When can you "afford" a house?

[AznAnarchy99]

I have enough to buy a condo in So Cal right now but the marking is rising like crazy. 2 bedroom condos in decent neighborhoods going for 350k+ D:

 

[Atomic Playboy]

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.

It's an investment in the sense that you own something valuable to use as collateral to secure a low-interest loan in the future, should you need it. But it's not an easily-liquidated asset, since liquidating it means losing the place you live. If the total cost of a mortgage and all ownership costs are comparable to rent, it's obviously superior to go with the one that ends in ownership of property.

 

[Tweak155]

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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.

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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.

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No I didn't, see above.

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.

Also see above.

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

That's a completely useless post

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.

I didn't tell anyone anything. I provided an opinion.

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.

You'd be a complete idiot to take anything I said as advice. Nowhere did I indicate I was giving advice, just asking opinion about when you can truly afford something.



I could keep quoting posts similar to this but what is the point? You guys are misconstruing the question into advice. If it isn't clear, I'm not advising anyone to absolutely wait until you have the full amount for a house. My first house I took a loan for, I'm not against it at all. I at the same time just had the opinion I couldn't truly afford it because I NEEDED someone else's money to be able to buy at the time.

 

[Atomic Playboy]

I could keep quoting posts similar to this but what is the point? You guys are misconstruing the question into advice. If it isn't clear, I'm not advising anyone to absolutely wait until you have the full amount for a house. My first house I took a loan for, I'm not against it at all. I at the same time just had the opinion I couldn't truly afford it because I NEEDED someone else's money to be able to buy at the time.

If one person misunderstands what you wrote, that's on them. If EVERYONE misunderstands what you wrote, that's on you.

 

[Tweak155]

So if I take a different example - say you needed your credit card to buy a computer ($500 let's say) because you didn't have the cash available. As long as you make the credit card payments, you'd still have the same opinion you can afford it? I find more people will say they can't afford the PC than the ones here that would agree you can't afford the house. I just hold the same view in both situations.

 

[nageov3t]

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.

it's sadly some people's only retirement fund, although it worked out well for some family friends.

when they both retired, they sold their paid-off house for about $400k, bought a $100k condo down south, and put the extra money towards their savings.

 

[Tweak155]

If one person misunderstands what you wrote, that's on them. If EVERYONE misunderstands what you wrote, that's on you.

Fair enough, which is why I clarified in that post I wasn't trying to give advice. But at the same time, I'd like to see clearly where it was showing I was giving advice? This way I could avoid that problem in the future.

EDIT:

I re-read the post. I pretty clearly write "I think", "my opinion" etc. I don't word things as "You should or shouldn't", "do or do not do this".

 

[DrPizza]

...

 

[DrPizza]

No I didn't, see above.



Also see above.



That's a completely useless post



I didn't tell anyone anything. I provided an opinion.



You'd be a complete idiot to take anything I said as advice. Nowhere did I indicate I was giving advice, just asking opinion about when you can truly afford something.



I could keep quoting posts similar to this but what is the point? You guys are misconstruing the question into advice. If it isn't clear, I'm not advising anyone to absolutely wait until you have the full amount for a house. My first house I took a loan for, I'm not against it at all. I at the same time just had the opinion I couldn't truly afford it because I NEEDED someone else's money to be able to buy at the time.

You quoted plenty of posts, but omitted the proof of why you are wrong.

 

[Tweak155]

You quoted plenty of posts, but omitted the proof of why you are wrong.

When did I say there was only a right and wrong? Do you know what an opinion is?

 

[gorcorps]

So if I take a different example - say you needed your credit card to buy a computer ($500 let's say) because you didn't have the cash available. As long as you make the credit card payments, you'd still have the same opinion you can afford it? I find more people will say they can't afford the PC than the ones here that would agree you can't afford the house. I just hold the same view in both situations.

I understand your point, but the question has to be worded properly. If you're asking if I can afford to own my house outright today, then no I can't. Your OP was generic... "when can you afford a house". Well, I'm affording a house right now because somebody agreed to take monthly installments.

 

[Leyawiin]

Put 20% down on a modest home and my fixed rate 30 year mortgage was slightly less than the rent on the apartment I'd been in for four years (which was due to go up when the lease came around again). That's when I knew I could afford a house. My somewhat well off auntie passing away a year later allowing me to pay off the mortgage 28 1/2 years early was helpful too.

 

[waffleironhead]

So if I take a different example - say you needed your credit card to buy a computer ($500 let's say) because you didn't have the cash available. As long as you make the credit card payments, you'd still have the same opinion you can afford it? I find more people will say they can't afford the PC than the ones here that would agree you can't afford the house. I just hold the same view in both situations.

The only way that would be the same is if you were required to have a pc. Forced to rent one and pay on it every month, or buy one and own it outright after x amount of payments.

 

[Tweak155]

I understand your point, but the question has to be worded properly. If you're asking if I can afford to own my house outright today, then no I can't. Your OP was generic... "when can you afford a house". Well, I'm affording a house right now because somebody agreed to take monthly installments.

But the credit card company agreed to take your payments for the pc too!

