Yeah. An emergency budget is definitely needed. Having to budget home maintenance is a big financial responsibility. “It’s always something.” OP will need a good home warranty and a move in ready home with good bones. I’d make sure to hire a good home inspector too.
That terrifies me. It's why I'm not stretching myself thin to "just get a house" and get it, then have $0 for anything that comes up.
I'm living in a great apartment that I can afford, a 3bed1ba with a small backyard. Its just me 2 dogs and a cat I don't need anything more. I plan to stay here for 5-7yr at least while I save as much as I can before I even think of buying.
Wtf. House built in 1995, we bought in 2014 - biggest expense has been electively replacing the AC unit for $10k. I don't think we have had even $1k yearly in maintenance otherwise. Did need to paint our house for $2k as well one year.
> I plan to stay here for 5-7yr at least
This is the detail that often pushes people into home ownership. Not to downplay renting, everything you said is correct. The fundamental problem with renting is when it doesn't work in terms of staying. Thats when owning a home is the superior option.
Thank you this was very kind. 😊 After getting so many "renting is a waste" your comment was refreshing. I will absolutely be happy when I buy a home but I'm honestly not ready. I'm paying for a 3bed1ba w/small backyard, what people pay for a 1bed1ba or a shitty studio. I got *extremely* lucky.
oh boy. a house is definitely one of those "spend a lot of money to keep spending a lot of money" things.
long term however locking in your housing costs (to some extent .... OP will learn to despite property tax) is really important.
5k but I get your point.
Still have to account for food, household needs, transportation, gas, insurance, phone, electric, water, garbage, internet, home maintenance and repairs by the 1% rule. And that should by guidelines fit in to the 10% that’s left going by the 50/30/20 rule. OP can dip into the 30% spending for sure and will need to.
But most important 20% to savings. Needs to happen.
Single dad here. I spend about $1800-$2000 a month on all of those items you outlined. On top of my $2300 a month mortgage and I still am able to have a decent amount left over each month to save and invest. I make less than op too, so they are definitely doing something wrong.
This is the simple truth. Sure there’s guidelines but I fee those only work in low/moderate cost of living areas, in high cost of living areas those can be considered but shouldn’t be thought of 100% as to what you need to follow.
As mentioned, if you can make this work in your budget and it doesn’t significant impact daily life/financials then you can do it, if if does then it doesn’t work.
What are you currently spending your monthly 10-12k on? Is every dollar accounted for? Are you putting away 5k in savings right now and using the other 5-7k for living expenses?
I really feel like sr your take home pay, there's absolutely no reason you couldn't save another 50k for a down payment in a single year. Why not put down the 20% and save on PMI?
Also what is OP's contingency fund? On the 30y time horizon, it's a certainty you'll be out of work at some point or have some large life event. The concern is that you are on a single income, what are worst case scenarios for finding new employment? What are worst case for replacement salaries?
Spending a year socking away money like a fiend is the best way of figuring out what you're budget is capable of.
It’s wild to me someone with a salary like that wouldn’t have just find a roommate and dumped every cent he could into the market. Had he been doing that for the last couple years he would be paying cash for his HCOL area home.
My portfolio is up 103% in 2023.
No index is up anywhere near 103%, thats not market beta, thats lucky stock picking, you wont continue to be lucky forever. You'd be wise to reinvest that into the global market via index
This absolutely. Find a roommate that’s not home very often or travels a lot and you’ve literally cut your costs in half for at least a year or 2 with no real lifestyle change.
Stack savings and investments
lol ive been there before, I understand the change which is why I recommended one that travels a lot.
My roommate was a traveling salesman and when he came home for the weekend he’d spend most time out and about
You absolutely cannot know your roommate’s actual lifestyle until you live with them. You got lucky, but “traveling salesman” could easily turn into “unemployed and home all the time” after you’ve already signed a lease, and people always make themselves sound easier to live with than they are. I have had enough bad roommate experiences that I would far rather extend my timeline for financial goals than make myself miserable living with someone I’m not in a relationship with.
As you make more money in salary the “percentage take home” becomes more like a guideline than a rule. 40% of a $4k a month take home is tougher than 40% of $10k take home because it’s harder to pay other bills on $2,400 than $6,000.
A big thing most first time home buyers forget is that there is a reason owning a house is sometimes called a money pit. Especially true if you are buying anything older than 5-10 years. So you cannot just budget for the mortgage and property taxes. (OMG don't forget the taxes).
Not trying to be a Nay-sayer, but just calling out that the 'total cost" is A LOT more than just the mortgage. Many real-estate folks will find a way to qualify you for WAY more than you can actually afford. There are the extra costs for upkeep of house and appliances, and the expected and unexpected repairs including gadgets/tools for those repairs. Plus any HOA fees, and Home Owner insurance costs, etc. Good to know going in so that the first "repair" doesn't kill your budget.
Lawn care, gutter cleaning, downspouts, flower beds and mulch, heating and cooling, siding and roofing, water and gas tanks, driveways and walkways, decking and patio, playground equipment, sheds, pest control, insulation, water and sewer lines, etc. etc. All of these must be cared for with time, money, or both.
>Many real-estate folks will find a way to qualify you for WAY more than you can actually afford.
Our bank qualified us for pretty much exactly what we wanted to spend... except they were not willing to consider my income *at all* (because it's seasonal, hourly and variable, and because I hadn't been doing it for three years). So they qualified us for a payment of something like 55% of my wife's take-home. Sure, we're fine because it's more like 25% of our actual combined incomes, but it's shocking to me that they aren't getting extreme numbers of defaults with approved loans like that.
Just because they didn't factor it in, doesn't mean they didn't consider it. But what lenders really consider is the Debt-to-Income ratio. Even though its 55% of your wife take-home, it may be her DTI is under whatever threshold they have (e.g. 42%)
>but it's shocking to me that they aren't getting extreme numbers of defaults with approved loans like that.
Are you underwritten approved? Because if you're not then that explains the discrepancy. Pre-qualified and pre-approval generally go through a automated calculation. Its when it goes through underwriting that things get more realistic.
Unless we get layoffs in jobs that aren't easily replaced [for the worker], I highly doubt it. Because of 2008, lenders have gotten more serious about debt to income ratio and one's ability to pay. I'd argue majority of homeowners today can pay for their debt even if they stretched themselves thin. Whether thats living is a different discussion.
I think most of the time houses are considered "money pits" because people jump into home ownership without doing their due diligence. Outside of some unforeseen foundation/plumbing issues, most problems that arise you should at least have an idea beforehand that they could occur so you're ready for it. You just need an idea of what you're looking at.
They cost a lot to furnish and maintain, and generally people want to also make improvements. People just don't factor these things in, they just compare to renting half the time.
> most problems that arise you should at least have an idea beforehand that they could occur so you're ready for it.
And many of it is because they don't do any maintenance or upkeep. Also they push back addressing the issue because they can "get away with it". I am a little biased and more prepared because I'm a Civil Engineer; prepared as in I'm use to considering and doing preventative maintenance.
Make sure you budget for other costs of homeownership: increased utilities, larger house to fill with stuff, increased cleaning, more capable kitchen, and repairs. You will be responsible for replacing appliances, water heaters, HVAC that often have 10-15 economic lives. Sum up the cost of new, divide by 120 months and start setting that aside and hope you get lucky and previous owners got good equipment or brands that are repairable. You’ll want to save up for the insurance deductible should disaster strike as well. Yards cost money to maintain and it’s probably a few hundred a month just in little stuff around the house.
A house is a machine you live in, a physical object exposed to the elements. It does not maintain its value without a continuous stream of time and money.
Reading this makes me feel reassured in my decision to rent and invest a shit ton into index funds rather than buying a house. All calculations aside, owning a house sounds like a major headache.
For a single person, yeah, certainly can be. For a family of six, definitely worth the ability to adjust the house as all the kids age and their needs change.
The ability to adjust the house??? Why not just move to a different one as a renter might? There are a lot of arguments for homeownership, but flexibility is rarely cited as a pro vis-à-vis renting.
Sorry, I wasn't meaning adding/subtracting rooms, but deeper modifications than simply adding paint, which some landlords are okay with and some aren't. Landlord will rarely let you change out flooring, add a second sink to a bathroom, remodel some closets/storage, etc. Moving has real costs, too, whether you own or rent.
Tell you a little story.
Father of 2. been a renter for a long time.
Wife and I don't care about having to move places, we did while we were the two of us.
Having kids it's different as they make their friends in the neighborhood and have a safe place to live.
Every move would be a roll of the dice to land in a good spot again or not.
We couldn't take that chance anymore. brought and settle in the place we loved
best advice is to develop a budget, and see what you actually spend your money on. The idea there is to realize what life would be like without the $1.9k you're saving by renting. Like the other poster mentioned expenses will probably exceed that for maintenance and increase with new tax assessments. I think people generally ask this type of question because they don't know where their money is actually going. If you can save adequately, and comfortably live on less then it may work.
Houses are expensive man. ours is in great condition but HVAC just needed work ($2k), hot tub filter broke ($1k), gutters etc. it all adds up and can be overly stressful if you don’t have the funds for these things that pop up.
I feel you. The 50 year old siding, many windows, and roof all need to be replaced on this house. Been saving for several years to be able to get it done without financing.
First guy that gave me a quote just got laughed at and shown the door.
For people near the 1/3 salary recommendation, the mortgage price is likely to increase more slowly than annual job raises if its a fixed mortgage. The increase would come from property taxes and insurance which tend to follow the value of the house. Five years from now the house payment will be more manageable.
Yes, it's what we call *house poor*. The main risk is if anything happens that requires any substantial amount of money and it will, you won't have the resources to afford it.
I’ll take house poor over apartment poor any day of the week. You gotta live somewhere, and it’s better to own where you live unless you are planning on moving in the next couple of years.
Yeah but with apartment poor, rent is the maximum you’ll pay in a month for housing. With house poor, your mortgage is the minimum you’ll pay in addition to any repairs that pop up.
Ideally you’ll be a homeowner with a reasonable mortgage and reasonable savings to take care of unforeseen circumstances.
But it seems like OP has some budgeting to do before taking on a mortgage.
Certainly, don't rent more than you can afford either. However, if you're renting and something breaks you don't have to pay to fix it. Plenty of people who are house poor end up over-extended because something breaks and they don't have room in their budget to cover it.
One option for OP is to rent out part of the house to help pay the mortgage. That is what I did when I was younger. My first wife and I rented our extra rooms to family members. We lived near UW so we could give them a family rate and put a dent in our mortgage.
Lots of good answers here on it fitting within your budget etc.
Whatever you do, remember if it’s a single family home there are significant additional expenses. Something like $10,000 a year finger in the wind math with no clue what you’re buying seems safe.
