Determining how much house you can afford

[BarneyFife]

Is their a general formula for how much of a mortgage you can get or does it vary with each individual case?

My situation

70k income
60k downpayment
No car/school loans
First home purchase

 

[JS80]

no more than 40% of gross should go to mortgage. this is assuming you have a secure job.

 

[SuperNaruto]

There are a lot of calculators on that..

try basic one

http://www.ginniemae.gov/2_prequal/intro_questions.asp?Section=YPTH

 

[tfinch2]

I would like to know this also. I graduate in Spring 08, but I am thinking about taking the plunge now.

 

[Semidevil]

for a comfy life, I say no more then 35% of your montly gross income should go to your montly house payment.

I pay around 50% and there is absolutly no room for careless spending once in a while.

 

[torpid]

Originally posted by: JS80
no more than 40% of gross should go to mortgage. this is assuming you have a secure job.

Even 40% is really pushing it for most people. For me that would be over $2700 and I sure as heck would not be able to afford that comfortably just for the mortgage. All the other costs associated with a house would overwhelm me at that point.

 

[iamwiz82]

Where in Metro Detroit are you looking? Home prices are dismal right now, and i don't see it getting much better. You may want to hold off to see what the market does.

 

[Heisenberg]

33% was what I was always told to allow for housing.

 

[QED]

Conservatively speaking, your house payments (including taxes, insurance, etc) should be no more than 30% of your gross income.

Your total debt expenses (credit cards, car payments, student loans, and mortgage) should be no more than 40% of your gross income.

Find out which situation above is the limiting factor, and use that as a basis for what you can afford.

 

[Dr. Detroit]

These rules are out of touch:

Normal living expenses cost the same whether you make $250K or $50K. You use the same amount of food, buy the same amount of clothing no matter your income. Car insurance costs no more, haircuts cost the same. Overall living expenses are just about the same.

Also, in my case if I owned a home 25% of the house payment/property tax bill would be covered by what I pay in taxes. So if I had a $4,000 house payment, $1,000 of that would not affect my take home pay as It would lower my tax burden.

Are you planning on a 15yr, 20yr, 30yr mortgage? When do you plan to sell your home? Are you a good candidate for an interest only loan? Do you plan on getting married soon, what is your combined income? Will you rent a room?

You need to talk with a professional before you decide what home you want to buy or you will end up in a nicer/crappier home because you chose your house/neighborhood/location prior to understanding what you can afford.

 

[torpid]

Originally posted by: Fmr12B
These rules are out of touch:

Normal living expenses cost the same whether you make $250K or $50K. You use the same amount of food, buy the same amount of clothing no matter your income. Car insurance costs no more, haircuts cost the same. Overall living expenses are just about the same.

Even if we assume that people don't spend more when they make more, the rule has more to do with whether you could survive if your income ended unexpectedly or was greatly reduced unexpectedly (long term disability, etc.). Disability rarely pays 100% of income.

 

[Stunt]

Housing payments shouldn't represent over 33% of total income.

You are better living in the cheapest house you can bear living in to minimize compounding interest costs. Once the house is paid off, use the balance or even home equity to invest in a balanced portfolio. This will allow you to retire or buy that cottage sooner.

 

[akubi]

300k

 

[Stunt]

Over the period of 25 years, and a rate of 6 or 7%...you will spend more on interest than the value of the house.
ie. borrow $300k -> pay $600k+.

Take on as little debt as you can.

 

[spidey07]

Originally posted by: Stunt
Over the period of 25 years, and a rate of 6 or 7%...you will spend more on interest than the value of the house.
ie. borrow $300k -> pay $600k+.

Take on as little debt as you can.

Take on as much debt as you can and beat your interest rate. Make money.

But I'd say if your mortgage isn't more than 25% of take home your good. Another decent one is no more house than 2x gross.

 

[BarneyFife]

Originally posted by: iamwiz82
Where in Metro Detroit are you looking? Home prices are dismal right now, and i don't see it getting much better. You may want to hold off to see what the market does.

I am not buying anything at this moment but will begin looking by Fall specifically Oakland county. It looks like the area around here is getting worse and worse so I'm holding off to see how far prices drop. Luckily I have a government job and I'm as secure as you can get.

