When can you "afford" a house?

[Vdubchaos]

So what's your solution, exactly, if owning is such a colossal waste of money.

Solution?

I'm not saying owning is worse than rent. Everyone's situation is different.

Mine is bad, but it wouldn't apply to MOST people.

Just trying to show you that owning CAN be a waste/money down the toilet. In my case, 17k+ a year.

 

[Vdubchaos]

Also, how the heck can $12k in interest, and $6k in taxes not exceed your standard deduction, allowing you to itemize on your tax return?

I can itemize it and do, but when you don't pay any taxes....there is nothing to deduct from.

 

[Vdubchaos]

Sure it is. When your AC unit, furnace, water heater, etc. dies, someone else doesn't pay for it. 😛

When you rent, that's not the case.



Pros and Cons to WHATEVER you do. Owning a house is NOT a perfect solution but in general, yes it is better than renting.

Is it a MUST or a DREAM to own a house? Not sure about that.

 

[jlee]

When you rent, that's not the case.

..obviously?

 

[JM Aggie08]

In my near 9 years on this board, I should know to just stay from these types of threads. The Dave Ramsey is strong.

 

[rh71]

People stretch all the time. For example one can afford a $500k house but buy a $300k house (paying mortgage) and live VERY comfortably because they have a lot of disposable income left. Another family may buy that $500k house because they wanted a better school district but still have $2k left over every month after mortgage/expenses (which blooms into decent savings over a year). Then you have people who buy a $600k house with the best schools and live paycheck to paycheck. Wide range, but it all can be done.

 

[zCypher]

28% is a typical/historic loan amount (of Gross income), 36% sometimes pushing a little higher is fine if that is the only planned debt one will have.

These ratios have worked for a long time to keep homeowners out of the red.

Yep. Even then, 28 - 36% is a lot, even though it sounds like a small number compared to the situation some people put themselves in. Take $100k for a nice easy number, take out $36k for your mortgage expenses alone. Add all the other home ownership expenses on top of that. Add all other living expenses (needs and wants), and whatever little you can afford to save after that. Doesn't leave much left. Now imagine if you loaded yourself up with a mortgage that ate up 50% of your net pay? Personally, the numbers just don't make sense for me. Others have different opinions about it though and find ways to justify spending most of their income on their rent or mortgage.

and people wonder why they end up shit broke. living within your means might seem like a really boring idea, but it sure beats being broke forever. So at what point can you afford it? Depends when you are prepared to commit. It's a huge financial commitment for almost anyone. Technically, if you can afford to make the payments, you can afford it. That doesn't mean it would necessarily be a smart decision though.

For me, I am looking to save $50-60k and shop in the $150-160k range, although any decent homes under $200k are becoming increasingly rare within any reasonable distance of the city. so i'll probably have to compromise some or wait longer, but that's alright. people go crazy with this shit.

 

[Vdubchaos]

Yep. Even then, 28 - 36% is a lot, even though it sounds like a small number compared to the situation some people put themselves in. Take $100k for a nice easy number, take out $36k for your mortgage expenses alone. Add all the other home ownership expenses on top of that. Add all other living expenses (needs and wants), and whatever little you can afford to save after that. Doesn't leave much left. Now imagine if you loaded yourself up with a mortgage that ate up 50% of your net pay? Personally, the numbers just don't make sense for me. Others have different opinions about it though and find ways to justify spending most of their income on their rent or mortgage.

and people wonder why they end up shit broke. living within your means might seem like a really boring idea, but it sure beats being broke forever. So at what point can you afford it? Depends when you are prepared to commit. It's a huge financial commitment for almost anyone. Technically, if you can afford to make the payments, you can afford it. That doesn't mean it would necessarily be a smart decision though.

For me, I am looking to save $50-60k and shop in the $150-160k range, although any decent homes under $200k are becoming increasingly rare within any reasonable distance of the city. so i'll probably have to compromise some or wait longer, but that's alright. people go crazy with this shit.

Smart

Patience is the key to success

Problem is, most people want THE WORLD.......NOW

Take your time and make sure you are 100% ready for home ownership. It's not for everyone and no it's not what it's hyped up to be either.