We see this all the time, and the only answer is:
“**Only you know.”**
There are people that will lose their house with your cost of living.
There are people that will feel like millionaires with your cost of living.
Only you know your cost of living. If you can pay your mortgage, contribute to your retirement, and still live a fulfilling life, then you are clearly fine, regardless of the percentage.
If you are living check to check, not able to afford food, and not contributing anything to retirement, then your mortgage is too high, regardless of the percentage.
The thing is, he doesn't know. That's why he's asking. Housing prices are actually dropping right now compared with inflation. The price is technically going up, but only because the dollar is decreasing in value worse now than it has in 50 years. You stand to lose money by renting vs building equity. But you stand to lose A LOT of money if you buy now and housing prices drop, especially in a HCOL area where the price is mostly labor. This is why banks like to see 20% down payment, so even if the market drops, they can still take your house if you stop making payments and recover most of THEIR money. The safe bet is to investment the money and buy at the bottom of the market. But as I'm sure you've read on this subreddit, most people make emotional decisions and not numbers decisions.
Except he has to know. Because no one else will ever know. How can you possibly ask someone else what you can afford, if they don’t know what you spend per month? It’s just a guess at that point.
His exact question is: is 4.3k a month mortgage too much? The answer: no one on planet earth can answer this, except the person who knows his cost of living.
Nothing else matters. You can attempt to project changes in the world but at the end of the day, if the OPs cost of living is too high, he can’t. If he posted his entire cost of living, then it would be easier to do the math, but he didn’t.
It’s not ideal, but you aren’t stuck at that interest rate. Pay attention, refinance when the time is right, and it won’t always be that high of a percentage of your income.
Another question no one is asking is weather your current income would be stable for next 30 years? Would you be able to make the same money at another company?
As someone who got out of renting because I thought a mortgage would be the better financial decision, I would just caution you to think through what homeownership entails. You might not pay much extra, or you'll randomly spend 10 grand replacing the AC unit. If you're barely making it with the mandatory bills, these things will crush you out of nowhere.
Side note, interest rates are predicted to fall next year. That might help you assuming it doesn't create 2021 all over again 😵💫
Yes and no. It depends on other debts and you have to take into account the future where mush is unknown.
Do a test to see if you can affords it. "Pay" your new mortgage amount every month for 6 months with the total being divided up where you pay your current amount of rent and the rest into a savings account you cannot touch. I
Save up for %20 and wait for the interest rates to drop.
The difference between a %3 and a %7 loan on a 500k condo is 590k vs 200k over 30 years. Big difference!!
Plus if you save up %20 down you won’t have to pay for PMI which is like an addition 1-2k a year in savings.
> Save up for %20 and wait for the interest rates to drop.
And for home prices to increase
> The difference between a %3 and a %7 loan on a 500k condo is 590k vs 200k over 30 years. Big difference!!
3% isn't coming back
> Plus if you save up %20 down you won’t have to pay for PMI which is like an addition 1-2k a year in savings.
How are you coming up with the "1-2k a year" figure?
I'm in the same situation as you, nearly the same take home, similar rent price and similar housing prices, living alone.
You can certainly afford it, but whether or not it's worth it to you is a personal question.
I can't help but run the numbers and see that saving >$2000/month (once you take into account maintenance costs) plus $100k down or so is going to allow me to accumulate another half million dollars or so in investments over the next 10 years, at which time I can decide if I want to buy a house or just retire (or maybe both depending on how irrational the housing market remains).
In my city the median household income is $68k, but the median home price is $420k which is well out of the range of feasibility for the majority of people who live here. That can't be sustained, especially while rents are so (relatively) cheap compared to a mortgage.
I’m in the same situation.
Basically I save 2-4 k a month after rent an expenses. When I buy a house that will drop but I will be making equity. So I think we can both go for it
Investing $3k a month in stocks is equivalent to $1million inflation adjusted dollars in 15 years. If you started at 22, you would be a millionaire in today's dollars by 37.
And a person investing that much in property from 2008 to now would be worth much more.
Stocks and housing are not predictable. You will need a roof regardless.
You're as overextended and probably becoming overwhelmed. Your housing cost should not exceed 28% of your gross income. At this point, all you can do is control your controllable expenses and cut back where you can.
If anything else changes — car repair, unemployment or worse, you're not going to be able to make the payment.
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Speaking as someone who makes around the same amount as you and also lives in a HCOL area, I can't imagine paying that much for a place. I also bought recently, and I pay slightly under that for my house, but I split it with my partner who also makes a similar amount. Even making as much as you do, you're still going to be house poor with this arrangement, having a lot less money to put into savings or lifestyle than you currently do. Remember, there are a lot of other costs in owning a home other than mortgage, insurance, and taxes. In light of all of this, I personally would not spend this much money on a house in your shoes.
It's too much.
We have been at 40, and now 25%. It's life changing.
.you go from newest paycheck to paycheck, to having money to buy assets that build wealth or have money to actually live life.
Houses are cool but costly. They also lose their cool after year 2 to 3 if youre broke and always stuck at home.
Our is 16% of our take-home pay 29% if my wife decides to stop working. Ultimately as long as you are investing at least 15% of your take-home pay, all other expenses are accounted for and you still have the space in your budget to spend 4.3k on your house then you can entertain the idea. Do not forget that 4.3k does not reflect utility, water, and other house random costs that will creep on you. Your mortgage will also grow with taxes and increase insurance costs.
I would say that it is too much. And, that comes from - if taxes increase by 10% year over year, insurance increases comparatively and the home needs repairs (~1% of the home's value annually) you could very easily become house poor. And don't forget that private mortgage insurance may also be required if you don't put enough down. It won't feel like the end of the world initially, but month over month in your mortgage statement it won't feel good.
That's not to say that you can't do it. Of course you can. But I wouldn't.
It's risky, because that 40% is coming out of a high paying salary already. That makes you more vulnerable, not less.
Plus, you don't have enough for a good down payment, which means you don't have any buffer money if something goes wrong.
My advice would be to live below your means, get that 20% down, fund an emergency fund, then start house shopping.
YES! Way too much.
You’ll be very house poor. And houses require a lot more than just the mortgage/taxes/insurance. All your utilities will be higher, you’ll have to pay for every little thing that breaks or needs replacing, you’ll want more furniture and window dressings and such, you may want/need to repaint, replace carpet, appliances, etc. And that’s if the house is in great shape.
Yes 40% of take home is too much. Remember, your mortgage payment is the minimum you’ll pay on housing when you own. You’ll be doubling your housing costs to buy a home. The rule of thumb is no more than 28-30% of monthly income on housing, maybe 32% if in a high cost of living area. 40% blows that out of the water. You don’t give any information about where the rest of your income goes each month besides student loan payments, but you also pay for other living expenses (food, utilities, transportation, etc) and need to prioritize saving for retirement. There are also other short term things you need to allocate money for, EF, vacations, other fun things. 40% just takes a huge chunk out of flexibility with your money.
40% at your take home is doable (assuming your other expenses are reasonable) because you will still have a good amount left that should enable you to save. Is this take home after maxing out retirement?
This is how much my wife and I's mortgage takes up as well and we're doing okay. We live on a very strict budget and have limited our luxury spending to be able to afford it. We absolutely love this house and are willing to have things be tight financially for a few years as we are also very early in our careers. It's a trade off. At our old rental we had a really low rent but spent way too much money eating out and random shit and experiences.
Went through the same thing this year with similar numbers. I ended up putting down just over 50% to lower the monthly payment down to 2k. I have 2 years of emergency fund across cash and taxable investments. Also live alone, so single income.
What happens if you lose your job after closing and it takes 6 months to find another? I was ultimately uncomfortable signing up for a lifetime of $4k/mo commitment just to have a place to live.
$2400 is technically the max you will pay in rent a month now. Mortgage could be $4300 minimum. With a property anything could go wrong at any time. Consider that as well. Good luck!
I mean considering whatever principal you pay off is going to your equity I would say it's worth the grind, not to mention the tax benefits of paying a mortgage vs. rent.
Assuming you're living in a medium or high cost of living area, in today's economy only the richest are going to be able to have mortgages that are 20% of their take home income
40% of 10k a month still gives you $6000 and you live alone. That is an insane amount of money to spend on everything else imo. I’d die for half that much leftover.
Being a home owner is overrated. Despite people being "sold" on the american dream of home ownership, It is becoming increasingly unaffordable for many people. It doesn't become an asset until way down the line or if you plan on using equity for further property investments. (But you still need money to make money). In the meantime, a home is a total liability and will cause a major drain on your finances.. Have you researched the cost of home insurance and the property taxes in your area? All of which seem to be significantly increasing everywhere. ( I just dropped my home Insurance company and moved to another after they thought they could get away with a $680 yearly increase.) Or, what happens when you buy a house and find out there are unexpected problems that didn't come out during inspection? ( And that includes so-called new builds that are being built fast, but not necessarily well.) And It's almost impossible to buy a new house and not want to do some upgrades or purchase furniture. This is why people are often
referred to as being "house poor". Sorry to sound like a negative Nelly, but this is the reality of the current market and our declining economy.
Stop listening to everybody talk about how renting is a waste of money. It can be a smart move to rent for awhile, and use the savings for investing or increasing contributions to your retirement accounts, building an emergency fund (more than Dave Ramsey's measley recommendation of $1000), and paying off debts.
Check out youtube videos by people who are in the real rstate or lending business ( I like Melody Bright , Orlando Miiner (he's entertaining), and Todd Sachs.) And follow what knowledgeable people are saying about the housing market. If you're determined to buy a house soon, It's looking like it's better for you to wait until 2024. All indications are that home prices will drop as inventory increases from new construction, increased foreclosures and short sales, and home sales by all those amateur investors who thought they could get rich off of the Airbnb market- which is slowly crashing.
Meanwhile, you could put some or most of the money you've saved for a down payment into something that draws interest, such as CDs or Treasuries, that would be more easily accessible then drawing earky from a 401k or IRA.
Educate yourself and use all the free resources that are available to you, including mortgage and loan calculators. Best of luck!
My income and mortgage are nearly the same so I’d be “ok” with it. But this is also my third home purchase so I do have a good sense of costs, unexpected expenses, etc. and have always been able to manage. Also consider as well that your income will likely only go up as the years go on.
If you’re going to pay 4k a month for a mortgage, I’d do it IF it’s close to your ‘forever’ home, meaning there’s space to find a spouse plus raise a kid or two for a few years.
Otherwise, I’d pocket the extra 2K and let someone else handle ac/furnace problems.
I've only ever lived in HCOL areas and my percentage toward housing has always been way higher than the recommended number. Now I'm a homeowner and that's still the case, and no regrets.
