BurnItDwn
Lifer
- Oct 10, 1999
- 26,074
- 1,554
- 126
IMO it's not a good idea to have a mortgage that is > 3 times your annual income.
If you make 40K, then you'll probably be pretty comfortable paying for a 120K loan.
As others have said, you most also consider Property Tax, PMI, and possible Association Dues, etceee
Assuming you don't plan on staying there for a long time, or think your income will go up in the near future, then you could go with an ARM and have an initially lowwer interest rate, and then perhaps a 150K loan wouldn't be too out of reach, however, the interest on the loan would likely go up, and payments would likely increase significantly after the initial stable rate term is up.
If you make 40K, then you'll probably be pretty comfortable paying for a 120K loan.
As others have said, you most also consider Property Tax, PMI, and possible Association Dues, etceee
Assuming you don't plan on staying there for a long time, or think your income will go up in the near future, then you could go with an ARM and have an initially lowwer interest rate, and then perhaps a 150K loan wouldn't be too out of reach, however, the interest on the loan would likely go up, and payments would likely increase significantly after the initial stable rate term is up.
Mermaidman
Diamond Member
- Sep 4, 2003
- 7,987
- 93
- 91
Just wait for the real estate bubble to burst. Seriously though, the housing situation is ridiculous for many people. The good thing is you're young and single--you don't need a house urgently.
and the other option is to continue shelling out ~$600-$700 a month down a hole for my apartment.
Having looked into this recently, and stating that I make 40K a year, with a $400 car payment, I only qualified for a max of $120K.
It's not a matter of you can eat cheap. It's a matter of, can you afford all the other bills associated with owning a home. Insurance, taxes unexpected payouts(Mostly for used homes, not new).
It's not a matter of you can eat cheap. It's a matter of, can you afford all the other bills associated with owning a home. Insurance, taxes unexpected payouts(Mostly for used homes, not new).
cKGunslinger
Lifer
- Nov 29, 1999
- 16,408
- 57
- 91
Agreed. You are talking about a house that is 5-6x your annual salary. That is *way* over-extended, even if you don't have much or any debt. Add in property taxes, insurances, PMI, utilities, maintenence, etc and you are looking at spending a large portion (> 60%) of you income just for living expenses.
~$120K should be your cap for now, unless you are planning on doubling your salary in the next 2-3 years.
cKGunslinger
Lifer
- Nov 29, 1999
- 16,408
- 57
- 91
You know, it's always tempting to look at your rent payment and think that you are throwing money away, but when you talk about getting a house payment of $1800+ a month, with only $100-200 of that going towards principle, you realize that you may very well be throwing a lot *more* money away by buyng a house before you are ready.
HeroOfPellinor
Lifer
- Dec 27, 2001
- 11,272
- 1
- 0
If you can find the right piece of property....a cosmetic fixer upper in a good neighborhood...then it's probably doable if you ditch the bike.
The thing nobody has mentioned is that you'll be paying basically no Federal or state income tax because of the amount of deductions from your mortgage interest, so you can change your withholdings at work to 9 and still possibly get money back from your return. Run the numbers by an acountant or do them yourself and see.
When you factor in that you can always pick up a roommate and that, if you buy wisely, there's a good chance of solid appreciation in your house, it's probably the better idea not to wait and to buy something as soon as you can. If you realize it's not going to work, then you just need to stay there for two full years to exempt yourself from capital gains tax so you can sell and walk away, hopefully, with a nice little chunk of money from the equity it built. Though, with the apparent slowing of the housing market, you may be buying as prices are plateauing.
The thing nobody has mentioned is that you'll be paying basically no Federal or state income tax because of the amount of deductions from your mortgage interest, so you can change your withholdings at work to 9 and still possibly get money back from your return. Run the numbers by an acountant or do them yourself and see.
When you factor in that you can always pick up a roommate and that, if you buy wisely, there's a good chance of solid appreciation in your house, it's probably the better idea not to wait and to buy something as soon as you can. If you realize it's not going to work, then you just need to stay there for two full years to exempt yourself from capital gains tax so you can sell and walk away, hopefully, with a nice little chunk of money from the equity it built. Though, with the apparent slowing of the housing market, you may be buying as prices are plateauing.
dullard
Elite Member
- May 21, 2001
- 25,069
- 3,419
- 126
That has some truth to it, but you also hide a lot of facts with that post.