 

[JM Aggie08]

Yep. Even then, 28 - 36% is a lot, even though it sounds like a small number compared to the situation some people put themselves in. Take $100k for a nice easy number, take out $36k for your mortgage expenses alone. Add all the other home ownership expenses on top of that. Add all other living expenses (needs and wants), and whatever little you can afford to save after that. Doesn't leave much left. Now imagine if you loaded yourself up with a mortgage that ate up 50% of your net pay? Personally, the numbers just don't make sense for me. Others have different opinions about it though and find ways to justify spending most of their income on their rent or mortgage.

and people wonder why they end up shit broke. living within your means might seem like a really boring idea, but it sure beats being broke forever. So at what point can you afford it? Depends when you are prepared to commit. It's a huge financial commitment for almost anyone. Technically, if you can afford to make the payments, you can afford it. That doesn't mean it would necessarily be a smart decision though.

For me, I am looking to save $50-60k and shop in the $150-160k range, although any decent homes under $200k are becoming increasingly rare within any reasonable distance of the city. so i'll probably have to compromise some or wait longer, but that's alright. people go crazy with this shit.

Jesus Christ, of gross income??? We're at like 12% a month, and even then, I feel like it's high.

 

[Vdubchaos]

Jesus Christ, of gross income??? We're at like 12% a month, and even then, I feel like it's high.

And that just it.

It's up to individual to determine what is best FOR THEM.

Not the bank. The mistake MANY Americans made.

Just because you CAN, doesn't mean you SHOULD.

Bank or ANY entity that is making money off of you should not be even remotely considered when making a determination "am I ready for home ownership".

Unfortunately, many allowed the banks to tell them that with "load approval".

Sure I can go get a new 50k car and get loans for just about anything I want left and right........but that doesn't mean I SHOULD.

 

[Harrod]

I don't think that anyone would own a house if they only bought when they could pay cash for it. I remember that when I was in the market for a house, a personal goal for me was to only finance double my annual salary as an upper limit for a home if possible. I also bought right after the housing market crashed and spoke to my realtor to find the cheapest house I could afford in the nicest neighborhood. The realtor also advised where they would by if they knew that they weren't going to be in a particular area after 10 years. I ended up getting married and selling that one after 4 years and came out slightly better than renting. I ended up buying something in the 120k range and putting 20% down payment on the house to get the monthly payment to be less and what I was paying in rent. My father told me that I could afford something much higher, but I really saw no point in spending so much on something that no one was at most of the day.

I did this so that if I lost my job, I could get by doing something else while I found something better, I work for an ISP that seems to do layoffs pretty frequently(they seem to layoff people that suck at their jobs though).

While I would agree with you on something like a used car, or a large luxury item of some sort.

 

[alkemyst]

Yep. Even then, 28 - 36% is a lot, even though it sounds like a small number compared to the situation some people put themselves in. Take $100k for a nice easy number, take out $36k for your mortgage expenses alone. Add all the other home ownership expenses on top of that. Add all other living expenses (needs and wants), and whatever little you can afford to save after that. Doesn't leave much left. Now imagine if you loaded yourself up with a mortgage that ate up 50% of your net pay? Personally, the numbers just don't make sense for me. Others have different opinions about it though and find ways to justify spending most of their income on their rent or mortgage.

and people wonder why they end up shit broke. living within your means might seem like a really boring idea, but it sure beats being broke forever. So at what point can you afford it? Depends when you are prepared to commit. It's a huge financial commitment for almost anyone. Technically, if you can afford to make the payments, you can afford it. That doesn't mean it would necessarily be a smart decision though.

For me, I am looking to save $50-60k and shop in the $150-160k range, although any decent homes under $200k are becoming increasingly rare within any reasonable distance of the city. so i'll probably have to compromise some or wait longer, but that's alright. people go crazy with this shit.

I would suggest you do the math. 36% is the very TOP number and that includes anything like a car payment or other debt.

With total debt capped at 36% the math works out for most families and gives them room to save and go on vacations and the like.