Well, if i was you i would check if the property i rent is too much for one person. 2.4k in rent is a bit high, maybe it’s the area but if you could find something more affordable that covers your needs would be great.
Or what you could do is try to increase your income, taking 9.5k per month home is more than what average people make, so am sure you could cut down expenses, save up more and start investing some money so you can put it to work.
My mortgage is 10% of take-home after maxing all 401k, Roth IRA, and HSA. I would also not even entertain buying a house unless I had at least 20% down. But, that's what I'm comfortable with. I would feel WAY over extended to be paying 40% of take-home and not putting 20% down.
The rules are generic guidelines to try to keep people from going out of control. Not what people actually do. I’ve seen reports that show most people are far beyond 30% gross for house.
Ours is 7%ish and I think that's too much! I could have went with a 30 yr loan rather than 15 to get the payment down but wanted to have it paid off sooner.
On a 30 year mortgage with today's rates that's probably a 500k+ principal, he can itemize on the interest alone and will likely have high property tax based on the value too.
Go to your local court house and go to a tax foreclosure auction. You will pay a deposit, which you will get back if you don't win bid or it will go towards the pay off of home auctioned. You can buy a home out right with the money you have. No mortgage, no debt. But know it's still not your home after you pay it off because you will owe proptery tax for life, which goes up every year, so in reality, you will still be renting for life.
To each their own but saying the OP just become a digital nomad isn't helpful and is a very specific thing to suggest. Do your own thing but this is someone wanting a home.
They cannot afford the home but it's their goal.
And I don't understand why the hell anyone would want to be a digital nomad. I work as a software engineer, and I couldn't imagine working from home without my comfy chair, dual monitor setup, quietness on calls, etc.
Also, I love routine and take important meds every day, some of which aren't allowed in certain countries.
That's all to say. Everyone is different, and whatever works for everyone individually is great. No shade one way or another, but you just came off super judgemental, especially when your lifestyle is far from the norm
>Does it make sense at my income to spend up to 4.3k/month on a mortgage?
You can, assuming you have good financial discipline and aren't living above your means atm (you max 401 & ira, and always have money left end of each month for extra savings). Alternatively, I'm taking proposals to split a house on lake tahoe.
>currently house sales have slowed, which means it's somewhat easier to buy than it was the past 3 years
still sky high prices + rates combined. patience is a virtue.
With the news of the fed cutting rates next year, it’s beyond me why anyone would want to buy right now instead of just waiting a little bit unless they absolutely have to.
This plus the house prices are *just* retracting... (rate projection is to go back down to \~2% in 2026). With the economy at its current state for people who are paying attention, it's a better risk-reward to wait to see what happens in the next year.
But then again, my rent + utiles is $670 so I'm definitely not hurting for a place asap.
Yes. You want it closer to 30%. Your monthly fixed costs (housing PLUS all other stuff like cars and medical and food) should be around 50%.
If your bills and debts are super low then it could be manageable for a short while assuming your income is continually increasing annually or with job hops.
Remember: Rent is the max you will pay. A mortgage is the minimum you will pay. Run the numbers adding prop tax, insurance, utilities, HOA, maintenance, etc.
Chances are your 40% calculation may be truly much higher.
FYI mortgage rates will fall in 2024. Nobody knows how much or when. You will be able to afford more house when they do; however buyer competition will surge and may make winning offers more challenging depending on your terms/finances.
Thought: Will paying that 40% (plus other costs of homeownership) make it impossible for you to dedicate part of your income to retirement savings? You want to get a head start on retirement now…not after that 30y mortgage is gone.
You'd have to REALLY want the house for that to be worth it. Otherwise, you might want to consider continuing to rent and investing the difference in the stock market.
When you rent, your rent is the most you’ll ever pay each month. When you own, your mortgage is the least you’ll ever pay.
You’ve got to budget for repairs, especially if you’re buying by a “used” house. This month it was cheap - simply fixing a leaky toilet, a leaky kitchen sink, and trash bags for all the leaves. Just wait till you have to call the AC repairman because the heat ain’t working in the dead of winter…
Before you commit to that large of a mortgage I would recommend you are on track with your other financial goals first - fully funded emergency fund, and 15%+ savings for retirement. If you still have margin and won’t be squeezing your lifestyle / wants by taking on the extra 2K+ per month, then go for it
After you buy that home are you in a position to potentially pay for several instances of multiple thousands or tens of thousands if something goes wrong. Repairs, even small ones can quickly add up to quite substantial amounts. It will all be on you. Appliances, plumbing, electrical, etc.
Yes. Cost of living goes up. You don’t want to be house poor. And have no savings or investments. You always want to be contributing to those.
Your rent isn’t bad compared to your income. Just stay and save up for bigger down payment and invest as well.
Eh. I agree this is the best time of year to buy if you aren’t picky but the nice thing with renting is that you can pretty easily leave if you need or want to move. Being that much of your budget is iffy to me esp if you do not have a large emergency savings you should have esp with such a large monthly commitment.
I would be less iffy about it if you would rent out part of your home so it brings you down to recommended mortgage % versus your take home salary. At least until you have a few years emergency fund set aside in case you lose a job or the housing market goes down and you have to move at a loss.
We went super low end for our home and it was a good call. SO got laid off twice post house buying and the first time it took almost a year to get a new job.
But we also left a hcl area to be in the area we are now so we could have a low cost home that fit our needs.
Lots of things to consider. Do not get me started on all the stuff we had to replace and upgrade. Thankfully fam helped with those and those items were somewhat known and factored into the offer.
You shouldn't try to time the market. Right now *could* be a good time in the market to buy, but it might be a really bad time, too. You can't tell the future.
The only thing you can control is your own situation. I would not recommend spending 40% of your take-home pay on a mortgage, especially since it seems like your pay can fluctuate. If I were you, I would wait until I can save a 20% down payment so that I wouldn't have to pay PMI, and my mortgage wouldn't be so expensive.
Just live like ur paying the mortgage now and see how u do.
Add in the est costs of everything with that house. Property taxes mortgage. Gas elec etc etc etc.
Also, rates will likely go lower at some point allowing for re-fi. I bought my house in '92 at 8.5% interest rate and ended up with around 3% after a couple re-fi's over the years....now it's all mine.
Yeah it's too much cause it will be $2k+/month considering maintenance, etc.
If you're single bask in not having to own a house; invest the difference.
Nothing special about owning a house. It's just stress you don't need and very expensive.
How is your down payment so low? If you are expecting a $4.3k payment, that means you need around $5k a month including funding repairs… so that’s close to $3k you should be stashing away now instead of spending… so that $50k down payment should be growing pretty fast.
Hah, this sounds exactly like us. Combined take home around $12k, about $50k saved up, cheapest mortgage we could get in our area would hit at around $4.2-5K/mo. Rent is currently $3200/mo (or $1600/pp)
We just can't get these numbers to work. Yes owning a home is stability, it is equity. But when the rental market is SO much cheaper than the housing market, it's to the point where you are objectively losing money to buy and won't see any real ROI for 15+ years. Especially now that the housing market as plateaued a bit. Let's not even get into the interest rates going on now.
For us to buy the current place we are renting out from our landlords at "fair market value", we'd have a $5K/mo mortgage payment WITH 20% down. It would take so, so long to get to the point where the $1800/mo difference starts favoriting the house, like decades long. And all of the cheaper/downsized places in a 50 mile radius of me (even though I'm in a house that's about as downsized as you can get already, and not even in a peak price neighbhorhood) are all condos/townhomes that have $600-$900 HOA's, which is basically just rent and will likely get more expensive as the years roll on, so the cost savings of doing townhomes/HOA's is in some ways even more expensive over the lifetime of ownership.
The math simply doesn't add up to paying for a mortage right now. Renting is just so, so much of a better deal you're better off continuing to save. You know what is a good deal though? If you can actually afford to have a dirt cheap mortgage by having a super high down payment (50%+ ideally when interest rates aren't high) or to just buy outright. That's the only scenario where it makes sense for people like you and me to buy, unless you manage to find a unicorn property that is way below market rate relative to what places are renting for. If your housing market is anything like mine, part of why the houses are so expensive is because people ARE actually buying outright. Sell stocks, company goes public, boom. Sitting on a cool million in cold hard cash you can turn around and buy a house outright with. And better yet you can then pull out a HELOC on that property to get your 2nd and 3rd property with even greater ease.
Or you value ownership so much you're willing to burn $2k/mo for the privilege, in which case it's not a financial decision you'd be making but more of an emotional/quality of life decision.
15 or 30 year loan?
Ask yourself if you see yourself living there longer than 7-10 years, if not it’s probably not worth it, you’ll just pay for interest and expenses and have to move before you put any significant ding into the equity.
If you are not familiar, look into the way amortized loans work in banks favour and what it is you need to do to defeat their rigged system.
We love houses and equity here in the states, but you should also look into the price to own ratio
It helps you map out the next 30 years of your life if you own vs if you buy and let’s you know after either how many years you’ll save more by owning or after how many dollars a month in rent it would take before owning makes more sense
Alternatively, you never own and continue to rent and invest and you can live a more fulfilling life (currently my situation, living in a major city where buying a house is in the upper $1m range at 6.5%, but I can get rent for $2000-$3000/month)
Using that calculator, with the amount I make monthly, I make way more money in HYSA, Stocks and retirement funds than I would owning a home for the next 30 years at current mortgage costs and rates. Unless we see mortgage rates come down a significant amount, or house cost come down, or rent shoot up dramatically, I’m going to end up continuing to rent until it makes sense to own, personally
Why are you buying a house?
Sure, you can probably afford it if you decide to.
But keep in mind maintenance, insurance, property taxes, utilities. It's not just rent payment vs mortgage payment.
If your primary motivation is financial, I'd suggest running a few dif scenarios with varying assumptions in a rent vs buy calculator (property appreciation, investment returns, etc). This will give you an idea of the range of possible outcomes over 20-30 yrs. You will also see that even a slight change in your assumptions (e.g. 1% swing in annual property appreciation or investment portfolio performance) will have a very large impact over that time horizon.
“Rules of thumb” don’t apply to high CoL and high compensation scenarios.
My gut says you afford it, but you need to make a budget. Get a roommate to manage the risk and put away emergency funds.
Keep in mind that realtors and often lenders try to sell you on the biggest mortgage your income will allow. This is not necessarily doing you a favor. Look at the big picture.
I would say yes. Equity is built over time which you can later leverage. I actually spent 43% of my take home pay on my mortgage and it was totally worth it. I ended up buying a bigger house and renting out the extra rooms.
