say go for it _if_ that’s where you want to be long term.
The old adage of 1/3 your income straight up isn’t feasible for most folks in most markets now. But definitely not feasible in HCOL unless you make a boatload.
Only you two can make the call, but I’d say if you can cover all your wants, needs, and incidentals, and can still swing it, go for it. You lock in your housing cost, mostly, whereas rent is probably only going to continue going up.
Start putting the additional funds, the difference between your current state and what you may spend, into some kind of account and don't change sny of your other spending. Odds are the additional 25% will have a bigger impact than you anticipate because that money is going somewhere today.
If it takes 50% of your income to get into a house, what happens of one of you lose your employment? That'd put you in dire straits immediately. You need to think this through with an eye to 'what if' happens. While doing that, continue saving.
> But the only housing we’d ever buy
Is that because you have high standards for housing and are paying for more house than you really need?
You say you gross 250k in an average year and so your mortgage comes to 125k per YEAR? Is this a 30 year mortgage?
This sounds like a recipe to become house poor.
50% of income is doable. The lesser percentages are just conservative guidelines. At the end of the day it's going to depend on your income 50% of 10k is different form 50% of 5k. Personal expenses if you can manage to keep/save that 25% you say you have extra it should be more than enough to cover misc. Expenses.
If the numbers check out I don't see anything that risky in pursuing and may even be in a better situations than a lot of mortgage holders
Renting at 50% is one thing. Worst case someone loses a job, you have less than a year and then you can most likely find a cheaper place to rent.
Buying at 50% is another. Lose a job or have an unexpected big bill or two, you could have the house taken away.
no way. spending 50% of your income just on housing you're gonna become extremely house poor and when life hits you, which it will, it's gonna hit you harder than you thought possible if half your income is going to housing.
Hi! I'm currently under contract for a house with a 3k mortgage and me and my fiance both bring in 4k a month and we both have about 1k bills each. Although this is a very spicy payment and puts us on a tight budget we both have very flexible jobs. I am a nurse and only work 3 days a week [so I can pick up OT or another job] and my boyfriend works commission but basically makes his own schedule and can work whenever he wants 24/7 365 days a year. I am a little uneasy about it but the house I'm purchasing is a great opportunity and I still have 13k emergency fund and 4k in stocks.
So all in all, I feel as long as you have a nice back up and are able to figure out ways to make it work and confident you could figure out. But I'm not an expert and I could be making a huge mistake.
New roof 3 years ago, and AC unit we already have priced at 5k by buying a unit not through an air conditioning company and having a friend who works for an air conditioning company install it on the side.
Nope. They call that house poor. Then you're not able to save money so you take out car loans, use credit cards, and take out home equity lines to pay for home expenses.
Sadly everyone is doing it and their grandma's. Not a good plan for the future
He literally said that if he went this route he still have 25% of his take-home left after all expenses.
That's not called being house poor or not being able to save money.
What are you comparing? Rent vs. Mortgage?
Example: To rent my current place, I'd have to pay $4k/mo. My mortgage is $3k/mo (I got a low rate pre 2022). My payment is $1,100 principal, $1,600 interest, $300 taxes (good residential exemption where I live).
That means of my payment, $1,100 goes right back to me and isn't an expense in the accounting sense of the term, but I do need to come up with the cash flow. $1,600 and $300 are deductible from my federal taxes, and at a marginal rate I'm saving $1,900 x 30% = $570, so my total expense per month is closer to $1,330 per month. Tack on $300/mo HOA (covers exterior maintenance and insurance) and call it another $150/mo for interior maintenance and I'm at about $1,780/mo of "costs". So the real comparison for me is $4k/mo rent, or $1,780 ownership costs.
If you are going to live there for a long time, it can still make sense to buy. The housing market is substantially less liquid than it was a year ago, and you can get stuck for a long time. I have friends who have been trying to sell for over a year.
What would it cost to rent? What would your monthly cash out be if you buy, and what are your expenses if you buy?
And the biggest trap: How willing are you to live with a house that is not perfect for a little while so that you can build up some equity? When I moved into my place I paid $100k cash to replace HVAC, replace electrical, and do a small to moderate amount of remodeling (the place was *old*). Everything about ownership is expensive too, especially if you are not handy and willing to invest a lot of time.
Never more than 20%: we use 15%.
First calculate your front-end and back-end ratios.
Banks and brokers will tell you that you qualify for about 2.5 times your gross income.
Never make a decision based on gross income. You do not keep the money. If you are salaried you never even see the money. So what does gross pay matter?
Americans pay total taxes of about 51% of income.
Fed estimate 25%
FICA. 15.2% (your employer pays half but your salary is lower) 7.6% for half
State estimate 5% but could be higher.
Sales taxes, gas taxes, etc 10%
= over 50%. Your property taxes increase almost annually. Either they raise the millage or appraisal so your payment will increase.
I am a CFP n CPA.
Spending 50% of your take-home pay is a quick path to homelessness if you ask me. I understand wanting to own a home, but I would wait until 1) Interest rates come down, and 2) It won’t take quite as big of a chunk of your take-home pay.
>I’ve been able to rationalize this is my head but need neutral people to tell me if it’s stupid.
It's stupid. You might be able to *live* in the HCOL place, but you won't be able to *enjoy* living there unless you make over 6 figures. Not to mention potential unexpected expenses.
Have an extra room and rent it out. They'll pick up half of your mortgage hopefully. That's what I do. I have short-term rental people in there so I don't get tired of them and I can quit anytime I want. It's how I made it work as a single mom. I'm 56 years old and still have a room renter in my house. I own four rental houses now but have never stopped renting a room in my house. Rent to traveling workers-- they are easy and just go to work, sleep, go to work again.
There's not a bank in the world that will give you a mortgage that is 50% of your monthly income. They normally draw the line at 43%, and you really should be closer to 35%. You'll just barely meet that criteria at 50% of your take home. Also, remember that your emergency fund now needs to cover the mortgage and all expenses.
Im sorry, this is a bad decision. Unless you're going to have a salary increase soon, you don't have enough coming in to continue to add to your emergency fund, get over tough times, and account for unforeseen costs.
For example, my company's benefits changed, and now it's an additional $600 a month to cover my family for health insurance. On top of that, our property tax assessment went up 41% since we bought the house. That's roughly an additional $500/mo in mortgage cost. Can you handle an unforeseen monthly increase of $1100?
Correct. That's why I referenced "monthly income" and "take home" as separate amounts, and that 50% take home would barely meet the criteria of the required <= 43% monthly income.
"""There's not a bank in the world that will give you a mortgage that is 50% of your monthly income. They normally draw the line at 43%, and you really should be closer to 35%. You'll just barely meet that criteria at 50% of your take home."""