You have to realize in today's market certain price points while looking good are within the reach of those people you probably don't want to live around.

Mid 150-160k can buy in lower markets a decent place to live. In those areas where pay is high and jobs are good, it's too low hanging fruit to even be considered a safe neighborhood.

Interest rates are almost guaranteed to rise in the next few years. We are still at historical lows.

State taxes and local property taxes/insurance can affect things. This is a typical set of expenses for someone making $100k with a SO/Wife

Annual $100,000.00
Monthly $8,333.33
Taxes @ 20% $1,666.67
Net Monthly $6,666.67
5% 401k $416.67
Health $500.00
Vision $15.00
Dental $10.00
Alarm $15.00
TV/Phone/Inet $200.00
Car Loans $500.00
Car Fuel $200.00
Car Insurance $300.00
Cell $150.00
Electric $250.00
Food $650.00
Fitness $30.00
Water $100.00
Total Monthly $3,336.67

Net Income $3,330.00

At 4% a $350k house will run about $1225 in payments, if taxes are 4500 and insurance about $3000 then you are looking at $1850 a month.

With the car loan above that puts you at 28% which is 'healthy' and leaves $1500 a month in 'savings/disposable' income

The 20% tax rate is pretty liberal with potential write offs.

 

[alkemyst]

I don't think that anyone would own a house if they only bought when they could pay cash for it. I remember that when I was in the market for a house, a personal goal for me was to only finance double my annual salary as an upper limit for a home if possible. I also bought right after the housing market crashed and spoke to my realtor to find the cheapest house I could afford in the nicest neighborhood. The realtor also advised where they would by if they knew that they weren't going to be in a particular area after 10 years. I ended up getting married and selling that one after 4 years and came out slightly better than renting. I ended up buying something in the 120k range and putting 20% down payment on the house to get the monthly payment to be less and what I was paying in rent. My father told me that I could afford something much higher, but I really saw no point in spending so much on something that no one was at most of the day.

I did this so that if I lost my job, I could get by doing something else while I found something better, I work for an ISP that seems to do layoffs pretty frequently(they seem to layoff people that suck at their jobs though).

While I would agree with you on something like a used car, or a large luxury item of some sort.

Even many ultra wealthy choose to make payments on a home. Money can earn much more in the market now than mortgage rates (even on Jumbo properties). Plus mortgage interest and other expenses for these high earners can be write offs.

Some will even finance cars still.

When rates are high, it makes sense to pay cash.

 

[Vdubchaos]

Even many ultra wealthy choose to make payments on a home. Money can earn much more in the market now than mortgage rates (even on Jumbo properties). Plus mortgage interest and other expenses for these high earners can be write offs.

Some will even finance cars still.

When rates are high, it makes sense to pay cash.

Even with low rates, you are still paying substantial amount.

For example, even at 4% mortgage, you are paying 3-4x the amount your borrow.

So your 5-10% interest you might earn on that money might not be so appealing......

It is NOT a straight cut comparison on % here buddy.

 

[PricklyPete]

Even with low rates, you are still paying substantial amount.

For example, even at 4% mortgage, you are paying 3-4x the amount your borrow.

So your 5-10% interest you might earn on that money might not be so appealing......

It is NOT a straight cut comparison on % here buddy.

Yes, but you are paying that mortgage with future money which has a very different value.

The numbers always work out to get a mortgage and invest your money over the life of a 15-30 year loan. For normal humans this rarely works because they don't invest that extra money but blow it on hookers and blow. If you are financially self disciplined and are open to some risk, the mortgage is always the better decision (if you are going to buy...there are plenty of scenarios where renting can be a better decision vs. buying).

The OP is taking a nearly 0% risk approach. There is nothing wrong with it, but it certainly reduces your chance of getting ahead financially. It also means you probably won't go bankrupt.

 

[alkemyst]

Even with low rates, you are still paying substantial amount.

For example, even at 4% mortgage, you are paying 3-4x the amount your borrow.

So your 5-10% interest you might earn on that money might not be so appealing......

It is NOT a straight cut comparison on % here buddy.

Hey "BUDDY", you know like I would...and it's just like a suggestion, um do the math before you go off and um...make like WILD claims.

