How does income level translate to home value?

[Polish3d]

What does the standard ratio tend to be of income level to home value?


For instance, is it practical or even typical for someone who makes 250,000 dollars a year to buy a home in the one million dollar range?

 

[RKS]

As a wild guess I would say 2x to 3x of gross. So for $250K/year I would say between $500K to $750K.

 

[spidey07]

If you're smart 25% of your net goes to your house.

Making 250K gross a year means you should buy a 500K house, MAX.

 

[Safeway]

I've heard that 3x annual income is absolute maximum. 2x is more reasonable.

 

[ponyo]

I don't know too many people who live in a million dollar home. I do know many people who make more than $250k a year though. $250-500k home seems to be about average.

I wouldn't feel comfortable living in a million dollar home if I only made $250k a year.

 

[spidey07]

Originally posted by: Safeway
I've heard that 3x annual income is absolute maximum. 2x is more reasonable.

Have friends that live beyond their means? Walk into their house. No furniture, no nothing. But "hey! They've got a nice house!".

Then the entire dinner conversation revolves around "how rough it is". Sorry to sidetrack, but I grow weary of stupid people.

 

[Polish3d]

Hey Naustica, those who make more than 250k, what do they do career-wise?

 

[RKS]

Originally posted by: Frackal
Hey Naustica, those who make more than 250k, what do they do career-wise?

My brother and his wife clear $250K. He builds custom homes, she is a PharmD and brings home the money for their toys. Even their home is less than $1M but he builds a house, stays in for the required 2 years, sells, and repeats.

 

[ponyo]

Originally posted by: Frackal
Hey Naustica, those who make more than 250k, what do they do career-wise?

Varies. Some are doctors. Dentists. Construction. Contracting. Consulting. Dry cleaning. Restaurant. Technology company. Retail clothing. One thing is common though. Every single one owns their own business. Every single one. I don't know a single person who works for corporate america who makes more than low $100k.

 

[Polish3d]

That's really interesting Naustica.

I'm curious, my parents make (they are divorced but between the two households (3 total income earners) about 375k (or about 250-300k in one and about 125-150k in the other)


Not counting money they have in stocks, property or inheritances, but just purely based upon income, does that make them fall in the category of upper middle class, upper class, etc?

 

[WingZero94]

Most who have a million dollar home probably owe little or nothing on it. Just a thought.

 

[WingZero94]

Also, i've known plenty who make more than 200k in corporate america. They were VP's, etc.

As far as home value goes, look at Warren Buffet. Currently richest man in the world and his home in Omaha is like 400k.

 

[Dirigible]

Originally posted by: Frackal


What does the standard ratio tend to be of income level to home value?


For instance, is it practical or even typical for someone who makes 250,000 dollars a year to buy a home in the one million dollar range?

I've had a few drinks, so the below may not make sense. I'd like to hear if I missed something.

Assume 20% down, so they must've saved up $200k. Assume a 30-year fixed mortgage at 7%. Their mortgage payment is $5322 a month. Assume insurance + taxes = $1652/mo (used my own numbers as basis for this calculation). Total nut: = $6974/month. Or $83688/year. Leaving them with $166312 left. After maxing their 401k, that's $150k.

Income taxes will take a big bite out of that. Fed: Roughly $35k, CA state: Roughly $11k, SS+Medicare: roughly $9k. (All very rough guesses with taxable income reduced by mortgage interest, property tax.) Total: $55k. Leaving them with ~$95k.

I could easily live on $95k for food, utilities, car, etc., with saving lots of money for a rainy day. I bet most people would take that. Doesn't seem too difficult to have a $1M house on $250k salary, but I could be missing something.

And of course the above has nothing to do with what a "standard" is. Around here, lots of people have million dollar houses, complete with hefty mortgages.

 

[tfinch2]

Originally posted by: Dirigible

Originally posted by: Frackal


What does the standard ratio tend to be of income level to home value?