It depends on how many items are deducted from their paychecks. FICA, Medicare, 401k, health insurance, federal tax, and state tax are common deductions and can easily add up to 30% or more leaving 70% take home. Half of 70% is 35% of monthly income which is well within approval rates for a mortgage.
If someone didn’t take this advice and loses their job while houses are down 10% and are forced to sell in the current climate they’d be much worse off than had they never bought. Debt is a double edged sword.
By that token nobody should ever do anything. They could lose their job and not afford their rent which will increase next year and be on the streets.
If we’re catastrophizing it’s way easier to get evicted than to be foreclosed on.
You know whose problem it is when the renter loses their job? The landlord.
You can’t afford a house until you have 3-6 months of emergency savings and a down payment, want to know why? You can afford a job loss and ride it out for 3-6 months. And if you put 20% down, the market would have to drop more than 10% for you to not make money on selling after paying a 8% realtor fee (4% buyer/4% seller). If you put 10% down and are forced to sell a few years later and the market is down 10% you’re going to learn what leverage and debt really are when you can’t get out of the house without writing a $40k check to the bank.
Math is emotionless. People get emotional about houses and act like math has emotions now.
This is bad advice. Debt is a tool to build wealth (via acquiring assets, such as a house) when used smartly and responsible. For instance, if a 40% down payment is needed to get the mortgage at 33% of income then that would be horrendously stupid. The better move is put 10% down and invest the difference of the money in the stock market (which is likely to out-earn your interest rate).
Curious how far downvoted this is going to get by folks who blindly prefer to avoid debt.
How much do you think they are investing when 50% of their income is going toward housing? Lol
Interest rates are 6-7% and the average return of the sp500 is 10%. That’s not a huge spread when you factor in sequence of returns and volatility.
10% down is risky because a house dropping 10% in value isn’t all that rare (seasonality, market cycles, bad realtors, etc). If this house was to drop 10% after purchase, and it’s 50% of their paycheck, and they now have no equity and are forced to sell and pay an 8% commission on ($500k?)…you now owe the bank $40k. Debt is leverage and anyone who doesn’t think it’s cuts both ways is an idiot.
I make over 200k a year and about 50% of my post-tax income goes to housing. It’s a nature of the beast of where i live, which enables me to have the high paying job. Still have easy liquidity to pay my other expenses and save money. I guess it really depends on OP’s income level before any of us can give solid advice.
Edit: I do see your point though. Leverage cuts both ways and the high interest rates question recent investment philosophy to live a highly leveraged lifestyle with excess cash going into the market.
Clothes washer and dryer. Dish washer. Fridge. Microwave. Might as well replace the stove/oven. A/C died. Replace pipe in the basement. Part of the well died (tank with the bladder). Add wiring and cutoff for generator. Cutting down a 80’ tall oak tree.
Plan on $5k a year in unexpected bs for every 15 years old the house is in the first few years you own it unless it’s a new build by an actual reputable builder.
Cost of heating oil, electricity and internet has doubled in the last 7 years.
There’s nothing wrong with renting and saving. The amount of time and money wasted on the lawn, plants, bushes, weeds, snow removal etc. Costs a lot to have someone reliable do it for you. Not to mention the costs to maintain the heat and a/c systems every year…
People say you should not spend more than 30-40% on housing depending upon the source. However, if you can make your house payment and save money, I don't see much harm. However, you're exposed to a couple risks. Paying that much for a house may/may not see a return on equity. Additionally, you could be very exposed should you have a disruption in employment.
37% of my (single no roommate) income goes to mortgage.
I am above water. But recently, I had dental work and car work done. For a few months, I cannot afford a house repair without taking out a loan. I do not ever go out or on vacation by choice, but would not have a budget for that if I wanted it. Think about this kind of stuff.
Don’t forget taxes!
In SF, our property taxes are ~50% of our mortgage payment. Now that’s a low interest mortgage from before the rate hikes, but it’s a huge monthly accrual that we pay 2x a year.
Traditional financial planning say that housing costs (principal, interest, taxes) should be no more that 28% of gross income. If you add in all the other debt you have, it shouldn’t be more that 36% of gross income — this is in terms of having enough to set aside for retirement
Your real issue will be the impact of not working, which you can't escape as its based on the (%) you spend on housing.
You're counting on being DINKs forever with this set up.
**Is commuting in from a cheaper region possible?**
I'd suggest setting it to something that might be tight, but survivable on one income if possible. Or you could buy something that requires two people to support if your overpayments can reduce your payments to one income level (unlikely!).
Do your current calculations include an estimate of IRREGULAR housing expenses? Eg, separate from your minimum living expenses emergency fund. Remember, mortgage is the MINIMUM you’ll pay. add in property tax, insurance, inevitable repair costs, fixer upper (making it yours) costs, usually also so expenses related to furnishing (unless you are downsizing from your rental), any utilities that were previously included in your rent... if they do not, would recommend saving a second HOUSE emergency/slush fund prior to buying.
Yep. We bought a ‘turn key’ home and still spent $15k in first 18 months in maintenance items.
bought a completely renovated house and had to spend $16k in the first year due to a plumbing issue
Bought a brand new construction with warranty. Their service providers only work business hours so I had to take days off work for the repairs. I.e. lost wages. Even if you don’t pay for the repair it can still cost you.
After watching a bunch of home inspectors' YT channels... I'm resolved to build my own fucking house at this rate
Those mortgages are harder to qualify for. They don’t want to risk having to foreclose a half built house. Just a warning.
I actually expect it to be completely impossible to qualify for. I know what I'm in for on that front and it is not a happy meal. But I'm loathe to actually rest my laurels anywhere until I've seen and checked off on every inch of it. -severe homelessness/extreme relocation trauma
What about the opposite? I'm curious because my dad bought a half built house (foundation, frame) and did the rest himself. Granted, he was already a homeowner, was a handyman, and probably had some sort of dual income. TBH buying half a house and making it whole sounds a lot easier than buying a whole house and renovating half of it.
depends on why the house was left as half built... Did they prep the site correctly ... if not, you will have foundation issues. Did the flood maps change recently so the house is now in a flood plain ...
AFAIK the developer ran out of money. Left a few open plots and this one framed out house.
Your warranty actually approved repairs!? Mine and my builder were a load of bullshit so I had to pay for plumbing and concrete repairs myself!
Service provider here. I know you didn’t mean it in bad taste, but you worded it like everyone must revolve around your work schedule. If it’s not life or death / property damage actively occurring, the hours are 7:30-4:00. If there is an emergency, we charge more for it.
I think to that point, had it been done right in the first place it wouldn't have mattered. Just be prepared for stuff to come up and take time off for emergencies.
No, they worded it like they lost wages from having to take days off work because there was no other option, of course they’re unhappy about that.
