When can you "afford" a house?

[Tweak155]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

 

[PricklyPete]

Ok Dave Ramsey.

I think in most markets, a 20% down with a healthy emergency fund where the payment will cost you no more than 25-30% of your take home seems reasonable.

 

[Rakehellion]

I have a pretty black and white opinion about the topic.

I don't listen to people who have black and white opinions. I've very set in this belief.

 

[Scarpozzi]

Your post is flawed. Pete is right....take your base income and keep the percentage you pay on a mortgage low enough and you can afford that mortgage. It doesn't hurt to be SMART and analyze rent vs own....decide how long you'll be in that area.....try to judge whether or not the real estate market will be good in your area, or not...

It's pretty easy to see when some areas are undervalued because houses around them are blatantly overvalued. You can buy one of those houses, sit on it for 5 years and walk out with some decent earnings....I did on my first house.

 

[SlitheryDee]

If you can pay the note and all associated taxes, utilities, etc. while simultaneously covering the expenses for a wide range of repairs and maintenance without seriously impacting your finances for the foreseeable future then you can afford a house.

 

[Scarpozzi]

I don't listen to people who have black and white opinions. I've very set in this belief.

Exactly. Look to the cookie!

 

[Sho'Nuff]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

The appropriate question for most people is "when can I afford a house payment?"

The answer to that question (IMO) is when the monthly payment is 23% or less of net monthly income.

Turning more generally to your definition of "afford" you are ignoring the fact that in some instances it is in one's interest to borrow rather than to buy outright. Particularly when loan interest rates are low.

A "real life" example - I have a 20 year fixed loan at 3.5% interest on my home. The loan interest is tax deductible, which means that in actuality the effective interest rate on the home is ~2.6%. I could buy my home outright by liquidating assets in the market, but my projected earnings on those assets is greater than 2.6% per year. Rather, the projected earnings is ~6-8%. This means that by leaving money in the market, I can expect a ROI of ~3.4-5.4% on those assets yearly over the period of the loan. At that rate my money will double in roughly 12.5 years, and the assets will be worth ~180% of what they were when I took out the loan. Subtract the value of 2.6% interest amortized over the life of the loan, and my ROI on those assets decreases somewhat, but the end result is a still positive rate of return.

TLDR - In the proper circumstances, debt can be a good tool.

 

[rudder]

Ok Dave Ramsey.

I think in most markets, a 20% down with a healthy emergency fund where the payment will cost you no more than 25-30% of your take home seems reasonable.

And be able to do this on a 15 year mortgage. Which is some areas will get you a 352 sq ft closet. But sound advice though.

 

[manimal]

with loans so low why not use it? If your responsible make it work for you. OP needs to rethink this.

 

[Rakehellion]

with loans so low why not use it? If your responsible make it work for you. OP needs to rethink this.

I keep my money in a mattress.

 

[jlee]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

My house (with mortgage) is making me $300/mo. Alternatively, I could rent a house for $400/mo more than I am paying to buy my house.

Explain that, Mr. Cash Only.

 

[JulesMaximus]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

Well, that's a completely retarded point of view.

 

[gorcorps]

Look, we built a society and economy that revolves around financing and payment plans. If you don't want to take part in that that's fine, but telling people you can't truly "afford" something until you can drop the cash is just ignorant.

The formula is quite simple: income > bills+expenses

If your income is more than everything you pay for, you can afford it. The problem is that a lot of people really don't KNOW their total expenses, so their math is wrong and they fuck that equation up.

 

[Brovane]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

 

[JulesMaximus]

We've been in our house for almost 15 years now. Never had a problem making the payments and we have a ton of equity in the house. Buying it was a great financial move. Our mortgage payment is less than we could rent a small 2 bedroom apartment for.

I would have to be a complete idiot to listen to the OP's advice on home buying.

 

[Capt Caveman]

I have a pretty black and white opinion about the topic. In my opinion, you truly can't "afford" anything if you don't have the cash on hand to buy it straight out. If you take a loan because you lack the cash on hand, the bank "afforded" the house for you. Even if you can easily "afford" the payments each month, I don't think you can truly afford the house.

Now, if you took a loan due to the great rates and have the cash on hand that could buy out the rest of the loan, I'd still say you could afford it.

Might sound backwards as it is possible to easily afford the payments whether or not you have the cash on hand, but I just don't think you've met the criteria for truly being able to afford it.

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

Time value of money is something you obviously know nothing about. Not even sure why you would even create such an ignorant thread.

 

[DrPizza]

Assume the OP is correct. And, let's say you can afford the rent on an apartment, which seems a reasonable assumption. By the OP's logic, if a monthly mortgage payment, plus maintenance and utilities was less than the rent on an apartment, you could afford the more expensive apartment payment, but couldn't afford the cheaper house. This conclusion is illogical, therefore the assumption that the OP is correct is invalid.