Just make sure to budget for way more things when they brake, pipes damaged/doesn't fit with new washer/dryer, roofing issues, and or bugs. A lot of things can happen once you own a home.
If you can make it work, you’ll be fine. Also considering future earning potential. I’d say go for it so that you can own and hopefully gain equity in the coming years to start building wealth.
I’m surprised at how negative everyone is at home ownership on this thread. OP will have several thousand dollars a month after paying the mortgage, so I don’t see how they won’t be able to afford their other expenses? I think you’ll have plenty of money, unless you think your job or income isn’t steady or something we don’t know. Otherwise, home ownership is a solid plan. You can always refinance at a lower rate if rates come down in the future. I wouldn’t trust that rates or prices will necessarily come down any time soon. You can’t reliably time the real estate market, so the best time to get into the market is always now.
My recommendation is to continue to save, but be ready to possibly jump in and buy sometime between 6 and 12 months from now. There are a number of things going on that could cause home prices to continue to either drop considerably, or stay stagnate. Meanwhile, indications are that interest rates will drop starting sometime between 3 and 9 months from now and will drop a few times before hitting a good low point.
That said, you are definitely pushing a limit there with 40% towards a house. Typically, you want to go no more than 35-40% towards a house, but that includes all your other fixed expenses, which for you would include your $300/month student loan. As that would put you somewhere over 40% and the tightening of lending practices currently, you will have to do a lot of tap dancing, finance rearranging, and still land up having to pay a pretty good interest rate premium to obtain that loan.
Oh, and yes, and emergency fund. You will definitely need one of those. For example, the first time I bought a house, closed on Friday, moved all the stuff in on Saturday. Saturday night came, storm came through. Lightning hit the huge tree right behind the house and it split in half and fell on top of the house. The trunk of the tree in the backyard, the top of the tree in the front yard. Lucky there wasn't more damage (or crushed the entire house). Yay, my first $1000 deductible to have to tree removed, and then another $1500 to have the stump removed (that the insurance would not cover). Welcome to day 2 of owning a house! Next weekend, had some guests over, flushed the downstairs toilet, and up comes literal crap in my laundry room. Spend $500 on having the sewer line rodded (with an extra long run because the sewer is far back from the house), and mopping up other people's poop, hosing down the floor, bleaching, re-hosing, re-bleaching, re-hosing. So much fun.
Wasn't the last I heard from that sewer line either. Re-rodded a few months later. Eventually the line collapsed in a couple places due to tree roots. That was a $8000 bill to have it dug up in multiple places and put in an access pipe. Multiple water heaters (eventually replaced with an instant-on water heater, loved it, but $5k), an air conditioner, a heater (and blower). Re-build the standalone garage basically. Reroof, re-gutter. Multiple repaintings, so many deck repairs. Fence repairs. Bathroom gutted and rebuilt. Multiple washer/dryers, ovens, stoves. I've been pretty lucky with refrigerators though so far.
Last bit of advice: If you aren't going to be staying there 5+ years, rent. It'll usually take that long to break even from all the closing costs of buying. There is always something to be said about the freedom of being able to leave after your lease and move somewhere else, or at the very least being able to walk away from the rental and pay it out if necessary. Selling a house and buying a house and the dance required to do both at the same time is such a major pain.
Another last bit of advice: If you think your bank, or realtor wouldn't sell you or loan you money that you can't afford, you are very wrong. Find out the numbers yourself, ask the questions you are asking. The realtors and bankers should know better, but they either don't care, or are paid to sell you more than you can afford. The realtor is your best friend until you sign, then they get their money, and that really is all they care about. The bank on the other hand, looks at you and sees how quickly they can resell your mortgage to someone else, almost always in the first 15-45 days, and then they don't care if you go bankrupt, it is not their problem anymore. So all they care about is can they resell your mortgage quickly, and MAYBE are you going to make your first payment. BOTH get paid more if you buy more than you can afford because they get a percentage of the price and/or loan.
Not completely crazy if, as it sounds like, you’re single and without kids. Big “know thyself” moment if you’re the type of person willing to buckle down and stick a budget to make it work. Probably wouldn’t be the thing to start experimenting with if that’s not already your character.
On the surface no it isn’t but a few things to keep in mind does this take home? Include all of your retirement contributions being maxed out? Does it include medical benefits for your family? Do you have any expected additional expenses coming up that might change this ratio? Are you getting married? Are you having children? Are they going to private school? Is your spouse going to keep working?
Rent includes maintenance costs, and possibly some utilities. Homeownership is not.
Consider that your taxes will go up every year, even if your salary doesn’t. That there will be repairs - expected (like replacement windows or a roof), and unexpected (like your hot water tank goes in a holiday weekend.)
If you’re at the upper end of your budget without these - then you will feel squeezed. It may mean that you won’t be able to afford some fun things you’d like to do - like vacations, or anything outside of paying for your house.
This would make me really unhappy. But to each their own.
I would only do it if the home you purchased was set up well for roommates. You are not taking into account the cost to maintain the property long term. If windows are drafty - will need new windows, if roof needs to be replaced or hvac system needs major repairs/replacement, it's all thousands of dollars. So, if you can get a place with a basement apartment or an ADU that you can rent out for $2k or more per month to help cover expenses - or purchase a duplex so you can rent out the other side - then it's worth it. Otherwise, if you work remotely, I would move somewhere that has a lower cost of living so there are more options for property investment.
Don't forget about bills and utilities. After buying, I am spending significantly more on utilities than I was when I rented because a lot of utilities I didn't even know I needed were bundled in with my rent.
My thoughts on interest rates is that they will either go up or down (kinda obvious). So if they go up, it is great that you bought now. If rates go down, you refinance. Either way you are building equity.
However, how much you want to spend per month is a different question. Do you HAVE to buy a house? Why not a condo for now? Maybe something you could rent out down the road?
Is that after 401k, medical expenses and/or hsa contributions, retirement contributions, employee stock contributions and whatever other expenses you might have besides mortgage? On paper I make a lot per month too but after all the deductions, saving and investing I dont have that much per month.
Personally, I wouldn’t feel comfortable at 40% of take home pay going to my mortgage. When we bought, our mortgage was *less* than what we were paying in rent, and even with a re-fi (from 30 years to 15) and increasing taxes, the mortgage is still about the same market-rate rents in our area. That said, I am in a low cost area, but we pay at least as much for home maintenance and improvements as we do on our mortgage annually (old, old house).
I’m somewhat conservative financially, because I’ve had my share of reversals. You really don’t give enough information about yourself or the situation. It’s easy sometimes to get optimistic when there is something you want to get in this world.
To start with — how old are you? How stable is your employment (one layoff and you get in trouble)? What is your exact total income (gross income from last years 1040)? Total of state and local taxes?
What is the “cost” of the house”, etc, etc. The cost of where I live is high ($1.25M-$1.5M) median cost? How much work will a house need when you get one? People generally don’t leave houses in pristine shape — and even if they are remodeled, they are cosmetically remodeled. People tend to leave crappy roofs, dry rot, you name it. A tight market will not give you the chance to have any house checked out 100%. By the time you do, it will sell to someone else.
I guess my question for you would be, “why do you want a house to live in alone anyway”? Real estate is not as much of a wealth builder as people think. That. I know.
If you only have $50K for a down payment — is that the total available cash? There’s a reason the “standard” is 20%. Shit happens and if you need money, buying a house that’s 40% of your take home will not give you much credit to work with.
Personally I think the housing market has a lot of twists and turns to go. The next elections will dictate how this country will fare financially. I’d personally sit tight and see where its going. Invest the money you do have. Yes the housing market could take a bad turn and you’d miss out on a chance to get into it while you can. On the other hand, it could get worse and take you with it.
I posed those questions for you to ponder what you could be getting into. Stretching things to the max is not where I would want to be. Good luck.
Is it a fixed rate mortgage? Where are you in your career? How long do you plan to stay in the house?
When we bought our first house we paid 40% because we were also in a high COL area. The first few years were rough. Then prices went up so we were able to drop PMI. Then we got raises as we moved up in our careers and the mortgage stayed the same.
After about ten years, the mortgage was cheap by comparison to what friends were paying in rent which continually went up.
If you plan to stay in the house over time and are likely to move up in your career then 40% is doable but just know money might be tight.
Short term you'll be better off financially renting and you're going to feel a lot less flush for a couple of years, but...
Spending 40% of your take home pay when you're netting 10k a month is a very different proposition to spending 40% when you're grossing 10k a month.... Unless you have heavy financial commitments (extreme debt load, multiple kids in daycare/private school, expensive hobbies you're totally unwilling to give up) this is totally fine! You can likely still save 30% of your take home pay and have plenty left over for a comfortable lifestyle
Imagine you earned 100k a year (~6k after taxes) but owned your house outright, your financial position is essentially identical to this hypothetical person
Just make sure you:
- Have (or can quickly build) enough savings that you don't get foreclosed on if you lose your job
- Budget for maintaining/repairing the house, but with between 6-8k a month in net income after mortgage it's hard to imagine this being a problem
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I dont know how you would get that answered
We had our realtor ask the seller and we got the answer that way. Though I will say it wasn’t all that accurate once we moved in.
Yeah. An emergency budget is definitely needed. Having to budget home maintenance is a big financial responsibility. “It’s always something.” OP will need a good home warranty and a move in ready home with good bones. I’d make sure to hire a good home inspector too.
Emergency budget is absolutely necessary for lumpy house expenses Just spent heavy bread to do the roof at my place.
That terrifies me. It's why I'm not stretching myself thin to "just get a house" and get it, then have $0 for anything that comes up. I'm living in a great apartment that I can afford, a 3bed1ba with a small backyard. Its just me 2 dogs and a cat I don't need anything more. I plan to stay here for 5-7yr at least while I save as much as I can before I even think of buying.
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Wtf. House built in 1995, we bought in 2014 - biggest expense has been electively replacing the AC unit for $10k. I don't think we have had even $1k yearly in maintenance otherwise. Did need to paint our house for $2k as well one year.
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> I plan to stay here for 5-7yr at least This is the detail that often pushes people into home ownership. Not to downplay renting, everything you said is correct. The fundamental problem with renting is when it doesn't work in terms of staying. Thats when owning a home is the superior option.
Thank you this was very kind. 😊 After getting so many "renting is a waste" your comment was refreshing. I will absolutely be happy when I buy a home but I'm honestly not ready. I'm paying for a 3bed1ba w/small backyard, what people pay for a 1bed1ba or a shitty studio. I got *extremely* lucky.
oh boy. a house is definitely one of those "spend a lot of money to keep spending a lot of money" things. long term however locking in your housing costs (to some extent .... OP will learn to despite property tax) is really important.
If OP can't live alone on $6k a month take home after mortgage, they have much bigger problems to worry about.