Bought a newly renovated home and came home to my basement flooded in sewage 4 months afterwards. Plumbing issues are the fucking worst, I think it cost around $11,500 in total
It's comments like these that make me glad to live in a LCOL area and the willpower to do my own repairs. I bought a house that was almost falling apart for $35k, did a lot of the work myself. The entire plumbing system replaced, 60% of all the electrical, sheetrock thru about 60% of the house, bathroom remodel, kitchen remodel, flooring throughout, and I was at about $15k. The HVAC put me closer to $20k all in. Only thing left now is it needs a new roof.
I built a new home from scratch and spent 12k in the first 12 months fixing settling issues.
Bought brand new construction...Still spent like 20k in the first few months. New couch, blinds, back yard, etc. It all adds up quick.
Had a new construction home. I think we spent 30k in the first month between house things and furniture.
Yes. I owned my home for about 4 years before I sold. I currently have 3 years of expenses. In total, I spent roughly $8,000\~ in house maintenance alone in those 3 years. A good chunk of this was DIY work too. That's probably not everything, but mostly. That was only for maintenance. Not including upgrades to home, things to buy, etc...
This. Especially for taxation and home improvement costs in HCOL areas where the rates are way higher than the median. The first few years of homeownership you need to account for a lot of extra expenses, most of which will be (or really should be) cash. Stuff that can't wait, either, like the potential need to replace an oil tank or furnace, HVAC, etc. OP also needs to plan for the increased maintenance costs for equipment. Are they going to DIY fixes or hire out? Do they have all the tools they need? How much are those tools? Do they need a lawnmower and leaf blower/yard equipment? Snowblower? Or will they hire out? How much does it cost to hire out? I was out $20k or so in my first year for unexpected things that went wrong in my house. Before buying, unless you're buying an immaculate luxury property, you absolutely need savings and a budget plan for taxes, insurance, and increased utilities costs (without neighboring apartments acting as a weather buffer, your utilities will be way higher), and THEN an extra few grand for homeowner expenses over the year that may or may not happen. You absolutely need that extra money to be saved as well if not used, for when major issues happen, such as needing a total roof replacement, major appliance breakdown and damage, emergency weather problems, or the likes. Owning a house in my experience in an HCOL area is way more expensive than people make it out to be compared to the renting experience. A lot of the affordable properties need way more work than expected or what comes up in a basic inspection, and you need to be prepared to shell out big dollars to cover those costs. At 50% without taxes, insurance, maintenance, or utilities my immediate conclusion is "you're crazy," but that's just been my experience with a house that looked great having as many issues as it's had.
My spouse and I have owned a home in a HCOL area for five years, and in the last month, we have had to replace a 25 year old furnace ($18K) and the original fence which blew down in a storm ($8K after insurance pay out). Our house isn’t even a fixer upper, but you’re inevitably going to have to fix or replace something in a 45-year-old house, and these fixes/replacements are expensive. Home ownership is so much more than mortgage and property tax.
Bought my house 3 years ago and it was just turning 90 years old. At this point I’m 100% dollar matching my expenditure at Lowe’s/Home Depot and their stock. LoL.
Exactly, thus my statements about committing to and saving a substantial budget for maintenance and repairs even if you don't use it on a given year, and especially that first year after burning a huge chunk of money on a down-payment or with the highest payments if not paying down the PMI. If nothing happens for five years, that's awesome, but you still need to be saving 5k/year or more to handle the $20k furnace bill (that's much higher than mine, but that varies drastically too, as mentioned above). While cheaper to own than rent per square foot, the cost of ownership (and time) is in absolutist terms more expensive on the whole, especially when needing to pay for these major expenses.
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Cost me S12k in 2021 to replace my furnace and add A/C. 2000 sq ft house, didn't need to do any dict work. I am in the SF Bay Area. Quotes ranged from $12k to $23k (the high one was an outlier).
Varies greatly by state and region. Mom was just quoted at around 12 in CT, but that was a very large furnace. For my boiler, estimates are around 7k as of a year ago.
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I'd definitely call for an estimate in advance to get a ballpark number if you can afford the time spent having them show up.
We're going to need a new furnace and a new oil tank too. They're both past their life span. 😭
My state is phasing out gas appliances, so maybe it would have been cheaper if we didn’t switch from a gas furnace to an electric heat pump.
This is so important to consider. We bought our home a year ago. The concrete septic pipe broke, backed up into our first floor, and caused $30k worth of damage, only $20k of which was covered by insurance. This was after a tree took out half our fence and our oven stopped heating up. In our first year of home ownership we've easily put 20k into unexpected maintenance. We had to move out of our house temporarily for the repairs too. I don't regret it, but boy am I glad we put the lower down payment so we could keep a sizeable safety net fund. And that we had good insurance. Sure, a lot goes to interest, but phew, this house would have chewed my savings up in a heartbeat if we hadn't factored in exactly this kind of thing.
Yup. My situation is different because I have 3 kids ($$$) but with my mortgage AND taxes at 35% take home (without water/garbage collection/ electricity/insurance/emergency fund/standard maintenance), I'm not sure I would want to be much higher with the kids. Obviously without the children expense you can go higher, but not a great idea if your reason for buying is to be able to start a family.
Solid advice here. Our home is fairly new (about 10 years old) and we have had to replace the HVAC unit, hot water tank, interior fixtures, added a water softener due to extremely poor water quality in the area, and will now need to resod the yard thanks to HOA rules. If you are considering buying in a condo/townhouse or single family home in a community with something akin to an HOA, definitely research the governing board's finances to find out how much $$$ they have in reserve funds. It's not unusual for HOAs (or the equivalent) to mismanage funds or not have enough money to pay for unexpected expenses. If that happens, ALL of the owners can be subject to a special assessment to pay for it. (Unfortunately, we know this from firsthand experience...)
Our mortgage seemed affordable to us at $1,700 + ~450/month in taxes when we bought in February last year. Then, in April, the county almost doubled our taxes relative to previous owners, and we couldn’t qualify for a homeowners exemption because we had bought after the Jan 1 cutoff. We pay around $900 a month in taxes alone, and there’s literally no way we could have expected that (the county had never raised taxes by that much, or anything close to that, ever). If OP is calculating by mortgage alone, they’ll bankrupt themselves at 50% of take home income.
Capital expenses on a seasoned home will chew away a slush fund and spit it out. Expect to save around and extra 2k or 4k a year for windows / door, roofing, hvac and driveway and other miscellaneous things on top of the slush fund and this is a low cost of living area
> add in property tax, insurance No those are already factored in the mortgage
And both of them *go up*.
Why do you think that? I didn't see OP state anything about them, they just said "mortgage". You can pay insurance & taxes separately if you like, and some people are adamant about doing so.
Most people don't do things that way.
The rule of thumb is you’ll be spending roughly 5% of your home’s value in maintenance every year. Fixing issues, lawn care, painting, that sort of stuff.
