How do people afford $800k - $1.2 million homes? (Austin, Round Rock: mortgage, jumbo loan)

[CarnivalGal]

Originally Posted by sinking

I am not sure what the terms are for jumbo loans but for my loan I could not have a debt to income ratio of greater than 45% so doing the math assuming no other debt and putting 20% down and $20k for annual taxes and insurance on a $800k home one must make at a minimum $148,985 gross income per year.

We make more than that (a fair amount more) and there is no way in heaven or hell we could afford an $800K house.

I think a lot of people make more than we realize. But it's very true that a lot of people overextend themselves, but I see that with people who make $40K a year and people who make $400K a year. We live in a $350K house (we paid $280K for it and put 20% down). If people knew how much we made, they would wonder why we didn't buy "more" house (we were actually approved for a $600K mortgage). But after we contribute the max to our IRAs and 401K and put money into savings and college funds, etc. there's not as much money as people think. Thing is that very few people actually invest as much for their future and for unforeseen circumstances as they should.

We may not have the biggest or fanciest house in the neighborhood, but we could also lose a job tomorrow and still be just fine.

[Irishiis49]

Originally Posted by supadad33

I feel like my wife and I do VERY well for ourselves with our salaries and savings, but we don't feel like we could afford a house > $600k. How is it that one can afford a $800k+ house? Like, how much money do you need to make to afford that? Are we just being really conservative with how much we're willing to pay for housing?

Why do you care??? I live in 400,000$ home my bestfriend lives in a 2million dollar home I have never once thought to ask her why!Nor do I care!

[sinking]

Originally Posted by mm57553

We make more than that (a fair amount more) and there is no way in heaven or hell we could afford an $800K house.

I think a lot of people make more than we realize. But it's very true that a lot of people overextend themselves, but I see that with people who make $40K a year and people who make $400K a year. We live in a $350K house (we paid $280K for it and put 20% down). If people knew how much we made, they would wonder why we didn't buy "more" house (we were actually approved for a $600K mortgage). But after we contribute the max to our IRAs and 401K and put money into savings and college funds, etc. there's not as much money as people think. Thing is that very few people actually invest as much for their future and for unforeseen circumstances as they should.

We may not have the biggest or fanciest house in the neighborhood, but we could also lose a job tomorrow and still be just fine.

Keep in mind in my example that is putting the buyer at exactly 45% debt to income and with no other debts. If you have car loans, student loans, credit card balances, etc the income is going to have to go up to be able to get the same house. Also, if one can afford it they should stay as far away as possible from the 45%.

[achtungpv]

The best move we ever did was to evaluate our last housing budget after we budgeted for maxing out our 401ks, Roth IRAs, college fund, investment accounts, and entertainment.

We based our housing budget on what was left after that. We're currently at an income:mortgage ratio of 1:1.08. We currently have no other debt.

Really, to us, housing, and especially cars, are so far down on the list of what we care about that I still think we pay too much for a house. I'd rather be out doing stuff than be stuck in a house admiring how pretty it is because I can't afford to go do anything.

[rickc007]

Originally Posted by achtungpv

The best move we ever did was to evaluate our last housing budget after we budgeted for maxing out our 401ks, Roth IRAs, college fund, investment accounts, and entertainment.

We based our housing budget on what was left after that. We're currently at an income:mortgage ratio of 1:1.08. We currently have no other debt.

Really, to us, housing, and especially cars, are so far down on the list of what we care about that I still think we pay too much for a house. I'd rather be out doing stuff than be stuck in a house admiring how pretty it is because I can't afford to go do anything.

This ^

[gdu]

Originally Posted by centralaustinite

But there wasn't much of a "mortgage crisis" in Austin or even Texas at all!

People may have stretched to get into a 400K or 500K house in Austin or folks who went for $250K instead of 150K but most folks in the truly high end have the money to spare.

If you look at the incomes of all the people in Austin and costs of the homes in the area, the numbers don't work. Either tons of people were born into money here or are paying more than most prudent investors would recommend on housing.

[sinking]

Originally Posted by achtungpv

The best move we ever did was to evaluate our last housing budget after we budgeted for maxing out our 401ks, Roth IRAs, college fund, investment accounts, and entertainment.

We based our housing budget on what was left after that. We're currently at an income:mortgage ratio of 1:1.08. We currently have no other debt.

Really, to us, housing, and especially cars, are so far down on the list of what we care about that I still think we pay too much for a house. I'd rather be out doing stuff than be stuck in a house admiring how pretty it is because I can't afford to go do anything.

I am with you on the idea of keep debt down but a counterpoint is if you are putting your money into your house assuming the house, at a minimum, stays the same value you can sell the house and get you money - fees/interest back if you get in a bind. If you spend all your money on going out to restaurants and booze you can't sell the food or experiences when you are done with them.

Originally Posted by gdu

If you look at the incomes of all the people in Austin and costs of the homes in the area, the numbers don't work. Either tons of people were born into money here or are paying more than most prudent investors would recommend on housing.

Do incomes you see in statistics include profits from investing?

[gdu]

Originally Posted by sinking

Do incomes you see in statistics include profits from investing?

No, but since the income stats cover all austinites, and it isn't hard to find the global average increase in wealth from investing, it's pretty easy to rule out investment profits as the difference between the area incomes and area home costs.

[yam]

You can afford a whole lot more for the same payment with today's 4.5% mortgage rates than you could a few years ago at 7% or higher. Even moreso with a 7-ARM in the mid-3% range.

Rates have been at these levels for quite a while now. Bad things will happen to housing prices when rates finally move up....

[supadad33]

Originally Posted by yam

You can afford a whole lot more for the same payment with today's 4.5% mortgage rates than you could a few years ago at 7% or higher. Even moreso with a 7-ARM in the mid-3% range.

Rates have been at these levels for quite a while now. Bad things will happen to housing prices when rates finally move up....

The idea of this makes sense -- that when interest rates go up, housing gets more "expensive," thus home prices will have to come down. BUT, housing is already "expensive" relative to income levels, hence the discussion in this thread about gains from previous home sales and stock allowing people to buy pricey homes. If we believe in that, then why should house prices go down, if people on the mid-to-high end are buying mostly cash anyway? With mostly cash sales, the house price is what matters, not the mortgage payment (which is based on interest rates).