1) He won't be paying anywhere near $1800/mo. More like $1200/mo.
2) Yes, at first $100-$200 will go towards principal. But towards the end, it'll be $100-$200/mo on interest and the rest will be all principal. Focussing on only the few worst years and ignoring the rest of your life isn't very good logic.
3) You do have tax incentives to think of.
4) Rent will keep going up. In 5-10 years, rent will be $1200+/mo. While the mortgage will stay the same low price. By the end of the mortgage, the mortgage will be a LOT less expensive than rent at the time.
If you have a good steady job and if the house you are looking at is in a good area with a stable economy it is wise to determine the max you can afford and buy it. A house is a good investment. You may strugle the first few years but in the end you'll make out. I would try and save as close to %20 for a downpayment as possible to reduce the PMI(Mortgage Insurance). A 220,000 home after a %20 downpayment will cost you about 1,100 a month depending on the rate.
cKGunslinger
Lifer
- Nov 29, 1999
- 16,408
- 57
- 91
$210k @ 6% = ~$1300. Add PMI, insurance, taxes and you can bank on about another $400/month, depending on location. Now add in things that are included with his rent, maybe some utilities, trash, sewer, etc. Buying a house involves a *lot* more money that just that associated with mortgage payments.
No, but expecting a young, single guy making $40K a year to live in the same house for 30 years is just as illogical. He may be in good shape if he sells in 10 years and the market has gone up, but that's a huge risk.
Tax incentives are something to consider, true. But they are never going to be enough to justify buying a house that is 5x your income and severely overextending yourself.
It all depends on the situation and person involved, obviously. I'm just playing the part of the pessimist here, as I wish someone would have done for me when I bought my first place.
Two things:
1) The mortgage place will approve you for more than what you can actually afford.
2) You cannot afford that home.
1) The mortgage place will approve you for more than what you can actually afford.
2) You cannot afford that home.
dullard
Elite Member
- May 21, 2001
- 25,069
- 3,419
- 126
1) He said $210k max - $10k down = $200k mortgage, $1000/mo for interest. You are correct that extras would add to that, so lets say $1600+/mo (still less than your $1800+). However he would never be approved for that number, so why use it in your post? You took the max number and ignored the minimum or our recommendations or what he will actually be approved for. A more realistic $130k house -$10k down = $700/mo interest. Add in $500/mo for the extras and we are at ~$1200/mo.
The math doesn't care how long he stays or how many houses he switches too. The principal still adds, and he can move that built up principal into the downpayment of the next house/houses. If he keeps buying houses for the same price that he sells his current house, then he'll have it paid off in ~30 years no matter how many houses he buys.
Yes, we all agree not to overextend yourself.
HomeBrewerDude
Lifer
- Jan 18, 2001
- 14,465
- 1
- 0
I would recommend that the OP attend a first-time home buyer seminar... your back will know about when and where these are given. Also look into what programs exist to help buyers with their first home purchase...
I don't think he is in a good position to buy now, but is in a good position to start planning on buying a couple years from now.
I don't think he is in a good position to buy now, but is in a good position to start planning on buying a couple years from now.
Can you consolidate your bike's debt into the mortgage and thus also have cheaper or no insurance with it?
LOL - I have friends that have been saying that for 5 years, and they're kicking themselves in the butts for not buying 5 years, or even 2 years ago.
In general, I feel prices will level off or maybe drop slightly from their highs, but I feel there is no 'bubble' to burst, certainly not in that area of GA. Excluding some areas of the country obviously.
DrPizza
Administrator Elite Member Goat Whisperer
Is your salary going to go up as much per month within 5 years as the car you replace the current car with 5 years from now is going to cost?
Even if you can afford it now, you have to consider expenses down the road.
Maintenance on the house - new roof eventually... how long until then?
Even if you can afford it now, you have to consider expenses down the road.
Maintenance on the house - new roof eventually... how long until then?
Metron
Golden Member
- Oct 16, 2003
- 1,163
- 0
- 0
Where do you live though? Housing prices in many markets on "on the bubble"... meaning the bubble will burst and prices will fall precipitously in the next year or two.
You'd be locking yourself into a mortgage for 30 years on a house that may not be worth that much in a few years....
Mermaidman
Diamond Member
- Sep 4, 2003
- 7,987
- 93
- 91
I wasn't being serious
But your point is especially true for GA. Here in Carolina, housing prices have only risen a little the past two years.
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