The only way that would be the same is if you were required to have a pc. Forced to rent one and pay on it every month, or buy one and own it outright after x amount of payments.

Very interesting point. I hadn't considered that difference.

 

[DrPizza]

Very interesting point. I hadn't considered that difference.

And, that distinction is what I used to demonstrate your OP was incorrect.

 

[NikolaeVarius]

But the credit card company agreed to take your payments for the pc too!



Very interesting point. I hadn't considered that difference.

Doesn't even include the fact that the PC is guaranteed to depreciate. There is 0 chance that the computer will be worth even half of what you bought it for within a year. Homes tend to not fall in value like that.

 

[monkeydelmagico]

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.

Welome to Jerzy. For some a house is a dumb fiscal move. Just servicing the mortgage and paying property taxes is higher than rent.

Somebody else mowing the lawn and shoveling the snow is just a bonus.

 

[juiio]

So if I take a different example - say you needed your credit card to buy a computer ($500 let's say) because you didn't have the cash available. As long as you make the credit card payments, you'd still have the same opinion you can afford it? I find more people will say they can't afford the PC than the ones here that would agree you can't afford the house. I just hold the same view in both situations.

A computer is a depreciating asset, while a house isn't. Also, the alternative for not buying a computer is not renting one. Also, credit card rates are nowhere near mortgage rates. They're completely different situations.

 

[gururu2]

home purchases demanding loans has nothing to do with the true price of property and everything to do with the banks making enough to drive the economy. no reason for the consumer to suffer by never being able to afford one.

 

[AdamK47]

One thing that helps is future take home pay. I'm not saying this is something that you should factor into the decision outright. The take home pay my wife and I have now compared to when we bought our house 8 years ago is 65% higher.

 

[Tweak155]

And, that distinction is what I used to demonstrate your OP was incorrect.

So I'll take that as a no on my previous question?

Doesn't even include the fact that the PC is guaranteed to depreciate. There is 0 chance that the computer will be worth even half of what you bought it for within a year. Homes tend to not fall in value like that.

Yes but a home dropping in value will likely net you a much larger loss than $500. Does that mean you can't afford it?

I think you guys are looking way too far into it. I'm not questioning whether it is financially beneficial or trying to decipher it is a smart decision whether or not you have the full amount on hand. That will always vary by situation and a number of factors.

It sounds like most posters are tending to side that knowing when you can afford it also depends on these same factors, which is fine.

At the end of the day, I don't believe there is any one exact formula everyone will agree on to know when you should buy a house. This isn't really what I was after anyway. I separate in my mind the points in which it is financially a good decision to buy a house vs truly being able to afford a house. I don't expect anyone to agree with me in that separation, thus I asked.

 

[Tweak155]

One thing that helps is future take home pay. I'm not saying this is something that you should factor into the decision outright. The take home pay my wife and I have now compared to when we bought our house 8 years ago is 65% higher.

My dad mentioned this to me a long time ago. He took the approach to buy the most house you can within your current income with the expectation your income will only increase down the road.

It sounded risky to me at the time, but it worked well for him.

 

[yuchai]

OP - I think what you're ultimately trying to say is that there is some inherent risk in buying a home. Even if you can "afford" buying a house in terms of looking at monthly income versus expenses, you still bear the risk of a bad situation occurring in the future that affects income and the ability to repay the mortgage. You could also potentially be forced to sell at a bad time due to unforeseeable circumstances.

I'm quite financially conservative and actually understanding that kind of thinking to an extent. And in fact if it's even something like a car I would agree. But, you have to draw the line somewhere, and for something like a home, it's worth taking the small risk because there are many more positives that outweigh the risk.

 

[NikolaeVarius]

Yes but a home dropping in value will likely net you a much larger loss than $500. Does that mean you can't afford it?

I think you guys are looking way too far into it. I'm not questioning whether it is financially beneficial or trying to decipher it is a smart decision whether or not you have the full amount on hand. That will always vary by situation and a number of factors.

In that case, if the difference in cost is a reason why you can't compare the two scenarios, WHY DID YOU MAKE THE COMPARISON IN THE FIRST PLACE?

 

[Tweak155]

OP - I think what you're ultimately trying to say is that there is some inherent risk in buying a home. Even if you can "afford" buying a house in terms of looking at monthly income versus expenses, you still bear the risk of a bad situation occurring in the future that affects income and the ability to repay the mortgage. You could also potentially be forced to sell at a bad time due to unforeseeable circumstances.

I'm quite financially conservative and actually understanding that kind of thinking to an extent. And in fact if it's even something like a car I would agree. But, you have to draw the line somewhere, and for something like a home, it's worth taking the small risk because there are many more positives that outweigh the risk.

I honestly don't even know if I'm trying to make any point. I really just like to hear people's opinions and use them to progress my own. If you ask 1000 people about one situation, you could get 1000 different opinions or it is possible all 1000 will agree and you will hear one opinion. Everyone has their own view on things.

I only expressed my personal opinion because I find it unfair to ask a question without stating your view on it. Now I pay the penalty

Also, I know I'm very financially conservative, it is something I try to break free from.