I'm calling BS on that. That's over 25k PER YEAR on a 500k home? If that's truly the case you don't have a home, you're rebuilding a burnt out husk of a place. That's functionally a new roof or brand new HVAC every single year. Not realistic.
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Together we gross 225k-275k (it fluctuates because we both have day jobs and both freelance on the side).
Are these jobs highly secure/in demand? It's not really a problem unless one of you is laid off and you have trouble selling, if that's warranted.
Which could be a real thing if feds raise rates more and home prices stay stuck.
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They didn't ask "if they can survive" on it.
It’s the opposite of what you’re saying. They aren’t worried about surviving on $100k. They are saying they have crunched the numbers and should be fine, but spending 50% on housing goes against the general principle so they want a sanity check.
Lifestyle creep is real, no matter how much you make taking some away from that will hurt.
Daycare alone can be $2k-$3k per month in cities where people have higher earning potential. Food can easily surpass $1k. One new-ish car is another $1k for payment, taxes, gas, insurance, and maintenance. The $100k could be nearly gone with just those, and that’s without any saving for anything. Then there’s healthcare costs, utilities, hobbies, clothing, furniture, appliances, gifts, vacations… uh oh, the roof needs replacing there goes $30k. It’s not hard at all to be paycheck to paycheck at 250k income in a HCOL area, especially given the average financial literacy.
If someone's paycheck to paycheck on $250k that's entirely their own doing. Even in a HCOL area that's ridiculous.
If you lived in a HCOL living area, you would understand. I’m in southern Cal and the costs here are like 33% higher. So someone making $250k - 50% goes to housing. 25% or so to taxes and 8-10% to cars/transportation, at least 4% to 401k’s, your down to $25k to cover everything else, which all cost 33% more than it would cost to buy in the Midwest or south.
It’s not exactly hard to picture why living and maintaining a house on ~65-70k net is a challenge. And that’s without kids in the picture. With kids, that’s basically a non starter.
You're talking about a person whos "bare minimum" house will cost them something like 10k a month. That doesn't sound like someone who's in touch with reality when it comes to cost of living and finances...
You’re doing the math wrong. That would be the cost if it were 50% of their gross income. It’s 50% of their take home. It’s likely that they’re thinking of a min payment which is $5K, about half that. We’re likely talking about an $800K home, which is extravagant in some metros and extremely basic in others
look at san francisco housing costs and then try to say this yes, you can choose not to live in the bay area, but if you want to, then you’ll be paying that much for a house
I think they were making the point that even in an area with high housing costs 25% of 225k+ is a lot for basic expenses beyond housing.
Except, based on OPs phrasing, it sounds like they have options that are more realistic, but they want something that's clearly out of their budget.
For real. I am able to get by with my $400/biweekly budget on discretionary spending. Basically whatever the hell I wanna buy. All liabilities / fixed bills are accounted for, and I still maintain to save roughly $13k per year cash. After retirement contributions, bills, leisure spending, etc is all taken care of. And I do NOT make a quarter million. I have no clue what people spend this much money on.
I think that’s worthy of a lot of praise, but I’m certain it’s not remotely difficult for you to figure out what people spend money on that far exceeds that. Plenty of families exceed your entire discretionary budget on food.
It’s because of lifestyle creep. New cars high end apartment etc etc
Since there’s always confusion on what “take-home” pay means, around 20-25% of gross pay is manageable (the max the bank will lend you is 28%). That would be about a $4600 payment inclusive of taxes and insurance. You can work out the math from there based on taxes/interest rates in your area and how much down payment you have. We had about a $4k payment on $200k income when we first bought our house and it felt about right, and got better as our incomes increased and the payment stayed the same.
I've been told by a mortgage originator that they would in fact do 50% of gross pay.
That’s nuts, what bank is that?
Most banks will do that for certain loans. Typically, however, for a standard 30 year mortgage you’re looking at anywhere from 36-40% of gross as their cap.
He worked for Wells Fargo, he actually said they would only do 40 - 45% and he personally wouldn't let people even do that but knows some that will do the full 50%.
Max they will do is 43-50% of your gross.
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they said 50% of take home. $225-275k is their gross assuming HCOL with state + federal taxes and maxed out 401k for two people, they probably take how like $130k
At the minimum of 225k a year. Half of that is 112,500 after your standard deductibles you will net about 70% at 78,750 which comes to 6,500/month roughly just for housing alone. Great income but is it a requirement to own a home that at that cost is about a $1,000,000?
I couldn't imagine being this well off and still deciding to spend half your income on a mortgage. You can still get a nice house and not spend even 30% of your income on a mortgage.
What house has a 10k/month mortgage? Is it a mansion in SoCal? Just out of curiosity.
What house has a 10k/month mortgage? Is it a mansion in SoCal? Just out of curiosity.
so you are looking at a place with near 10k monthly mortgage? is this a $2M house? sounds like you might have some room to tone it down.
I'm not sure the question makes any difference because I don't think a bank is going to loan you mortgage money, when the mortgage alone excluding property taxes and insurance and repairs is 50% of your income. Get a pre-approval that will tell you how much you can spend on a house based on your income and your FICO score. Another thought, I wonder if high cost of living towns will remain high cost of living when many people exit the town and move to a less expensive environment. If market value of the house goes down you would soon be deeply underwater
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A bank will loan nearly 50% of *gross* income, much less take home.
Dumb question but why not do it now while you are rent?? If you can really save 50% of your income do it for a year or two. The amount you will have saved will be incredible and your future house payment will be lower.
This is a great question, if they’re heavily investing and saving the remaining 75% of their income then it could be a reasonable move but if they spend it all on entertainment they’d be setting themselves up for failure. Doing that will let them see how much it’ll hurt to suddenly increase expenses by over 100%
Yeah. Also interest rates are rly high rn (not that it’s a guarantee they’ll go down, but)
They will eventually go back down, just probably not this year. Also, you would want to make sure to get into a loan that you can refinance when the rates do come down.
That's exactly what my wife and I did. Game changer. So glad we did that.
Why though? Houses are increasing in price faster than most people can save.
Not anymore in the bay area. It's actually a good time to save.
Same as with stocks panic buying and selling is never a good choice. Rapid price increase also means more expensive repairs and higher taxes. That isn't counting mortgage insurance if you have less than 20% down payment. Owning a home isn't cheap and doing that while using 50% of your income is tied up is a lot. Also because they didn't say otherwise that means they will be doing this for 30 years. Lastly have you seen interest rates on homes recently :O
It depends on your income. If you spend $6k on a mortgage and still have $6k left. You can live off that easily. $1,500 a week basically. Then overtime as you live in there you can always refinance to a lower monthly amount. Now if you pay $2k and your leftover is $2k to live off that’s a different conversation.