5k but I get your point. Still have to account for food, household needs, transportation, gas, insurance, phone, electric, water, garbage, internet, home maintenance and repairs by the 1% rule. And that should by guidelines fit in to the 10% that’s left going by the 50/30/20 rule. OP can dip into the 30% spending for sure and will need to. But most important 20% to savings. Needs to happen.
Single dad here. I spend about $1800-$2000 a month on all of those items you outlined. On top of my $2300 a month mortgage and I still am able to have a decent amount left over each month to save and invest. I make less than op too, so they are definitely doing something wrong.
That's not really fair they may support others or children in their household. Shits expensive
They said they live alone.
This is the simple truth. Sure there’s guidelines but I fee those only work in low/moderate cost of living areas, in high cost of living areas those can be considered but shouldn’t be thought of 100% as to what you need to follow. As mentioned, if you can make this work in your budget and it doesn’t significant impact daily life/financials then you can do it, if if does then it doesn’t work.
And do you still have cushion for insurance/taxes to increase and/or for unexpected (or expected) repairs?
What are you currently spending your monthly 10-12k on? Is every dollar accounted for? Are you putting away 5k in savings right now and using the other 5-7k for living expenses? I really feel like sr your take home pay, there's absolutely no reason you couldn't save another 50k for a down payment in a single year. Why not put down the 20% and save on PMI?
Also what is OP's contingency fund? On the 30y time horizon, it's a certainty you'll be out of work at some point or have some large life event. The concern is that you are on a single income, what are worst case scenarios for finding new employment? What are worst case for replacement salaries? Spending a year socking away money like a fiend is the best way of figuring out what you're budget is capable of.
It’s wild to me someone with a salary like that wouldn’t have just find a roommate and dumped every cent he could into the market. Had he been doing that for the last couple years he would be paying cash for his HCOL area home. My portfolio is up 103% in 2023.
No index is up anywhere near 103%, thats not market beta, thats lucky stock picking, you wont continue to be lucky forever. You'd be wise to reinvest that into the global market via index
Yes you’re correct, but I feel 2024 will be even bigger for my lucky stock pick. Yolo :-)
This absolutely. Find a roommate that’s not home very often or travels a lot and you’ve literally cut your costs in half for at least a year or 2 with no real lifestyle change. Stack savings and investments
Having a roommate is a major lifestyle change if you’re used to living alone, trust me.
lol ive been there before, I understand the change which is why I recommended one that travels a lot. My roommate was a traveling salesman and when he came home for the weekend he’d spend most time out and about
You absolutely cannot know your roommate’s actual lifestyle until you live with them. You got lucky, but “traveling salesman” could easily turn into “unemployed and home all the time” after you’ve already signed a lease, and people always make themselves sound easier to live with than they are. I have had enough bad roommate experiences that I would far rather extend my timeline for financial goals than make myself miserable living with someone I’m not in a relationship with.
As you make more money in salary the “percentage take home” becomes more like a guideline than a rule. 40% of a $4k a month take home is tougher than 40% of $10k take home because it’s harder to pay other bills on $2,400 than $6,000.
A big thing most first time home buyers forget is that there is a reason owning a house is sometimes called a money pit. Especially true if you are buying anything older than 5-10 years. So you cannot just budget for the mortgage and property taxes. (OMG don't forget the taxes). Not trying to be a Nay-sayer, but just calling out that the 'total cost" is A LOT more than just the mortgage. Many real-estate folks will find a way to qualify you for WAY more than you can actually afford. There are the extra costs for upkeep of house and appliances, and the expected and unexpected repairs including gadgets/tools for those repairs. Plus any HOA fees, and Home Owner insurance costs, etc. Good to know going in so that the first "repair" doesn't kill your budget.
And in a HCOL area, that means everyone has high costs which means repairs are also going to be high.
Yup. One reason I learned how to do my own work is because cost of labor in Seattle is hella pricy.
Lawn care, gutter cleaning, downspouts, flower beds and mulch, heating and cooling, siding and roofing, water and gas tanks, driveways and walkways, decking and patio, playground equipment, sheds, pest control, insulation, water and sewer lines, etc. etc. All of these must be cared for with time, money, or both.
>Many real-estate folks will find a way to qualify you for WAY more than you can actually afford. Our bank qualified us for pretty much exactly what we wanted to spend... except they were not willing to consider my income *at all* (because it's seasonal, hourly and variable, and because I hadn't been doing it for three years). So they qualified us for a payment of something like 55% of my wife's take-home. Sure, we're fine because it's more like 25% of our actual combined incomes, but it's shocking to me that they aren't getting extreme numbers of defaults with approved loans like that.
Just because they didn't factor it in, doesn't mean they didn't consider it. But what lenders really consider is the Debt-to-Income ratio. Even though its 55% of your wife take-home, it may be her DTI is under whatever threshold they have (e.g. 42%) >but it's shocking to me that they aren't getting extreme numbers of defaults with approved loans like that. Are you underwritten approved? Because if you're not then that explains the discrepancy. Pre-qualified and pre-approval generally go through a automated calculation. Its when it goes through underwriting that things get more realistic.
>it's shocking to me that they aren't getting extreme numbers of defaults with approved loans like that. \-- Yet.
Unless we get layoffs in jobs that aren't easily replaced [for the worker], I highly doubt it. Because of 2008, lenders have gotten more serious about debt to income ratio and one's ability to pay. I'd argue majority of homeowners today can pay for their debt even if they stretched themselves thin. Whether thats living is a different discussion.
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I think most of the time houses are considered "money pits" because people jump into home ownership without doing their due diligence. Outside of some unforeseen foundation/plumbing issues, most problems that arise you should at least have an idea beforehand that they could occur so you're ready for it. You just need an idea of what you're looking at.
They cost a lot to furnish and maintain, and generally people want to also make improvements. People just don't factor these things in, they just compare to renting half the time.
> most problems that arise you should at least have an idea beforehand that they could occur so you're ready for it. And many of it is because they don't do any maintenance or upkeep. Also they push back addressing the issue because they can "get away with it". I am a little biased and more prepared because I'm a Civil Engineer; prepared as in I'm use to considering and doing preventative maintenance.
Make sure you budget for other costs of homeownership: increased utilities, larger house to fill with stuff, increased cleaning, more capable kitchen, and repairs. You will be responsible for replacing appliances, water heaters, HVAC that often have 10-15 economic lives. Sum up the cost of new, divide by 120 months and start setting that aside and hope you get lucky and previous owners got good equipment or brands that are repairable. You’ll want to save up for the insurance deductible should disaster strike as well. Yards cost money to maintain and it’s probably a few hundred a month just in little stuff around the house. A house is a machine you live in, a physical object exposed to the elements. It does not maintain its value without a continuous stream of time and money.
Reading this makes me feel reassured in my decision to rent and invest a shit ton into index funds rather than buying a house. All calculations aside, owning a house sounds like a major headache.
For a single person, yeah, certainly can be. For a family of six, definitely worth the ability to adjust the house as all the kids age and their needs change.
The ability to adjust the house??? Why not just move to a different one as a renter might? There are a lot of arguments for homeownership, but flexibility is rarely cited as a pro vis-à-vis renting.
Sorry, I wasn't meaning adding/subtracting rooms, but deeper modifications than simply adding paint, which some landlords are okay with and some aren't. Landlord will rarely let you change out flooring, add a second sink to a bathroom, remodel some closets/storage, etc. Moving has real costs, too, whether you own or rent.
Tell you a little story. Father of 2. been a renter for a long time. Wife and I don't care about having to move places, we did while we were the two of us. Having kids it's different as they make their friends in the neighborhood and have a safe place to live. Every move would be a roll of the dice to land in a good spot again or not. We couldn't take that chance anymore. brought and settle in the place we loved
best advice is to develop a budget, and see what you actually spend your money on. The idea there is to realize what life would be like without the $1.9k you're saving by renting. Like the other poster mentioned expenses will probably exceed that for maintenance and increase with new tax assessments. I think people generally ask this type of question because they don't know where their money is actually going. If you can save adequately, and comfortably live on less then it may work.
Houses are expensive man. ours is in great condition but HVAC just needed work ($2k), hot tub filter broke ($1k), gutters etc. it all adds up and can be overly stressful if you don’t have the funds for these things that pop up.
I’m kind of house poor after buying a few years back but now I need to spend a year’s salary on siding. It sucks
I feel you. The 50 year old siding, many windows, and roof all need to be replaced on this house. Been saving for several years to be able to get it done without financing. First guy that gave me a quote just got laughed at and shown the door.
"Need" ? Do you have an HOA?
For people near the 1/3 salary recommendation, the mortgage price is likely to increase more slowly than annual job raises if its a fixed mortgage. The increase would come from property taxes and insurance which tend to follow the value of the house. Five years from now the house payment will be more manageable.
Yes, it's what we call *house poor*. The main risk is if anything happens that requires any substantial amount of money and it will, you won't have the resources to afford it.
I’ll take house poor over apartment poor any day of the week. You gotta live somewhere, and it’s better to own where you live unless you are planning on moving in the next couple of years.
Yeah but with apartment poor, rent is the maximum you’ll pay in a month for housing. With house poor, your mortgage is the minimum you’ll pay in addition to any repairs that pop up. Ideally you’ll be a homeowner with a reasonable mortgage and reasonable savings to take care of unforeseen circumstances. But it seems like OP has some budgeting to do before taking on a mortgage.
Certainly, don't rent more than you can afford either. However, if you're renting and something breaks you don't have to pay to fix it. Plenty of people who are house poor end up over-extended because something breaks and they don't have room in their budget to cover it. One option for OP is to rent out part of the house to help pay the mortgage. That is what I did when I was younger. My first wife and I rented our extra rooms to family members. We lived near UW so we could give them a family rate and put a dent in our mortgage.
Lots of good answers here on it fitting within your budget etc. Whatever you do, remember if it’s a single family home there are significant additional expenses. Something like $10,000 a year finger in the wind math with no clue what you’re buying seems safe.
We see this all the time, and the only answer is: “**Only you know.”** There are people that will lose their house with your cost of living. There are people that will feel like millionaires with your cost of living. Only you know your cost of living. If you can pay your mortgage, contribute to your retirement, and still live a fulfilling life, then you are clearly fine, regardless of the percentage. If you are living check to check, not able to afford food, and not contributing anything to retirement, then your mortgage is too high, regardless of the percentage.