For instance, is it practical or even typical for someone who makes 250,000 dollars a year to buy a home in the one million dollar range?

I've had a few drinks, so the below may not make sense. I'd like to hear if I missed something.

Assume 20% down, so they must've saved up $200k. Assume a 30-year fixed mortgage at 7%. Their mortgage payment is $5322 a month. Assume insurance + taxes = $1652/mo (used my own numbers as basis for this calculation). Total nut: = $6974/month. Or $83688/year. Leaving them with $166312 left. After maxing their 401k, that's $150k.

Income taxes will take a big bite out of that. Fed: Roughly $35k, CA state: Roughly $11k, SS+Medicare: roughly $9k. (All very rough guesses with taxable income reduced by mortgage interest, property tax.) Total: $55k. Leaving them with ~$95k.

I could easily live on $95k for food, utilities, car, etc., with saving lots of money for a rainy day. I bet most people would take that. Doesn't seem too difficult to have a $1M house on $250k salary, but I could be missing something.

And of course the above has nothing to do with what a "standard" is. Around here, lots of people have million dollar houses, complete with hefty mortgages.

I know for a fact I wouldn't want to carry around a 7k mortgage payment for 30 years. I'm not saying there is anything wrong with buying a nice house, but that's a bit steep.

 

[Dirigible]

Originally posted by: tfinch2


I know for a fact I wouldn't want to carry around a 7k mortgage payment for 30 years. I'm not saying there is anything wrong with buying a nice house, but that's a bit steep.

I wouldn't want to pay $7k a month either. It just looks to me that it wouldn't be that hard if you were making $250k.

And the sad thing is that a million won't buy you anything special around here.

 

[Jumpem]

The rule of thumb is not to buy a house more than three times your gross income.

We spent one times our income. I couldn't imagine having a mortgage for a house three times it.

 

[BrownTown]

Might also note where home value and the value of your mortgage arent always the same, my parents house was bought for ~200,000$ and when it was last appraised during the idiot housing buble they put it at 475,000$. Of course now that the bubble has burst thats likely not the case, just pointing out that alot of people probably live in houses worth more than 3X their income because the house could have doubled in value since they bought it and their income might have gone up much less.

 

[Descartes]

I agree with spidey about the 2x. I know people that go well beyond that, but that's to their own peril. Right now, our home is significantly less than 2x our income.

 

[BarneyFife]

Originally posted by: WingZero94
Most who have a million dollar home probably owe little or nothing on it. Just a thought.

Not according to all the foreclosure listings I've been seeing LOL

 

[BarneyFife]

Originally posted by: Descartes
I agree with spidey about the 2x. I know people that go well beyond that, but that's to their own peril. Right now, our home is significantly less than 2x our income.

It depends on how big of a downpayment you have too.

 

[Descartes]

Originally posted by: WingZero94
Most who have a million dollar home probably owe little or nothing on it. Just a thought.

Where did you get that metric? The number of million dollar+ homes alone should be sufficient to prove that argument impossible.

 

[waggy]

depends on who and where i would guess.

my grandmother (well step-mothers mom). baught a house in the 60's for like 80k (in california). when she died a few years ago the estate sold the house for 1.5 million.

my grandmother never made very much money. weird part is her tax's were extremly low.

 

[skyking]

I'm looking at spending about 4x on a new custom home, I'll be the general contractor on it. We'll be going into it with no debt and about 2x in equity on our current home. The mortgage won't be the ugly thing, it is the tax hike. We are building with active solar systems for extreme efficiency, so that will help.

 

[Jadow]

Originally posted by: skyking
I'm looking at spending about 4x on a new custom home, I'll be the general contractor on it. We'll be going into it with no debt and about 2x in equity on our current home. The mortgage won't be the ugly thing, it is the tax hike. We are building with active solar systems for extreme efficiency, so that will help.

Who cares?

 

[skyking]

Possibly some of the other posters in the thread. I would not go 4x without a significant down like that, so I agree with spidey's basic assessment.