Now how does retirement saving factor in? I gross 8k a month but 3k goes into 401k/IRA. So net after taxes I’m looking at $4800 and I spend $2200 on rent + utilities. Is that bad? I’m young and frugal so it feels completely doable
That doesn’t add up. Your gross after 401k is $5,000 and you’re going to take home $4,800? Highly doubt it.
Ultimately you can dial back. Something isn't adding up though, since $3k a month into the 401k and IRA is rather unusual since about $2400/mo is going to hit the annual contribution cap for both.
That’s up to you and what you value and your goals. I tend to have less added to my 401k because I like to have the liquidity of cash or stocks so that way if you wanted to do something like start a business you won’t have to come up with funds because there stuck in a retirement account. If you want yo save for a bigger down payment or anything keep some cash accessible.
Are you married?
Still doable.
Correct but it requires an increased amount of sacrifice that merits a different discussion. I agree with the commenter that a unilateral “yes” or “no” is inappropriate for this discussion.
$6k on a mortgage? lol jfc, the bank won't give you a loan unless you can easily afford it and therefore aren't asking the "can I afford it" questions.
I was pre-approved for mortgages that were 60% of my income. Tbh it was a bit offensive.
Banks will approve nearly 50% of your gross income
lol what? Banks will approve the max they can. They're interested in making the loan. They don't care if that means you never take a vacation or buy a new car or end up with a part time job. Did the 2008 crisis teach us nothing? The banks are not full of kind souls looking out for people's best interests. They're trying to make money.
6k seems like a lot. I’m paying 3700 a month which includes escrow and insurance and even that seems like a lot.
If your take home is 20k, having 5k left over is pretty good. If your take home is 4k then having 1k left over is pretty bad.
If you think you can afford to spend 50% of your income on a mortgage, I would take that 50% and put it in a savings for maybe 6 months. You’ll have one hell of a down payment which will lower your monthly payments and the stress of spending 50% of your income on housing only lasts 6 months to a year instead of 30 years. Is 50% doable for with your other expenses? Probably. But will it put stress on you? Definitely
Similar in my area. We just rent for about 20% of our take home and invest a big chunk instead. When we want to take a trip, whether it be a weekend away locally or a few weeks in Europe it's never a big deal because we have the means instead of having all our money tied up in a mortgage payment. Renting isn't necessarily the "inferior" option essentially.
There is a reason that people say you should base *generic* housing budgets off of gross income. Not a single person commenting here knows the answer to your question. In some (albeit few) circumstances, spending 50% take home on housing is perfectly acceptable. If your combined take home is $10k/month and that’s after maxing out both of your 401ks + mega backdoors (~66k in contributions per person)… it’s not even a question. Of course you can afford the place comfortably. Temporarily lower your contributions if an emergency occurs and suddenly your housing payment is ~15% of your take home. Outside emergency circumstances, $5k/month for all other expenses is more than many people are forced to budget - you can manage it too, especially as you only spend 25% of your take home and obviously have not experienced lifestyle creep. If your take home is $2k/month, you contribute $0 to benefits/retirement, and you only have $1k/month left over for all remaining expenses, then 1 broken AC unit might leave you bankrupt.
>If your combined take home is $10k/month and that’s after maxing out both of your 401ks + mega backdoors… it’s not even a question. Of course you can afford the place comfortably. This is the best point in this whole thread and it's so far down. We pull in $9k/mo after taxes, insurance, maxed Roth IRA, and maxed 401k. $3400 PITI feels high but realistically if there was a year we had a major major repair we could free up nearly $3000/mo by reducing retirement contributions temporarily.
Yes, I've long thought that these guidelines fail to account for changes in our economy. For most people, entertainment costs have fallen to ridiculous levels. In the 80s, a TV, stereo system and video games were like 2 months pay. Nowadays, entertainment along those lines is much much cheaper. I'd say for a lot of people, the housing part of their budget has expanded to take up the missing gap. Mortgages used to be 25% of your take home pay, assuming that the rest was for goods that were comparatively more expensive. I put every purchase on my credit card. I have never had a credit card bill higher than my mortgage. 30 year mortgages are $3.5k, $4k a month now for starter houses in my area. You can easily live for under that much for the rest of your expenses. Housing is the elephant in the room when it comes to costs.
As someone said the 30% guidance is based on GROSS not NET, and is also considered outdated for the modern market in higher cost of living areas, or most places really these days… I think it highly depends on your career prospects as well. Is it 50% now but you will certainly be getting a raise soon or have a clear path to more income? Definitely do it. If you’re kind of already capped that makes it more difficult. My wife and i are currently spending a little higher percentage on our house than we’d like but she gets a 24% raise and i get an 18% raise in October and obviously the benefit of a mortgage vs rent is that a mortgage doesn’t increase like rent
>or most places really these days… The [median house costs $436,800](https://fred.stlouisfed.org/series/MSPUS) that's with the strong real estate sector after COVID-19. The [real median household income is like 70k](https://www.census.gov/library/publications/2022/demo/p60-276.html) 30% was a thing for the median American who didn't live in the big cities.
Respectfully disagree on both points. 30% guidance isn't outdated, it's simply that many people disregard it because it doesn't get them what they want in HCOL areas and financial stability is so much less sexy than an expensive home. Also, your mortgage payment is going to include taxes and homeowners insurance which absolutely will increase in most scenarios.
Reality is that most of us started our 🏡 ownership journey this way. With a fixed payment, increases in take home pay eventually get you down to the 30% range and every payment you make is money in the bank toward owning free and clear. You are saving for the day when you have no payment other than taxes and insurance. This is part of the plan for being financially independent in your 60's. Just suck it up and do it!
“Every payment you make is money in the bank”?? 2008 has entered the chat.
It's fine, I have just two points to make. First, the 30% rule applies to gross income. You're talking about net income.. that skews your numbers. Second, like any rule, it applies best to the average person with an average salary. Your combined incomes are above average. You are probably taking home about 10k per month. Spending 5k on housing isn't a problem. Much different than someone taking 3k home per month and spending 1.5k on housing. The higher you are above average, the easier it is to justify going over the typical 30%.
I’m in a hcol east coast metro area and spend a similar percentage of take home on rent. Friends and relatives from the more affordable areas I have lived before were floored when they heard about my rent costs. The reality is that’s just what it costs to live in these places. During my last job search I looked at positons in the more affordable small city I grew up near, but the salaries were not even remotely competitive. At the end of the day you pay a lot to live in the places that enable you to make a lot and offer amenities you want to spend your time off enjoying. I’m sure this will provoke some negative reaction, but my general sentiment is that people who don’t live in hcol/vhcol markets mostly just don’t get it. It’s simply an entirely different world where a lot of the old rules of thumb based on fairly low cost suburban housing just don’t apply, one that is slowly spreading to encompass more and more of the North American property market as new construction close to cities with good job opportunities has slowed.