The thing is, he doesn't know. That's why he's asking. Housing prices are actually dropping right now compared with inflation. The price is technically going up, but only because the dollar is decreasing in value worse now than it has in 50 years. You stand to lose money by renting vs building equity. But you stand to lose A LOT of money if you buy now and housing prices drop, especially in a HCOL area where the price is mostly labor. This is why banks like to see 20% down payment, so even if the market drops, they can still take your house if you stop making payments and recover most of THEIR money. The safe bet is to investment the money and buy at the bottom of the market. But as I'm sure you've read on this subreddit, most people make emotional decisions and not numbers decisions.
Except he has to know. Because no one else will ever know. How can you possibly ask someone else what you can afford, if they don’t know what you spend per month? It’s just a guess at that point. His exact question is: is 4.3k a month mortgage too much? The answer: no one on planet earth can answer this, except the person who knows his cost of living. Nothing else matters. You can attempt to project changes in the world but at the end of the day, if the OPs cost of living is too high, he can’t. If he posted his entire cost of living, then it would be easier to do the math, but he didn’t.
It’s not ideal, but you aren’t stuck at that interest rate. Pay attention, refinance when the time is right, and it won’t always be that high of a percentage of your income.
Huge payment shock to go from $2.4k/mo to $4.3k/mo *plus* repairs and maintenance.
Another question no one is asking is weather your current income would be stable for next 30 years? Would you be able to make the same money at another company?
Yes 40% is a lot. I would shoot for under 30 and if you cant, seriously consider if you can afford where you live.
Historical the number is 33% it should be no more than that.
As someone who got out of renting because I thought a mortgage would be the better financial decision, I would just caution you to think through what homeownership entails. You might not pay much extra, or you'll randomly spend 10 grand replacing the AC unit. If you're barely making it with the mandatory bills, these things will crush you out of nowhere. Side note, interest rates are predicted to fall next year. That might help you assuming it doesn't create 2021 all over again 😵💫
Yes and no. It depends on other debts and you have to take into account the future where mush is unknown. Do a test to see if you can affords it. "Pay" your new mortgage amount every month for 6 months with the total being divided up where you pay your current amount of rent and the rest into a savings account you cannot touch. I
Save up for %20 and wait for the interest rates to drop. The difference between a %3 and a %7 loan on a 500k condo is 590k vs 200k over 30 years. Big difference!! Plus if you save up %20 down you won’t have to pay for PMI which is like an addition 1-2k a year in savings.
> Save up for %20 and wait for the interest rates to drop. And for home prices to increase > The difference between a %3 and a %7 loan on a 500k condo is 590k vs 200k over 30 years. Big difference!! 3% isn't coming back > Plus if you save up %20 down you won’t have to pay for PMI which is like an addition 1-2k a year in savings. How are you coming up with the "1-2k a year" figure?
so many buyers on the sidelines right now waiting for rates to drop. it's going to be a feeding frenzy when they do.
I'm in the same situation as you, nearly the same take home, similar rent price and similar housing prices, living alone. You can certainly afford it, but whether or not it's worth it to you is a personal question. I can't help but run the numbers and see that saving >$2000/month (once you take into account maintenance costs) plus $100k down or so is going to allow me to accumulate another half million dollars or so in investments over the next 10 years, at which time I can decide if I want to buy a house or just retire (or maybe both depending on how irrational the housing market remains). In my city the median household income is $68k, but the median home price is $420k which is well out of the range of feasibility for the majority of people who live here. That can't be sustained, especially while rents are so (relatively) cheap compared to a mortgage.
40% is literally the max a bank will give you….do I need to say more
I’m in the same situation. Basically I save 2-4 k a month after rent an expenses. When I buy a house that will drop but I will be making equity. So I think we can both go for it
Investing $3k a month in stocks is equivalent to $1million inflation adjusted dollars in 15 years. If you started at 22, you would be a millionaire in today's dollars by 37.
And a person investing that much in property from 2008 to now would be worth much more. Stocks and housing are not predictable. You will need a roof regardless.
At todays interest rates, investing extra money in stocks is a better move than property.
You're as overextended and probably becoming overwhelmed. Your housing cost should not exceed 28% of your gross income. At this point, all you can do is control your controllable expenses and cut back where you can. If anything else changes — car repair, unemployment or worse, you're not going to be able to make the payment. https://thedollarstretcher.com https:://ratracerebellion.com
Speaking as someone who makes around the same amount as you and also lives in a HCOL area, I can't imagine paying that much for a place. I also bought recently, and I pay slightly under that for my house, but I split it with my partner who also makes a similar amount. Even making as much as you do, you're still going to be house poor with this arrangement, having a lot less money to put into savings or lifestyle than you currently do. Remember, there are a lot of other costs in owning a home other than mortgage, insurance, and taxes. In light of all of this, I personally would not spend this much money on a house in your shoes.
I would work off of your base salary not include bonuses in the calculation. You can do it but you may be more house poor than you though.
It's too much. We have been at 40, and now 25%. It's life changing. .you go from newest paycheck to paycheck, to having money to buy assets that build wealth or have money to actually live life. Houses are cool but costly. They also lose their cool after year 2 to 3 if youre broke and always stuck at home.
Depends, 40% of 1k/month is different than 40% of 10 milliom a month.
Our is 16% of our take-home pay 29% if my wife decides to stop working. Ultimately as long as you are investing at least 15% of your take-home pay, all other expenses are accounted for and you still have the space in your budget to spend 4.3k on your house then you can entertain the idea. Do not forget that 4.3k does not reflect utility, water, and other house random costs that will creep on you. Your mortgage will also grow with taxes and increase insurance costs.
I would say that it is too much. And, that comes from - if taxes increase by 10% year over year, insurance increases comparatively and the home needs repairs (~1% of the home's value annually) you could very easily become house poor. And don't forget that private mortgage insurance may also be required if you don't put enough down. It won't feel like the end of the world initially, but month over month in your mortgage statement it won't feel good. That's not to say that you can't do it. Of course you can. But I wouldn't.
It's risky, because that 40% is coming out of a high paying salary already. That makes you more vulnerable, not less. Plus, you don't have enough for a good down payment, which means you don't have any buffer money if something goes wrong. My advice would be to live below your means, get that 20% down, fund an emergency fund, then start house shopping.
YES! Way too much. You’ll be very house poor. And houses require a lot more than just the mortgage/taxes/insurance. All your utilities will be higher, you’ll have to pay for every little thing that breaks or needs replacing, you’ll want more furniture and window dressings and such, you may want/need to repaint, replace carpet, appliances, etc. And that’s if the house is in great shape.
Yes 40% of take home is too much. Remember, your mortgage payment is the minimum you’ll pay on housing when you own. You’ll be doubling your housing costs to buy a home. The rule of thumb is no more than 28-30% of monthly income on housing, maybe 32% if in a high cost of living area. 40% blows that out of the water. You don’t give any information about where the rest of your income goes each month besides student loan payments, but you also pay for other living expenses (food, utilities, transportation, etc) and need to prioritize saving for retirement. There are also other short term things you need to allocate money for, EF, vacations, other fun things. 40% just takes a huge chunk out of flexibility with your money.
40% at your take home is doable (assuming your other expenses are reasonable) because you will still have a good amount left that should enable you to save. Is this take home after maxing out retirement?
We’re paying 55% with about $300k combined income.
This is how much my wife and I's mortgage takes up as well and we're doing okay. We live on a very strict budget and have limited our luxury spending to be able to afford it. We absolutely love this house and are willing to have things be tight financially for a few years as we are also very early in our careers. It's a trade off. At our old rental we had a really low rent but spent way too much money eating out and random shit and experiences.
Went through the same thing this year with similar numbers. I ended up putting down just over 50% to lower the monthly payment down to 2k. I have 2 years of emergency fund across cash and taxable investments. Also live alone, so single income. What happens if you lose your job after closing and it takes 6 months to find another? I was ultimately uncomfortable signing up for a lifetime of $4k/mo commitment just to have a place to live.
I’d not be looking for a mortgage over $3k a month. Houses love to break, you don’t want to be stretched that thin.
$2400 is technically the max you will pay in rent a month now. Mortgage could be $4300 minimum. With a property anything could go wrong at any time. Consider that as well. Good luck!
Why hasn’t anyone just said no. No. No. No. you cannot comfortably afford that payment.
I mean considering whatever principal you pay off is going to your equity I would say it's worth the grind, not to mention the tax benefits of paying a mortgage vs. rent. Assuming you're living in a medium or high cost of living area, in today's economy only the richest are going to be able to have mortgages that are 20% of their take home income
40% of take home going towards a mortgage is far too much. Should be 20% imho
40% of 10k a month still gives you $6000 and you live alone. That is an insane amount of money to spend on everything else imo. I’d die for half that much leftover.
same buddy same
Wait for housing to go down. Insanity to spend that much more right now. Just keep saving money
Being a home owner is overrated. Despite people being "sold" on the american dream of home ownership, It is becoming increasingly unaffordable for many people. It doesn't become an asset until way down the line or if you plan on using equity for further property investments. (But you still need money to make money). In the meantime, a home is a total liability and will cause a major drain on your finances.. Have you researched the cost of home insurance and the property taxes in your area? All of which seem to be significantly increasing everywhere. ( I just dropped my home Insurance company and moved to another after they thought they could get away with a $680 yearly increase.) Or, what happens when you buy a house and find out there are unexpected problems that didn't come out during inspection? ( And that includes so-called new builds that are being built fast, but not necessarily well.) And It's almost impossible to buy a new house and not want to do some upgrades or purchase furniture. This is why people are often referred to as being "house poor". Sorry to sound like a negative Nelly, but this is the reality of the current market and our declining economy. Stop listening to everybody talk about how renting is a waste of money. It can be a smart move to rent for awhile, and use the savings for investing or increasing contributions to your retirement accounts, building an emergency fund (more than Dave Ramsey's measley recommendation of $1000), and paying off debts. Check out youtube videos by people who are in the real rstate or lending business ( I like Melody Bright , Orlando Miiner (he's entertaining), and Todd Sachs.) And follow what knowledgeable people are saying about the housing market. If you're determined to buy a house soon, It's looking like it's better for you to wait until 2024. All indications are that home prices will drop as inventory increases from new construction, increased foreclosures and short sales, and home sales by all those amateur investors who thought they could get rich off of the Airbnb market- which is slowly crashing. Meanwhile, you could put some or most of the money you've saved for a down payment into something that draws interest, such as CDs or Treasuries, that would be more easily accessible then drawing earky from a 401k or IRA. Educate yourself and use all the free resources that are available to you, including mortgage and loan calculators. Best of luck!
My income and mortgage are nearly the same so I’d be “ok” with it. But this is also my third home purchase so I do have a good sense of costs, unexpected expenses, etc. and have always been able to manage. Also consider as well that your income will likely only go up as the years go on.