3-4x the loan amount is the days of HIGH interest.

At 4% on a $350,000 loan you will pay $251,543.27 in interest.

Not even 2x the borrowed amount.

At 8%, which has been a typical rate, you will pay $574,543.36 in interest. That would be 2.64x the borrowed amount.

You need to check yourself, before you wreck yourself!

Get the facts, Jack!

Now you Know!

/lollerskating out

 

[Capt Caveman]

Even with low rates, you are still paying substantial amount.

For example, even at 4% mortgage, you are paying 3-4x the amount your borrow.

So your 5-10% interest you might earn on that money might not be so appealing......

It is NOT a straight cut comparison on % here buddy.

/facepalm

 

[alkemyst]

Yes, but you are paying that mortgage with future money which has a very different value.

The numbers always work out to get a mortgage and invest your money over the life of a 15-30 year loan. For normal humans this rarely works because they don't invest that extra money but blow it on hookers and blow. If you are financially self disciplined and are open to some risk, the mortgage is always the better decision (if you are going to buy...there are plenty of scenarios where renting can be a better decision vs. buying).

The OP is taking a nearly 0% risk approach. There is nothing wrong with it, but it certainly reduces your chance of getting ahead financially. It also means you probably won't go bankrupt.

Plus the value of the interest payment write off especially early on in the loan. It's not unusual for an effective net 'mortgage' cost to be only a few hundred bucks a month for the first decade of the loan.

 

[Belegost]

I would suggest you do the math. 36% is the very TOP number and that includes anything like a car payment or other debt.

With total debt capped at 36% the math works out for most families and gives them room to save and go on vacations and the like.

You have to realize in today's market certain price points while looking good are within the reach of those people you probably don't want to live around.

Mid 150-160k can buy in lower markets a decent place to live. In those areas where pay is high and jobs are good, it's too low hanging fruit to even be considered a safe neighborhood.

Interest rates are almost guaranteed to rise in the next few years. We are still at historical lows.

State taxes and local property taxes/insurance can affect things. This is a typical set of expenses for someone making $100k with a SO/Wife

Annual $100,000.00
Monthly $8,333.33
Taxes @ 20% $1,666.67
Net Monthly $6,666.67
5% 401k $416.67
Health $500.00
Vision $15.00
Dental $10.00
Alarm $15.00
TV/Phone/Inet $200.00
Car Loans $500.00
Car Fuel $200.00
Car Insurance $300.00
Cell $150.00
Electric $250.00
Food $650.00
Fitness $30.00
Water $100.00
Total Monthly $3,336.67

Net Income $3,330.00

At 4% a $350k house will run about $1225 in payments, if taxes are 4500 and insurance about $3000 then you are looking at $1850 a month.

With the car loan above that puts you at 28% which is 'healthy' and leaves $1500 a month in 'savings/disposable' income

The 20% tax rate is pretty liberal with potential write offs.

I would say the 20% is pretty low. I make just above that, with 2 kids plus the wife as dependents, including social security, medicare, and state income taxes, it comes out around 28%. If I didn't have the kids on the W2 it would be more like 35%.

That said it doesn't greatly change the overall results - I'm planning to buy this coming year and targeting the 350K range, which fits well since our current rent is already $1800/month.

 

[BurnItDwn]

I would suggest you do the math. 36% is the very TOP number and that includes anything like a car payment or other debt.

With total debt capped at 36% the math works out for most families and gives them room to save and go on vacations and the like.

You have to realize in today's market certain price points while looking good are within the reach of those people you probably don't want to live around.

Mid 150-160k can buy in lower markets a decent place to live. In those areas where pay is high and jobs are good, it's too low hanging fruit to even be considered a safe neighborhood.

Interest rates are almost guaranteed to rise in the next few years. We are still at historical lows.