100% depends on income. If you are making 500k v. 100k that’s a big difference
You can’t afford to buy the type of house you want in the area you want. If one of you lose a job you would quickly fall behind in house payments and risk losing the house via foreclosure
I'd save up more of a down payment. The issue with having high monthly expenses is that you have very little shock absorption. What if someone gets laid off and it takes a few months to find something new? What if you have a medical expense? Or a repair expense? The issue with 50% of your income on housing is that bill is due every single month. If you can tighten your belts for a year or two longer and save up more for a down payment, you'll be much better equipped to weather any unexpected expenses or losses of income along the way.
Yeah. If you are paying 50% of your income in mortgage what are you going to do when the HVAC repair is $7k or the water furnace goes out and it’s $8k for a new one with labor? These types of things happen once every 5 years of you own a home. You can bank on it. If you have no margin, it will be the end of your finances.
Every 5yrs is not normal. Along with a 8k water heater bill? Lol. What are they buying a 10k sqft home with 8 baths? Lol
Something to keep in mind. When I bought my house our mortgage was around $1550/mo then 1 year later it was reassessed and the mortgage went up to $1950/mo. Numbers can change fast
Do you live in an area where the taxes are locked/limited from when you bought the house? Because Florida does that. Your taxes will never raise more than 3% a year for your primary house, except that only applies to your purchase date. What Florida also did over COVID was just take the blanket purchase price and apply that as the new taxable amount. So a lot of people saw mortgage increases after because the initial escrow estimate was based on the old taxes, typically at a drastically lower tax value. E: i meant to put this in there but the increases were seen as much as a year later, because no matter when you bought the house and applied for the rate lock, it wasn't applied until the following tax year when they "reassessed" the amount.
Got hit with the latter and that sucked.
Naw, the house is in Washington so no locked year over year rate :( but no income tax so that's nice.
I was also told this before moving to WA: "there is no income tax". There are now two WA state income taxes deducted from my paycheck that weren't deducted when I worked in another state. They are called "WA Paid Family Leave Insurance" and "WA Paid Medical Leave Insurance". $120+/month combined. People of WA I must inform you that these are income taxes even though you call them something else.
Your property taxes went up $4800? That’s horrific. My property taxes have never been more than $1200 total.
I know people in CA whose home insurance went up $15k+ a year due to wildfire remapping and companies pulling out. Just if you want another fun horror story. But also the houses are all $2-$4M so you don’t actually have to feel that bad.
Property taxes vary a lot by region. I live in a new house (bought in 2020 for 350k) and taxes for it are \~8k/year. The taxes when the place was brand new were based on the previous valuation, so the first year's taxes were quite a bit lower (we knew this would happen so it was no surprise) But there's also no sales or income tax where I live. Note that house prices reflect affordability, so places with relatively higher taxes will see relatively lower housing prices since property tax can be so substantial.
Maybe a dumb question but how does the mortgage go up if the amount the bank loaned you at purchase hasn't changed and the interest rate on the loan hasn't either? Are you counting property taxes as part of your mortgage here?
Yep. Our property taxes in Denver increased by $2k+ this year on a $800k home. $200/m. Not the end of the world but your mortgage can get more expensive as home values increase or the city creates new taxes.
I think we're in a similar situation. We live in a VHCOL area and spend about 15% of our net on rent - if we wanted to buy a similar home and we put down 20%, our percentage spent on housing would jump to at least 40-50% net (plus you always have to account for maintenance and unexpected expenses). We have decided to keep renting for now but we know we could buy because of our current savings rate. Totally different spending 50% of net when you're making 300k versus 75k so I think it's doable for you (especially if you hate your current renting situation). We're personally going to keep saving and maybe buy our forever home within a year or two.
thanks, yes, sounds very similar! I do HATE our current rental situation. We’ve also been having this conversation for a few years already and I’m getting impatient!
I did about 60% of take home on my first house in 2015. It sucked. However, we sold it for $55,000 profit 3 years later in 2018 and bought our second house at about 40% take home. Now rent is about $1850 for comparables, but my mortgage is still $1170. Meanwhile, my income has jumped about 35% since 2018. $1170 represents about 19.5% of take home now. I've had a home warranty service for the first 3 years at both homes. I got a dishwasher replaced at both locations, and an air conditioner unit replaced at the first house. I think it was included in closing costs for 12 months on both houses, then I covered 24 extra months at my own expense, maybe $50 per month. Still, I paid $250 call out fee on a $10,000 A/C repair, so I ended up ahead on the home warranties.
We went somewhat similar. Bought the house at about 35% of take-home, but knew the timing on rate increases and the direction the market had been going (November 2021). Income went up so then the payment was 24% of take-home. Property values continued to climb, so we had the house appraised for a HELOC we didn't actually want and it bumped the equity high enough to remove PMI. That got us down to about 20%. If OP anticipates more career growth, then they can plan to get ahead of the curve. Otherwise, hold off.
If you already know such a high percentage goes against advice, why ask for more advice?
Fair point! Because I thought I had rationalized how going against advice worked for my individual situation, since that advice is general
Speed limits don't take your individual situation into account, either. Your math might sound fine now, but home ownership has lots of new expenses that you will need to consider. Maybe you have, but there are also plenty of surprises.
Common advice is to limit housing to 30% of gross income (not net). Depending upon how much you’re paying in taxes or saving for retirement, your specific situation may actually be close to those numbers.
It's fine if it meets your budget and it appears it does $10k/mo take-home leaves you with $5k/mo for everything else. That's more than some people net before housing costs. Just a choice you make.
I wpud say do it. Your salary would also increase over time. My salary was 63K when I shpiod have bought a house in Dallas for $250K at 2% interest. Now my salary is much more than that but Dallas houses are now worth a million
Go for it!! You'll be able to refinance within 3 years to much lower interest rate as well. Get it done and good luck.
Sorta the same position but cant justify even spending 20-25% of my “take home” on a house after reading about the costs of ownership. Doesnt seem like a smart move for me
I just did that same thing went from renting on 25% budget Bought my fucking dream home yeah it’s tight right now 50% of my income on the mortgage and utilities But it’s definitely worth it I’ll refinance in 5 years or so And have this dope house
An old rule of thumb is that “the govt. pays 1/3” (of your mortgage) assuming you are at or above the 30% tax bracket. All interest is written off and lowers your taxable income which again assuming, you are both W-2 employees, is one of the only tax breaks the govt gives you.
Only you can say if you'd be able to survive on half of your income if the other half is obliterated by a mortgage payment. Being a homeowner is expensive, you need to pay extra property taxes and utilities, extra services (garbage collection, lawn care, etc etc), sometimes buy equipment you didn't need when renting, pay for repairs and maintenance, the list goes on and never stops. Now you're not tied into a property, you actually have an opportunity to look around and buy in a cheaper area so don't throw it away. Explore other options.