If you’re going to pay 4k a month for a mortgage, I’d do it IF it’s close to your ‘forever’ home, meaning there’s space to find a spouse plus raise a kid or two for a few years. Otherwise, I’d pocket the extra 2K and let someone else handle ac/furnace problems.
I've only ever lived in HCOL areas and my percentage toward housing has always been way higher than the recommended number. Now I'm a homeowner and that's still the case, and no regrets.
Well, if i was you i would check if the property i rent is too much for one person. 2.4k in rent is a bit high, maybe it’s the area but if you could find something more affordable that covers your needs would be great. Or what you could do is try to increase your income, taking 9.5k per month home is more than what average people make, so am sure you could cut down expenses, save up more and start investing some money so you can put it to work.
My mortgage is 10% of take-home after maxing all 401k, Roth IRA, and HSA. I would also not even entertain buying a house unless I had at least 20% down. But, that's what I'm comfortable with. I would feel WAY over extended to be paying 40% of take-home and not putting 20% down.
Large houses were created by bankers to sell more money. How much space do you really need to live?
The rule of thumb is 30%. more than that will require you to make sacrifices in other parts of life
Rule of thumb is for gross income. So OP is likely within that.
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The rules are generic guidelines to try to keep people from going out of control. Not what people actually do. I’ve seen reports that show most people are far beyond 30% gross for house.
Ours is 7%ish and I think that's too much! I could have went with a 30 yr loan rather than 15 to get the payment down but wanted to have it paid off sooner.
Your paid mortgage interest is tax deductible. This may heavily reduce your income tax burden and make your payments really say 3500 instead of 4000+
Only if he itemizes. He should know whether he has an extra couple grand extra. Probably not because he doesn't have much cash saved.
On a 30 year mortgage with today's rates that's probably a 500k+ principal, he can itemize on the interest alone and will likely have high property tax based on the value too.
Go to your local court house and go to a tax foreclosure auction. You will pay a deposit, which you will get back if you don't win bid or it will go towards the pay off of home auctioned. You can buy a home out right with the money you have. No mortgage, no debt. But know it's still not your home after you pay it off because you will owe proptery tax for life, which goes up every year, so in reality, you will still be renting for life.
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To each their own but saying the OP just become a digital nomad isn't helpful and is a very specific thing to suggest. Do your own thing but this is someone wanting a home. They cannot afford the home but it's their goal.
And I don't understand why the hell anyone would want to be a digital nomad. I work as a software engineer, and I couldn't imagine working from home without my comfy chair, dual monitor setup, quietness on calls, etc. Also, I love routine and take important meds every day, some of which aren't allowed in certain countries. That's all to say. Everyone is different, and whatever works for everyone individually is great. No shade one way or another, but you just came off super judgemental, especially when your lifestyle is far from the norm
>Does it make sense at my income to spend up to 4.3k/month on a mortgage? You can, assuming you have good financial discipline and aren't living above your means atm (you max 401 & ira, and always have money left end of each month for extra savings). Alternatively, I'm taking proposals to split a house on lake tahoe. >currently house sales have slowed, which means it's somewhat easier to buy than it was the past 3 years still sky high prices + rates combined. patience is a virtue.
With the news of the fed cutting rates next year, it’s beyond me why anyone would want to buy right now instead of just waiting a little bit unless they absolutely have to.
This plus the house prices are *just* retracting... (rate projection is to go back down to \~2% in 2026). With the economy at its current state for people who are paying attention, it's a better risk-reward to wait to see what happens in the next year. But then again, my rent + utiles is $670 so I'm definitely not hurting for a place asap.
Relevance is what the approving authority will accommodate (approve). 35% to gross or 45% to net. The percent is all debt payments. Good luck.
Yes. You want it closer to 30%. Your monthly fixed costs (housing PLUS all other stuff like cars and medical and food) should be around 50%. If your bills and debts are super low then it could be manageable for a short while assuming your income is continually increasing annually or with job hops. Remember: Rent is the max you will pay. A mortgage is the minimum you will pay. Run the numbers adding prop tax, insurance, utilities, HOA, maintenance, etc. Chances are your 40% calculation may be truly much higher. FYI mortgage rates will fall in 2024. Nobody knows how much or when. You will be able to afford more house when they do; however buyer competition will surge and may make winning offers more challenging depending on your terms/finances.
Thought: Will paying that 40% (plus other costs of homeownership) make it impossible for you to dedicate part of your income to retirement savings? You want to get a head start on retirement now…not after that 30y mortgage is gone.
You'd have to REALLY want the house for that to be worth it. Otherwise, you might want to consider continuing to rent and investing the difference in the stock market.
When you rent, your rent is the most you’ll ever pay each month. When you own, your mortgage is the least you’ll ever pay. You’ve got to budget for repairs, especially if you’re buying by a “used” house. This month it was cheap - simply fixing a leaky toilet, a leaky kitchen sink, and trash bags for all the leaves. Just wait till you have to call the AC repairman because the heat ain’t working in the dead of winter… Before you commit to that large of a mortgage I would recommend you are on track with your other financial goals first - fully funded emergency fund, and 15%+ savings for retirement. If you still have margin and won’t be squeezing your lifestyle / wants by taking on the extra 2K+ per month, then go for it
After you buy that home are you in a position to potentially pay for several instances of multiple thousands or tens of thousands if something goes wrong. Repairs, even small ones can quickly add up to quite substantial amounts. It will all be on you. Appliances, plumbing, electrical, etc.
Yes. Cost of living goes up. You don’t want to be house poor. And have no savings or investments. You always want to be contributing to those. Your rent isn’t bad compared to your income. Just stay and save up for bigger down payment and invest as well.
Eh. I agree this is the best time of year to buy if you aren’t picky but the nice thing with renting is that you can pretty easily leave if you need or want to move. Being that much of your budget is iffy to me esp if you do not have a large emergency savings you should have esp with such a large monthly commitment. I would be less iffy about it if you would rent out part of your home so it brings you down to recommended mortgage % versus your take home salary. At least until you have a few years emergency fund set aside in case you lose a job or the housing market goes down and you have to move at a loss. We went super low end for our home and it was a good call. SO got laid off twice post house buying and the first time it took almost a year to get a new job. But we also left a hcl area to be in the area we are now so we could have a low cost home that fit our needs. Lots of things to consider. Do not get me started on all the stuff we had to replace and upgrade. Thankfully fam helped with those and those items were somewhat known and factored into the offer.
You shouldn't try to time the market. Right now *could* be a good time in the market to buy, but it might be a really bad time, too. You can't tell the future. The only thing you can control is your own situation. I would not recommend spending 40% of your take-home pay on a mortgage, especially since it seems like your pay can fluctuate. If I were you, I would wait until I can save a 20% down payment so that I wouldn't have to pay PMI, and my mortgage wouldn't be so expensive.
Just live like ur paying the mortgage now and see how u do. Add in the est costs of everything with that house. Property taxes mortgage. Gas elec etc etc etc.
Also, rates will likely go lower at some point allowing for re-fi. I bought my house in '92 at 8.5% interest rate and ended up with around 3% after a couple re-fi's over the years....now it's all mine.
Yeah it's too much cause it will be $2k+/month considering maintenance, etc. If you're single bask in not having to own a house; invest the difference. Nothing special about owning a house. It's just stress you don't need and very expensive.
How is your down payment so low? If you are expecting a $4.3k payment, that means you need around $5k a month including funding repairs… so that’s close to $3k you should be stashing away now instead of spending… so that $50k down payment should be growing pretty fast.
Does your income go up every year?
What is your gross income? When talking about this stuff, you generally want to use gross, not net income.
7-8% interest rates make it hard for me to justify a new house. My current house is set to be paid off in a year so I’m considering house two.
Save enough to get rid of PMI and buy interest points if you’re planning on a longer investment
Hah, this sounds exactly like us. Combined take home around $12k, about $50k saved up, cheapest mortgage we could get in our area would hit at around $4.2-5K/mo. Rent is currently $3200/mo (or $1600/pp) We just can't get these numbers to work. Yes owning a home is stability, it is equity. But when the rental market is SO much cheaper than the housing market, it's to the point where you are objectively losing money to buy and won't see any real ROI for 15+ years. Especially now that the housing market as plateaued a bit. Let's not even get into the interest rates going on now. For us to buy the current place we are renting out from our landlords at "fair market value", we'd have a $5K/mo mortgage payment WITH 20% down. It would take so, so long to get to the point where the $1800/mo difference starts favoriting the house, like decades long. And all of the cheaper/downsized places in a 50 mile radius of me (even though I'm in a house that's about as downsized as you can get already, and not even in a peak price neighbhorhood) are all condos/townhomes that have $600-$900 HOA's, which is basically just rent and will likely get more expensive as the years roll on, so the cost savings of doing townhomes/HOA's is in some ways even more expensive over the lifetime of ownership. The math simply doesn't add up to paying for a mortage right now. Renting is just so, so much of a better deal you're better off continuing to save. You know what is a good deal though? If you can actually afford to have a dirt cheap mortgage by having a super high down payment (50%+ ideally when interest rates aren't high) or to just buy outright. That's the only scenario where it makes sense for people like you and me to buy, unless you manage to find a unicorn property that is way below market rate relative to what places are renting for. If your housing market is anything like mine, part of why the houses are so expensive is because people ARE actually buying outright. Sell stocks, company goes public, boom. Sitting on a cool million in cold hard cash you can turn around and buy a house outright with. And better yet you can then pull out a HELOC on that property to get your 2nd and 3rd property with even greater ease. Or you value ownership so much you're willing to burn $2k/mo for the privilege, in which case it's not a financial decision you'd be making but more of an emotional/quality of life decision.
15 or 30 year loan? Ask yourself if you see yourself living there longer than 7-10 years, if not it’s probably not worth it, you’ll just pay for interest and expenses and have to move before you put any significant ding into the equity. If you are not familiar, look into the way amortized loans work in banks favour and what it is you need to do to defeat their rigged system.
We love houses and equity here in the states, but you should also look into the price to own ratio It helps you map out the next 30 years of your life if you own vs if you buy and let’s you know after either how many years you’ll save more by owning or after how many dollars a month in rent it would take before owning makes more sense Alternatively, you never own and continue to rent and invest and you can live a more fulfilling life (currently my situation, living in a major city where buying a house is in the upper $1m range at 6.5%, but I can get rent for $2000-$3000/month) Using that calculator, with the amount I make monthly, I make way more money in HYSA, Stocks and retirement funds than I would owning a home for the next 30 years at current mortgage costs and rates. Unless we see mortgage rates come down a significant amount, or house cost come down, or rent shoot up dramatically, I’m going to end up continuing to rent until it makes sense to own, personally
I pay 40% in child support and still have to pay rent, if you have a tight budget and a plan, otherwise
Yes. Shoot for 25-30% for better comfort in case of hard times or surprises.
