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Old 04-04-2015, 10:56 AM
Location: chicago
26 posts, read 28,200 times
Reputation: 13


We've started our house hinting recently and firsgstuestion was,well its still being deciding, how much should we spent for a house based on our income to get enough square feet, but not overwhelming ourselves with huge mortgage payments. I realize, that this is all subjective, but believe some "recipes" are there.
I know, that there are plenty of "affordability calculators" online, but they don't look accurate to me.
Let's imagine a situation. A family of four, total pre-tax income $100,000. What maximum monthly payment should be?
Monthly payment: principal, interest, property taxes, insurance, association fee.
Or, in other words, how much percent from income should be spent for mortgage? Talking about income, please specify pretax or after tax.
Lets start a discussion!
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Old 04-04-2015, 12:12 PM
Location: Chicago
3,266 posts, read 4,536,911 times
Reputation: 3996
I don't think there's really any blanket amount that is going to be right for every family with a certain income. For one thing, two people with an income of $100k could have very different take home pay checks based on how much their benefits cost and how much they are putting aside from retirement. My husband's checks are only about $200 more than mine, even though he makes $40,000 more per year because he's putting more away for retirement (well, it's actually the same percentage, but he gets no employer match).

It also just comes down to what you are comfortable with. I know we spent a much bigger portion of our income on our first house than many people would have. But, we had/have no other debt and no kids. We could afford to spend 50% of our take home pay on our mortgage/taxes/insurance.

I think you should figure out how much per month you can spend on a house and be comfortable. Then use the calculators to work backward from that number. If you are comfortable spending $2000 a month, you could afford to borrow about $220,000 if you factor in $12,000 for taxes and insurance combined. So, the total house you can afford would be $220,000 plus whatever you can put down.
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Old 04-04-2015, 03:29 PM
397 posts, read 438,539 times
Reputation: 393
There are calculators online that will give you a good idea of what you can afford.

I think the most important thing is to develop a budget before you are pre-approved or speak to a realtor. Pre-approval looks at your debts and income but it does not look at your monthly expenses like childcare. Determine the monthly payment (including the mortgage, taxes and insurance) that you're comfortable with before you start looking at houses. Once you start looking at houses, it's easy to talk yourself into paying more than you thought you would when you started your search.

To some extent you should assume that your tolerance for a higher payment will increase during your home search. But if you have a budget before you start your search, you won't end up at the top of the range. For example, if you're approved for $500K, you might look at houses priced $400K to $475K. When you start your search, you might think that the $400K looks great on redfin and think they'll work fine for you. But once you start looking at houses, you'll see a big difference between the $400K and the $450K houses; better location, bigger, in better condition, etc. Without thinking about it, you'll probably talk yourself into the $450K house which should be fine if you were approved for $500K. Where you get into problems is if you talk yourself into the $500K house so tell your realtor you only want to look at houses up to $475K or even $460K.
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Old 04-04-2015, 03:41 PM
397 posts, read 438,539 times
Reputation: 393
I just saw this article on Facebook. It's a good cautionary tale of how easy it is to end up in house you can't afford and how it can devastate your finances. There's a lot of emotion involved in looking for a house (home?) and it's important to be dispassionate and see it as a financial decision.

How I Loved
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Old 04-06-2015, 08:16 AM
11,972 posts, read 26,936,371 times
Reputation: 4548
We only spend 16% of our gross income on housing, including all mortgage payments, taxes, and insurance. But we are making significant improvements to the house using cash, so we will ultimately end up with a more expensive house with a lower mortgage. We also have a household income that fluctuates due to small business ownership, so we like to play it a bit safer in terms of fixed monthly costs.
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Old 04-06-2015, 08:31 AM
107 posts, read 176,686 times
Reputation: 75
Another factor is where you are in life. When I bought my first house I was 5 years out of college and alot of the guys I worked with said to stretch yourself as much as possible because you are going to make more money as time goes by and this would prevent you from having to move again. On the other hand if you are at or near the top of your earning potential you dont want to stretch yourself.

Another factor is if you plan to have two people work or one. When we first bought my wife and I were both working full time but she went part time when we had first kid. She is a pharmacist and was laid off when her store closed and we decided to just have her stay home full time with the 3 kids.
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Old 04-06-2015, 10:49 AM
Location: Not where you ever lived
11,544 posts, read 25,180,834 times
Reputation: 6190
Cost does not necessarily dictate square feet, neither does location. It is dictated by need and desire. If you can live farther out and can do some of your own work, you can buy a fixer-upper that is larger and has more of the features you want.

Generally speaking if you have no debt other than rent and car payment, and you have 20% down payment saved, you can probably borrow up to 25% of your gross income. Borrowing less, for a shorter term with a better interest rate, is always a very good idea.
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Old 04-06-2015, 01:49 PM
620 posts, read 801,883 times
Reputation: 1397
To get a feel for what is good for your situation you could determine what you think is a comfortable monthly paymnet and then try living without it for a couple of months. So, if you think that $1500 a month sounds like it would work for you then put that much into savings each month for a few months. If you are really struggling then it is too much.

Find what monthly payment is a good one for you and then find the home, taxes and insurance combo that meets that amount.
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Old 04-07-2015, 09:19 AM
Location: chicago
26 posts, read 28,200 times
Reputation: 13
Thanks for realistic advice, whakru!
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Old 04-07-2015, 02:55 PM
861 posts, read 1,063,303 times
Reputation: 782
Not everyone saves 20% down!
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