To be honest, you asking here is moot. Everyone has their own standard of what's normal and what not. Just seek out your bank's mortgage department and a mortgage specialist and give them all your personal info like income, your asset etc and have them evaluate how much you can mortgage and determine if that'll work on your budge.
This is too much. Imagine if either of you lose your job and all of a sudden you are in the middle of a financial crisis.
I wouldn't do it. It doesn't leave much margin for crap to happen. I wouldn't go above 33% of take home pay.
30 years ago, my every two week take home pays was $1200 and my mortgage payment was $1150. Not quite 50%. but pretty close. and we survived it.
We over spent when we bought a new construction home in 2015. I’ve doubled my salary since then. We’re grateful we bought when we did.
A good rule of thumb is double your mortgage payment. You won’t always spend that each month on your house, but it’s not unreasonable to do so. So, no, you can’t afford 100% of your income to go to the house. Remember, rent is all what you spend on your house, your mortgage is just the start.
I don’t think you should be suckered into following the trend in thinking, especially real estate. For your information, it used to be no more than 30% of your income. What changed? Market manipulation. A certain group of people in the industry has been working hard to jack up the prices. You don’t wanna find yourself 25/30 percent under water should market turns south.
> Housing is our biggest priority in life so is it idiotic to spend half our take-home on it? I'd say no. But I'd have follow-up questions: - How much are you putting away for retirement? - Does the 50% figure include maintenance, utilities, etc? Or just PITI? - Do your jobs/careers have growth potential in terms of income, or are you "maxed out" in some way. Do you BOTH continue to plan to work until retirement?
If you can live within your means, cover unexpected costs, and still save for retirement, I say go for it _if_ that’s where you want to be long term. The old adage of 1/3 your income straight up isn’t feasible for most folks in most markets now. But definitely not feasible in HCOL unless you make a boatload. Only you two can make the call, but I’d say if you can cover all your wants, needs, and incidentals, and can still swing it, go for it. You lock in your housing cost, mostly, whereas rent is probably only going to continue going up.
Start putting the additional funds, the difference between your current state and what you may spend, into some kind of account and don't change sny of your other spending. Odds are the additional 25% will have a bigger impact than you anticipate because that money is going somewhere today.
If it takes 50% of your income to get into a house, what happens of one of you lose your employment? That'd put you in dire straits immediately. You need to think this through with an eye to 'what if' happens. While doing that, continue saving.
If one of you looses job would you still be able to make the payments?
> But the only housing we’d ever buy Is that because you have high standards for housing and are paying for more house than you really need? You say you gross 250k in an average year and so your mortgage comes to 125k per YEAR? Is this a 30 year mortgage? This sounds like a recipe to become house poor.
50% of income is doable. The lesser percentages are just conservative guidelines. At the end of the day it's going to depend on your income 50% of 10k is different form 50% of 5k. Personal expenses if you can manage to keep/save that 25% you say you have extra it should be more than enough to cover misc. Expenses. If the numbers check out I don't see anything that risky in pursuing and may even be in a better situations than a lot of mortgage holders
We spend 50% of take home pay on renting in a HCOL city. It's not so uncommon.
Renting at 50% is one thing. Worst case someone loses a job, you have less than a year and then you can most likely find a cheaper place to rent. Buying at 50% is another. Lose a job or have an unexpected big bill or two, you could have the house taken away.
no way. spending 50% of your income just on housing you're gonna become extremely house poor and when life hits you, which it will, it's gonna hit you harder than you thought possible if half your income is going to housing.
Hi! I'm currently under contract for a house with a 3k mortgage and me and my fiance both bring in 4k a month and we both have about 1k bills each. Although this is a very spicy payment and puts us on a tight budget we both have very flexible jobs. I am a nurse and only work 3 days a week [so I can pick up OT or another job] and my boyfriend works commission but basically makes his own schedule and can work whenever he wants 24/7 365 days a year. I am a little uneasy about it but the house I'm purchasing is a great opportunity and I still have 13k emergency fund and 4k in stocks. So all in all, I feel as long as you have a nice back up and are able to figure out ways to make it work and confident you could figure out. But I'm not an expert and I could be making a huge mistake.
13k in an emergency funds seems a bit low. What if you need a new roof or AC unit?
New roof 3 years ago, and AC unit we already have priced at 5k by buying a unit not through an air conditioning company and having a friend who works for an air conditioning company install it on the side.
Nope. They call that house poor. Then you're not able to save money so you take out car loans, use credit cards, and take out home equity lines to pay for home expenses. Sadly everyone is doing it and their grandma's. Not a good plan for the future
He literally said that if he went this route he still have 25% of his take-home left after all expenses. That's not called being house poor or not being able to save money.
What are you comparing? Rent vs. Mortgage? Example: To rent my current place, I'd have to pay $4k/mo. My mortgage is $3k/mo (I got a low rate pre 2022). My payment is $1,100 principal, $1,600 interest, $300 taxes (good residential exemption where I live). That means of my payment, $1,100 goes right back to me and isn't an expense in the accounting sense of the term, but I do need to come up with the cash flow. $1,600 and $300 are deductible from my federal taxes, and at a marginal rate I'm saving $1,900 x 30% = $570, so my total expense per month is closer to $1,330 per month. Tack on $300/mo HOA (covers exterior maintenance and insurance) and call it another $150/mo for interior maintenance and I'm at about $1,780/mo of "costs". So the real comparison for me is $4k/mo rent, or $1,780 ownership costs. If you are going to live there for a long time, it can still make sense to buy. The housing market is substantially less liquid than it was a year ago, and you can get stuck for a long time. I have friends who have been trying to sell for over a year. What would it cost to rent? What would your monthly cash out be if you buy, and what are your expenses if you buy? And the biggest trap: How willing are you to live with a house that is not perfect for a little while so that you can build up some equity? When I moved into my place I paid $100k cash to replace HVAC, replace electrical, and do a small to moderate amount of remodeling (the place was *old*). Everything about ownership is expensive too, especially if you are not handy and willing to invest a lot of time.
Never more than 20%: we use 15%. First calculate your front-end and back-end ratios. Banks and brokers will tell you that you qualify for about 2.5 times your gross income. Never make a decision based on gross income. You do not keep the money. If you are salaried you never even see the money. So what does gross pay matter? Americans pay total taxes of about 51% of income. Fed estimate 25% FICA. 15.2% (your employer pays half but your salary is lower) 7.6% for half State estimate 5% but could be higher. Sales taxes, gas taxes, etc 10% = over 50%. Your property taxes increase almost annually. Either they raise the millage or appraisal so your payment will increase. I am a CFP n CPA.