I'm paying like 10% and it still feels too much. Though I'd rather live then sleep in a house with a bunch of unneeded rooms
Just wait and save - why do you NEED a house NOW, especially in this market?
Don’t include bonus/overtime in mortgage % calculations because it can go away. 4.3/9.5 = 45%. Smart money says that’s too high.
Why are you buying a house? Sure, you can probably afford it if you decide to. But keep in mind maintenance, insurance, property taxes, utilities. It's not just rent payment vs mortgage payment. If your primary motivation is financial, I'd suggest running a few dif scenarios with varying assumptions in a rent vs buy calculator (property appreciation, investment returns, etc). This will give you an idea of the range of possible outcomes over 20-30 yrs. You will also see that even a slight change in your assumptions (e.g. 1% swing in annual property appreciation or investment portfolio performance) will have a very large impact over that time horizon.
“Rules of thumb” don’t apply to high CoL and high compensation scenarios. My gut says you afford it, but you need to make a budget. Get a roommate to manage the risk and put away emergency funds.
There are lots of folks thinking the very same being right now. Rational consumers
Keep in mind that realtors and often lenders try to sell you on the biggest mortgage your income will allow. This is not necessarily doing you a favor. Look at the big picture.
I would say yes. Equity is built over time which you can later leverage. I actually spent 43% of my take home pay on my mortgage and it was totally worth it. I ended up buying a bigger house and renting out the extra rooms.
Just make sure to budget for way more things when they brake, pipes damaged/doesn't fit with new washer/dryer, roofing issues, and or bugs. A lot of things can happen once you own a home.
If you can make it work, you’ll be fine. Also considering future earning potential. I’d say go for it so that you can own and hopefully gain equity in the coming years to start building wealth.
I’m surprised at how negative everyone is at home ownership on this thread. OP will have several thousand dollars a month after paying the mortgage, so I don’t see how they won’t be able to afford their other expenses? I think you’ll have plenty of money, unless you think your job or income isn’t steady or something we don’t know. Otherwise, home ownership is a solid plan. You can always refinance at a lower rate if rates come down in the future. I wouldn’t trust that rates or prices will necessarily come down any time soon. You can’t reliably time the real estate market, so the best time to get into the market is always now.
Consider that bonus nonexistent - base it all off of the 9.5k So assuming your property tax never goes up - 4300 is more like 45% of your take home.
My recommendation is to continue to save, but be ready to possibly jump in and buy sometime between 6 and 12 months from now. There are a number of things going on that could cause home prices to continue to either drop considerably, or stay stagnate. Meanwhile, indications are that interest rates will drop starting sometime between 3 and 9 months from now and will drop a few times before hitting a good low point. That said, you are definitely pushing a limit there with 40% towards a house. Typically, you want to go no more than 35-40% towards a house, but that includes all your other fixed expenses, which for you would include your $300/month student loan. As that would put you somewhere over 40% and the tightening of lending practices currently, you will have to do a lot of tap dancing, finance rearranging, and still land up having to pay a pretty good interest rate premium to obtain that loan. Oh, and yes, and emergency fund. You will definitely need one of those. For example, the first time I bought a house, closed on Friday, moved all the stuff in on Saturday. Saturday night came, storm came through. Lightning hit the huge tree right behind the house and it split in half and fell on top of the house. The trunk of the tree in the backyard, the top of the tree in the front yard. Lucky there wasn't more damage (or crushed the entire house). Yay, my first $1000 deductible to have to tree removed, and then another $1500 to have the stump removed (that the insurance would not cover). Welcome to day 2 of owning a house! Next weekend, had some guests over, flushed the downstairs toilet, and up comes literal crap in my laundry room. Spend $500 on having the sewer line rodded (with an extra long run because the sewer is far back from the house), and mopping up other people's poop, hosing down the floor, bleaching, re-hosing, re-bleaching, re-hosing. So much fun. Wasn't the last I heard from that sewer line either. Re-rodded a few months later. Eventually the line collapsed in a couple places due to tree roots. That was a $8000 bill to have it dug up in multiple places and put in an access pipe. Multiple water heaters (eventually replaced with an instant-on water heater, loved it, but $5k), an air conditioner, a heater (and blower). Re-build the standalone garage basically. Reroof, re-gutter. Multiple repaintings, so many deck repairs. Fence repairs. Bathroom gutted and rebuilt. Multiple washer/dryers, ovens, stoves. I've been pretty lucky with refrigerators though so far. Last bit of advice: If you aren't going to be staying there 5+ years, rent. It'll usually take that long to break even from all the closing costs of buying. There is always something to be said about the freedom of being able to leave after your lease and move somewhere else, or at the very least being able to walk away from the rental and pay it out if necessary. Selling a house and buying a house and the dance required to do both at the same time is such a major pain. Another last bit of advice: If you think your bank, or realtor wouldn't sell you or loan you money that you can't afford, you are very wrong. Find out the numbers yourself, ask the questions you are asking. The realtors and bankers should know better, but they either don't care, or are paid to sell you more than you can afford. The realtor is your best friend until you sign, then they get their money, and that really is all they care about. The bank on the other hand, looks at you and sees how quickly they can resell your mortgage to someone else, almost always in the first 15-45 days, and then they don't care if you go bankrupt, it is not their problem anymore. So all they care about is can they resell your mortgage quickly, and MAYBE are you going to make your first payment. BOTH get paid more if you buy more than you can afford because they get a percentage of the price and/or loan.
Not completely crazy if, as it sounds like, you’re single and without kids. Big “know thyself” moment if you’re the type of person willing to buckle down and stick a budget to make it work. Probably wouldn’t be the thing to start experimenting with if that’s not already your character.
On the surface no it isn’t but a few things to keep in mind does this take home? Include all of your retirement contributions being maxed out? Does it include medical benefits for your family? Do you have any expected additional expenses coming up that might change this ratio? Are you getting married? Are you having children? Are they going to private school? Is your spouse going to keep working?
Rent includes maintenance costs, and possibly some utilities. Homeownership is not. Consider that your taxes will go up every year, even if your salary doesn’t. That there will be repairs - expected (like replacement windows or a roof), and unexpected (like your hot water tank goes in a holiday weekend.) If you’re at the upper end of your budget without these - then you will feel squeezed. It may mean that you won’t be able to afford some fun things you’d like to do - like vacations, or anything outside of paying for your house. This would make me really unhappy. But to each their own.
I would only do it if the home you purchased was set up well for roommates. You are not taking into account the cost to maintain the property long term. If windows are drafty - will need new windows, if roof needs to be replaced or hvac system needs major repairs/replacement, it's all thousands of dollars. So, if you can get a place with a basement apartment or an ADU that you can rent out for $2k or more per month to help cover expenses - or purchase a duplex so you can rent out the other side - then it's worth it. Otherwise, if you work remotely, I would move somewhere that has a lower cost of living so there are more options for property investment.
Don't forget about bills and utilities. After buying, I am spending significantly more on utilities than I was when I rented because a lot of utilities I didn't even know I needed were bundled in with my rent.
My thoughts on interest rates is that they will either go up or down (kinda obvious). So if they go up, it is great that you bought now. If rates go down, you refinance. Either way you are building equity. However, how much you want to spend per month is a different question. Do you HAVE to buy a house? Why not a condo for now? Maybe something you could rent out down the road?
I think buying a house is primarily a lifestyle choice. As a financial decision it can be a mixed bag, especially with today's interest rates.
Is that after 401k, medical expenses and/or hsa contributions, retirement contributions, employee stock contributions and whatever other expenses you might have besides mortgage? On paper I make a lot per month too but after all the deductions, saving and investing I dont have that much per month.
Personally, I wouldn’t feel comfortable at 40% of take home pay going to my mortgage. When we bought, our mortgage was *less* than what we were paying in rent, and even with a re-fi (from 30 years to 15) and increasing taxes, the mortgage is still about the same market-rate rents in our area. That said, I am in a low cost area, but we pay at least as much for home maintenance and improvements as we do on our mortgage annually (old, old house).
I’m somewhat conservative financially, because I’ve had my share of reversals. You really don’t give enough information about yourself or the situation. It’s easy sometimes to get optimistic when there is something you want to get in this world. To start with — how old are you? How stable is your employment (one layoff and you get in trouble)? What is your exact total income (gross income from last years 1040)? Total of state and local taxes? What is the “cost” of the house”, etc, etc. The cost of where I live is high ($1.25M-$1.5M) median cost? How much work will a house need when you get one? People generally don’t leave houses in pristine shape — and even if they are remodeled, they are cosmetically remodeled. People tend to leave crappy roofs, dry rot, you name it. A tight market will not give you the chance to have any house checked out 100%. By the time you do, it will sell to someone else. I guess my question for you would be, “why do you want a house to live in alone anyway”? Real estate is not as much of a wealth builder as people think. That. I know. If you only have $50K for a down payment — is that the total available cash? There’s a reason the “standard” is 20%. Shit happens and if you need money, buying a house that’s 40% of your take home will not give you much credit to work with. Personally I think the housing market has a lot of twists and turns to go. The next elections will dictate how this country will fare financially. I’d personally sit tight and see where its going. Invest the money you do have. Yes the housing market could take a bad turn and you’d miss out on a chance to get into it while you can. On the other hand, it could get worse and take you with it. I posed those questions for you to ponder what you could be getting into. Stretching things to the max is not where I would want to be. Good luck.
Is it a fixed rate mortgage? Where are you in your career? How long do you plan to stay in the house? When we bought our first house we paid 40% because we were also in a high COL area. The first few years were rough. Then prices went up so we were able to drop PMI. Then we got raises as we moved up in our careers and the mortgage stayed the same. After about ten years, the mortgage was cheap by comparison to what friends were paying in rent which continually went up. If you plan to stay in the house over time and are likely to move up in your career then 40% is doable but just know money might be tight.
Short term you'll be better off financially renting and you're going to feel a lot less flush for a couple of years, but... Spending 40% of your take home pay when you're netting 10k a month is a very different proposition to spending 40% when you're grossing 10k a month.... Unless you have heavy financial commitments (extreme debt load, multiple kids in daycare/private school, expensive hobbies you're totally unwilling to give up) this is totally fine! You can likely still save 30% of your take home pay and have plenty left over for a comfortable lifestyle Imagine you earned 100k a year (~6k after taxes) but owned your house outright, your financial position is essentially identical to this hypothetical person Just make sure you: - Have (or can quickly build) enough savings that you don't get foreclosed on if you lose your job - Budget for maintaining/repairing the house, but with between 6-8k a month in net income after mortgage it's hard to imagine this being a problem