State taxes and local property taxes/insurance can affect things. This is a typical set of expenses for someone making $100k with a SO/Wife

Annual $100,000.00
Monthly $8,333.33
Taxes @ 20% $1,666.67
Net Monthly $6,666.67
5% 401k $416.67
Health $500.00
Vision $15.00
Dental $10.00
Alarm $15.00
TV/Phone/Inet $200.00
Car Loans $500.00
Car Fuel $200.00
Car Insurance $300.00
Cell $150.00
Electric $250.00
Food $650.00
Fitness $30.00
Water $100.00
Total Monthly $3,336.67

Net Income $3,330.00

At 4% a $350k house will run about $1225 in payments, if taxes are 4500 and insurance about $3000 then you are looking at $1850 a month.

With the car loan above that puts you at 28% which is 'healthy' and leaves $1500 a month in 'savings/disposable' income

The 20% tax rate is pretty liberal with potential write offs.

FICA, Medicare, State income taxes ?
I make under 100k, I have a house with mortgage and write off all the interest, my average annual refund is under 2K so I have my deductions set correctly.

my fed + FICA + Med + IL State tax is over 27%, and again, this is under 100K, homeowner writing off significant amount of mortgage interest ...

 

[Vdubchaos]

/facepalm

Ohh really?

So you are saying that % earned in the money market is equivalent to Interest % on a loan?

We are talking Grain of salt vs Mars here.

 

[alkemyst]

FICA, Medicare, State income taxes ?
I make under 100k, I have a house with mortgage and write off all the interest, my average annual refund is under 2K so I have my deductions set correctly.

my fed + FICA + Med + IL State tax is over 27%, and again, this is under 100K, homeowner writing off significant amount of mortgage interest ...

I mentioned state taxes and effective tax rate can have an affect.

Your effective tax rate shows up as 27% on your return?

These are the 2014 Marginal Tax Bracket rates (keep in mine these are additive, you don't pay a bracket on all your income, only the income in that bracket):

Single (using $100k)
$18,193.75 + 28% on anything over $89350 (but less than $186350)

Married filing Joint/Surviving Spouses
$10162.50 + 25% on anything over $73800 (but less than $148850)

Head of Household
$6762.50 + 25% on anything over $49400 (but less than $127550)

Most state rates are 5-7% of your Federal Adjusted Gross income.

I did forget to include 7.65% for SS/FICA/Medicare
I can't see how this can hit that high as an 'effective rate'.

 

[alkemyst]

Ohh really?

So you are saying that % earned in the money market is equivalent to Interest % on a loan?

We are talking Grain of salt vs Mars here.

lol, money market.

That's a safe ride...much like bonds.

 

[BurnItDwn]

I mentioned state taxes and effective tax rate can have an affect.

Your effective tax rate shows up as 27% on your return?

These are the 2014 Marginal Tax Bracket rates (keep in mine these are additive, you don't pay a bracket on all your income, only the income in that bracket):

Single (using $100k)
$18,193.75 + 28% on anything over $89350 (but less than $186350)

Married filing Joint/Surviving Spouses
$10162.50 + 25% on anything over $73800 (but less than $148850)

Head of Household
$6762.50 + 25% on anything over $49400 (but less than $127550)

Most state rates are 5-7% of your Federal Adjusted Gross income.

I did forget to include 7.65% for SS/FICA/Medicare
I can't see how this can hit that high as an 'effective rate'.

my federal taxes (filing single) is around 20%, but add SS/FICA/Medicare/State, and now im up to 27.5% of my unadjusted gross ...

You did not include SS/FICA/Medicare ... so I just added them under "taxes" 🙂

Anyhow, if you add SS/FICA/Medicare .. then I got no complaints 🙂

 

[boomhower]

It varies on the individual situation. I bought before I was "ready". I was window shopping pretty much and came across a great deal I couldn't pass up. Found a 3 bed 2 bath 1400 square foot home for a touch less than $60k. It was in great condition and only needed updated but had modern mechanicals, just cosmetics needed updated. Very good neighborhood to boot. With insurance and taxes my note is a little less than $600 on a 15 year mortgage. I couldn't rent a two bedroom apartment for that no less a three bedroom. I paid a whopping $100 down as well. I'm on pace to pay it off in 10 years. I wasn't "ready" or able to "afford" it by most peoples definition but it has worked out extremely well for me.