 

[Dr. Detroit]

Originally posted by: torpid

Originally posted by: Fmr12B
These rules are out of touch:

Normal living expenses cost the same whether you make $250K or $50K. You use the same amount of food, buy the same amount of clothing no matter your income. Car insurance costs no more, haircuts cost the same. Overall living expenses are just about the same.

Even if we assume that people don't spend more when they make more, the rule has more to do with whether you could survive if your income ended unexpectedly or was greatly reduced unexpectedly (long term disability, etc.). Disability rarely pays 100% of income.

If you can no longer afford your home due to changing circumstances then sell it? Why live in a cottage when you can afford a McManison?

 

[Dr. Detroit]

Originally posted by: spidey07

Originally posted by: Stunt
Over the period of 25 years, and a rate of 6 or 7%...you will spend more on interest than the value of the house.
ie. borrow $300k -> pay $600k+.

Take on as little debt as you can.

Take on as much debt as you can and beat your interest rate. Make money.

But I'd say if your mortgage isn't more than 25% of take home your good. Another decent one is no more house than 2x gross.

So under your logic a $100K earner can only afford a $200K house?

 

[kranky]

When we bought our house, the realtor kept pushing us to buy "what we can afford" which was a lot more than what I wanted to spend.

Now that our remodeled house will be paid off this year, all my friends are moaning about still making mortgage payments into their 60's since they kept "trading up" with new 30 year mortgages each time (so they could afford it). We stayed where we were so we could have money in the bank, six months living expenses in case of job loss or disability, and the ability to take nice vacations. A less-expensive house also meant less property taxes, less stuff needed to furnish it, etc.

My point is - only you can decide what you are comfortable with and what your priorities are. There was no way in the world I was going to pay what my realtor said we could afford - which in their terms meant "the largest mortgage you could possibly qualify for."

 

[spidey07]

Originally posted by: Fmr12B
So under your logic a $100K earner can only afford a $200K house?

yep. Or a bigger downpayment. Many say 2.5 times gross however if you want to stretch it.

 

[Dr. Detroit]

Originally posted by: spidey07

Originally posted by: Fmr12B
So under your logic a $100K earner can only afford a $200K house?

yep. Or a bigger downpayment. Many say 2.5 times gross however if you want to stretch it.

Wait, a $200K mortgage is only $1,300/month. $100K salary is $5,833/month after a 30% take for taxes. That would leave a person with $4,500 a month to pay for other crap.

I think your logic is completely wrong. :disgust:

 

[Stunt]

Originally posted by: Fmr12B

Originally posted by: spidey07

Originally posted by: Stunt
Over the period of 25 years, and a rate of 6 or 7%...you will spend more on interest than the value of the house.
ie. borrow $300k -> pay $600k+.

Take on as little debt as you can.

Take on as much debt as you can and beat your interest rate. Make money.

But I'd say if your mortgage isn't more than 25% of take home your good. Another decent one is no more house than 2x gross.

So under your logic a $100K earner can only afford a $200K house?

Yup.
Makes sense.
$100k isn't that much for a family and single income earner.

2 times gross income represents all income in the household.

 

[Dr. Detroit]

Originally posted by: Stunt

Originally posted by: Fmr12B

Originally posted by: spidey07

Originally posted by: Stunt
Over the period of 25 years, and a rate of 6 or 7%...you will spend more on interest than the value of the house.
ie. borrow $300k -> pay $600k+.

Take on as little debt as you can.

Take on as much debt as you can and beat your interest rate. Make money.

But I'd say if your mortgage isn't more than 25% of take home your good. Another decent one is no more house than 2x gross.

So under your logic a $100K earner can only afford a $200K house?

Yup.
Makes sense.
$100k isn't that much for a family and single income earner.

2 times gross income represents all income in the household.

If they have a family, assume non-working wife + 2 kids, they will pay damn little in taxes if you include the mortage interest & property taxes associated with their home purchase.

 

[lupi]

Yup.
Makes sense.
$100k isn't that much for a family and single income earner.

2 times gross income represents all income in the household.

lol

 

[spidey07]

Originally posted by: Fmr12B
If they have a family, assume non-working wife + 2 kids, they will pay damn little in taxes if you include the mortage interest & property taxes associated with their home purchase.

Doubtful they could reduce their adjusted that low. Still pay plenty in taxes. Interest is probably only 12-13K.