OP's financial advice is wrong.
QED

 

[Hacp]

You can afford a home when your monthly payments are equal or less than your rent costs.

 

[BurnItDwn]

You can afford a home when you have enough income to support the payments and still allow a budget to live, also, you have enough savings to weather 6 months of instabillity.


If you make 30k, you cant afford a 300K house.

If you make 100K, you can afford that 300K house.

Saving money for a down payment is just a way to prove to ones self that you have the discipline to not spend every penny you can get your hands on .. but I dont see a need for putting 20% down. It is less risky for lenders, but I think putting 10% down or even 5% down is probably just fine.

 

[nageov3t]

OP's advice makes perfect sense in a housing market where 3-4 bedroom homes sell for <100k.

not so much in an area where even starter homes are +$300k.

 

[biostud]

For me there are two things it's ok to loan money for: Buying a house or buying a car.

I'm actually very close on becoming a home owner. A 700 sq ft two room flat for the tiny sum of $250K. Yeah, housing is expensive where I live...

I would never be able to save that kind of money if I wanted a place to live while doing so.

I had 10% for down payment and the rest:

10% percent bank loan @ 5.77% interest
8% percent loan @ 2%
72% loan with 3-year locked interest @ 0.7%

 

[Belegost]

OP's advice makes perfect sense in a housing market where 3-4 bedroom homes sell for <100k.

not so much in an area where even starter homes are +$300k.

More to the point it only makes sense when either: you have significantly more income/capital than most other buyers in the home market, or the majority of buyers in the market are also buying with that strategy.

When the majority of buyers are leveraging 30 year low interest loans, then the prices go up to match that availability of funds.

I would say the bar for affordability is to be currently renting at or above the mortgage(+ tax and insurance) payment, and be able to save a 5-10% down payment in 1-2 years. I put a time limit on the savings because I figure that a house will need maintenance that averages out to say 1-3% of the home value every year.

 

[Atomic Playboy]

What say you? Is it % down, is it % of monthly income the payment is, even though it will take you 15-30 years to actually not have a payment?

Let's say there's a house you like, but you can't afford it outright yet. So you start saving. You still have to pay rent somewhere else, of course, but you live frugally. You only need to set aside $120,000 to buy this house, so you dutifully set aside $500 a month knowing that in 20 years you'll have enough cash to afford that home. 20 years later, you show up to inquire about the availability of that house... and it's now $400,000. Well, shit, that was a pretty bad strategy.

Sho'Nuff did a good job sketching out exactly why waiting until you can afford a house outright is a losing strategy; home loans have extremely low interest rates and are tax-deductible, so your money can be tied up in other investments that make significantly more money for you. But the other thing to consider is that housing values aren't static. My parents bought a home in the 1970s and over the course of 30 years, the "value" of the home increased 20-fold. If they had saved until they were able to buy outright, they never would have caught up to a housing market that grew exponentially faster than wages.

 

[mizzou]

I wonder how you feel then paying rent to someone and never getting a return on that, period.

In my opinion, affording a house is BEST if you can lay down 20% on loan initially. Then, make sure you can comfortably afford each monthly payment along with a hefty emergency fund that can pay for catastrophic repairs that involve roofing, electric, HVAC, plumbing.

I would much rather live in a house and pay off a mortgage vs. live in a shitty apartment and pay someone's salary. HOWEVER.....living in a house should not be seen as a financial investment. Maybe at one time people said it was, but if you look at it as an investment you will be surprised how much shit you have to pay for.

 

[mizzou]

Let's say there's a house you like, but you can't afford it outright yet. So you start saving. You still have to pay rent somewhere else, of course, but you live frugally. You only need to set aside $120,000 to buy this house, so you dutifully set aside $500 a month knowing that in 20 years you'll have enough cash to afford that home. 20 years later, you show up to inquire about the availability of that house... and it's now $400,000. Well, shit, that was a pretty bad strategy.

Sho'Nuff did a good job sketching out exactly why waiting until you can afford a house outright is a losing strategy; home loans have extremely low interest rates and are tax-deductible, so your money can be tied up in other investments that make significantly more money for you. But the other thing to consider is that housing values aren't static. My parents bought a home in the 1970s and over the course of 30 years, the "value" of the home increased 20-fold. If they had saved until they were able to buy outright, they never would have caught up to a housing market that grew exponentially faster than wages.

On the flip side of that, I bought a house in 2006 and lost 15-20% of it's value when I sold it in 2014

I do think though that overall....housing is a LUXORY and if you can afford it (which let's not get too phliosphic here, afford just means can you spend money on it comfortably), then do it!! Don't push off something nice you can do to yourself just for a few coins.