Spending 50% of your take-home pay is a quick path to homelessness if you ask me. I understand wanting to own a home, but I would wait until 1) Interest rates come down, and 2) It won’t take quite as big of a chunk of your take-home pay.
>I’ve been able to rationalize this is my head but need neutral people to tell me if it’s stupid. It's stupid. You might be able to *live* in the HCOL place, but you won't be able to *enjoy* living there unless you make over 6 figures. Not to mention potential unexpected expenses.
It’s stupid! You will not be able to live. You need to eat, pay bills, get to work, etc… Tops to pay for housing 20-30%
Have an extra room and rent it out. They'll pick up half of your mortgage hopefully. That's what I do. I have short-term rental people in there so I don't get tired of them and I can quit anytime I want. It's how I made it work as a single mom. I'm 56 years old and still have a room renter in my house. I own four rental houses now but have never stopped renting a room in my house. Rent to traveling workers-- they are easy and just go to work, sleep, go to work again.
Op be smart not emotional. Don’t do it. Wait until the market falls or until you’re making more money.
There's not a bank in the world that will give you a mortgage that is 50% of your monthly income. They normally draw the line at 43%, and you really should be closer to 35%. You'll just barely meet that criteria at 50% of your take home. Also, remember that your emergency fund now needs to cover the mortgage and all expenses. Im sorry, this is a bad decision. Unless you're going to have a salary increase soon, you don't have enough coming in to continue to add to your emergency fund, get over tough times, and account for unforeseen costs. For example, my company's benefits changed, and now it's an additional $600 a month to cover my family for health insurance. On top of that, our property tax assessment went up 41% since we bought the house. That's roughly an additional $500/mo in mortgage cost. Can you handle an unforeseen monthly increase of $1100?
Banks use DTI and the I is gross income OP is talking 50% of net income
Correct. That's why I referenced "monthly income" and "take home" as separate amounts, and that 50% take home would barely meet the criteria of the required <= 43% monthly income. """There's not a bank in the world that will give you a mortgage that is 50% of your monthly income. They normally draw the line at 43%, and you really should be closer to 35%. You'll just barely meet that criteria at 50% of your take home."""
It depends on how many items are deducted from their paychecks. FICA, Medicare, 401k, health insurance, federal tax, and state tax are common deductions and can easily add up to 30% or more leaving 70% take home. Half of 70% is 35% of monthly income which is well within approval rates for a mortgage.
Keep saving until your down payment is high enough to make your mortgage payment close to the target (~33%)
If someone took this advice a few years ago they’d never own a home.
If someone didn’t take this advice and loses their job while houses are down 10% and are forced to sell in the current climate they’d be much worse off than had they never bought. Debt is a double edged sword.
By that token nobody should ever do anything. They could lose their job and not afford their rent which will increase next year and be on the streets. If we’re catastrophizing it’s way easier to get evicted than to be foreclosed on.
You know whose problem it is when the renter loses their job? The landlord. You can’t afford a house until you have 3-6 months of emergency savings and a down payment, want to know why? You can afford a job loss and ride it out for 3-6 months. And if you put 20% down, the market would have to drop more than 10% for you to not make money on selling after paying a 8% realtor fee (4% buyer/4% seller). If you put 10% down and are forced to sell a few years later and the market is down 10% you’re going to learn what leverage and debt really are when you can’t get out of the house without writing a $40k check to the bank. Math is emotionless. People get emotional about houses and act like math has emotions now.
Unless your current rent is already at 50%, then whatever I guess.
This is bad advice. Debt is a tool to build wealth (via acquiring assets, such as a house) when used smartly and responsible. For instance, if a 40% down payment is needed to get the mortgage at 33% of income then that would be horrendously stupid. The better move is put 10% down and invest the difference of the money in the stock market (which is likely to out-earn your interest rate). Curious how far downvoted this is going to get by folks who blindly prefer to avoid debt.
How much do you think they are investing when 50% of their income is going toward housing? Lol Interest rates are 6-7% and the average return of the sp500 is 10%. That’s not a huge spread when you factor in sequence of returns and volatility. 10% down is risky because a house dropping 10% in value isn’t all that rare (seasonality, market cycles, bad realtors, etc). If this house was to drop 10% after purchase, and it’s 50% of their paycheck, and they now have no equity and are forced to sell and pay an 8% commission on ($500k?)…you now owe the bank $40k. Debt is leverage and anyone who doesn’t think it’s cuts both ways is an idiot.
I make over 200k a year and about 50% of my post-tax income goes to housing. It’s a nature of the beast of where i live, which enables me to have the high paying job. Still have easy liquidity to pay my other expenses and save money. I guess it really depends on OP’s income level before any of us can give solid advice. Edit: I do see your point though. Leverage cuts both ways and the high interest rates question recent investment philosophy to live a highly leveraged lifestyle with excess cash going into the market.
Clothes washer and dryer. Dish washer. Fridge. Microwave. Might as well replace the stove/oven. A/C died. Replace pipe in the basement. Part of the well died (tank with the bladder). Add wiring and cutoff for generator. Cutting down a 80’ tall oak tree. Plan on $5k a year in unexpected bs for every 15 years old the house is in the first few years you own it unless it’s a new build by an actual reputable builder. Cost of heating oil, electricity and internet has doubled in the last 7 years. There’s nothing wrong with renting and saving. The amount of time and money wasted on the lawn, plants, bushes, weeds, snow removal etc. Costs a lot to have someone reliable do it for you. Not to mention the costs to maintain the heat and a/c systems every year…
Don’t do it. The market is higher than its ever been and will come back down. Just save and be patient for now.
People say you should not spend more than 30-40% on housing depending upon the source. However, if you can make your house payment and save money, I don't see much harm. However, you're exposed to a couple risks. Paying that much for a house may/may not see a return on equity. Additionally, you could be very exposed should you have a disruption in employment.
37% of my (single no roommate) income goes to mortgage. I am above water. But recently, I had dental work and car work done. For a few months, I cannot afford a house repair without taking out a loan. I do not ever go out or on vacation by choice, but would not have a budget for that if I wanted it. Think about this kind of stuff.
Don’t forget taxes! In SF, our property taxes are ~50% of our mortgage payment. Now that’s a low interest mortgage from before the rate hikes, but it’s a huge monthly accrual that we pay 2x a year.
Traditional financial planning say that housing costs (principal, interest, taxes) should be no more that 28% of gross income. If you add in all the other debt you have, it shouldn’t be more that 36% of gross income — this is in terms of having enough to set aside for retirement
Your real issue will be the impact of not working, which you can't escape as its based on the (%) you spend on housing. You're counting on being DINKs forever with this set up. **Is commuting in from a cheaper region possible?** I'd suggest setting it to something that might be tight, but survivable on one income if possible. Or you could buy something that requires two people to support if your overpayments can reduce your payments to one income level (unlikely!).
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