Another rent vs buy - debate with my realtor (Dallas: home owners insurance, mortgage)

[aggierk]

Originally Posted by gocubs418

$450k house, do you make $175k-$200k a year? I assume the answer will be no as you are renting in a $1,100 2/2. If it is no, then lower that way down.

Nowhere near 175k.

As I said in other posts that number is based on wanting 3000 sqft with all upgrades.
Realtor proposed we buy new and that is how we came up with that number on first meetign with realtor.

I went along with that number hoping she will find a job soon and also because I have downpayment ready and got preapproved for 467k.
But I am starting to realize I cannot buy house based on future needs and possible future income.
Even if she finds a job she may want to stay at home after kids. So I really count on her income for extended period of time.

[gocubs418]

Originally Posted by aggierk

Nowhere near 175k.

As I said in other posts that number is based on wanting 3000 sqft with all upgrades.
Realtor proposed we buy new and that is how we came up with that number on first meetign with realtor.

I went along with that number hoping she will find a job soon and also because I have downpayment ready and got preapproved for 467k.
But I am starting to realize I cannot buy house based on future needs and possible future income.
Even if she finds a job she may want to stay at home after kids. So I really count on her income for extended period of time.

Do NOT buy a home that you cannot afford.

You should use a 3X AT MOST multiple of your gross income. For example, $150k * 3 = $450k home. Even that is extremely aggressive. Everyone wants a 3000 sq ft home with all the upgrades.I assume you have $90k in the bank for that 20% downpayment? If not, get used to paying PMI on top of your mortgage forever that could cost $175-$200 a month. And buy a house like your wife isn't working. So only on your income.

And people wonder why the housing bubble popped in 2007-08. Jesus christ, $467k preapproval and you are not near $175k a year. No offense to you (I don't make that much either), its just ridiculous banking.

[aggierk]

Originally Posted by gocubs418

Do NOT buy a home that you cannot afford.

You should use a 3X AT MOST multiple of your gross income. For example, $150k * 3 = $450k home. Even that is extremely aggressive. Everyone wants a 3000 sq ft home with all the upgrades.I assume you have $90k in the bank for that 20% downpayment? If not, get used to paying PMI on top of your mortgage forever that could cost $175-$200 a month. And buy a house like your wife isn't working. So only on your income.

And people wonder why the housing bubble popped in 2007-08. Jesus christ, $467k preapproval and you are not near $175k a year. No offense to you (I don't make that much either), its just ridiculous banking.

None taken.
Thanks for the suggestions.
If I buy, I will do so based on current income.

I have 50k in bank and some retirement funds.
Mortgage company had no problem approving me for 467k - I was kinda surprised too.
They said I could skip paying PMI by doing a second loan.

I am also wondering how the buyers are able to pay 400k+.
Part of the reason I was going with 450k is that an average buyer around me is paying 400k and I like to think I am in decent financial shape. I guess I got little bit of "keeping up with Joneses".

But I am trying to be sensible and thinking ahead because taking on debt I cannot afford will not only change my finances but add ton of stress into daily life.

That is why I am posting here and asking others.

[BLDSoon]

Originally Posted by gocubs418

Do NOT buy a home that you cannot afford.

And people wonder why the housing bubble popped in 2007-08. Jesus christ, $467k preapproval and you are not near $175k a year. No offense to you (I don't make that much either), its just ridiculous banking.

Banks approve you for a payment. That payment then determines the mortgage size.

The payment they approve you for is determined heavily by your credit( very big factor here) Income and expenses. If your expenses are low and credit is good, he will be approved for a bigger mortgage payment (thanks to a lower potential interest rate). Some banks will factor in the size of the Dp as well to determine what that final approved home price is.

Is that method flawed? YES. It does have its merits however especially in areas where housing is very expensive. ( like we might be in the future) Its a one size fits most equation.

People with good credit may actually get approved for more house than they can afford in real life because the math says they are low risk and don't have much else to pay for. Even if they did, the mortgage banking assumption is that your mortgage payment takes priority over every other debt you pay. So... Taking that into account, you can afford a certain payment.... And figure out whatever else.

There. A little insider info.

Buy a HOUSE you can afford not a mortgage payment you can make. Make sense?

[gocubs418]

Originally Posted by aggierk

None taken.
Thanks for the suggestions.
If I buy, I will do so based on current income.

I have 50k in bank and some retirement funds.
Mortgage company had no problem approving me for 467k - I was kinda surprised too.
They said I could skip paying PMI by doing a second loan.

I am also wondering how the buyers are able to pay 400k+.
Part of the reason I was going with 450k is that an average buyer around me is paying 400k and I like to think I am in decent financial shape. I guess I got little bit of "keeping up with Joneses".

But I am trying to be sensible and thinking ahead because taking on debt I cannot afford will not only change my finances but add ton of stress into daily life.

That is why I am posting here and asking others.

Let the Joneses, be the Joneses.

How do they do it? They live in debt and paycheck to paycheck.

Two loans for one house.... eek. I didn't think that was possible.

Originally Posted by BLDSoon

Banks approve you for a payment. That payment then determines the mortgage size.

The payment they approve you for is determined heavily by your credit( very big factor here) Income and expenses. If your expenses are low and credit is good, he will be approved for a bigger mortgage payment (thanks to a lower potential interest rate). Some banks will factor in the size of the Dp as well to determine what that final approved home price is.

Is that method flawed? YES. It does have its merits however especially in areas where housing is very expensive. ( like we might be in the future) Its a one size fits most equation.

People with good credit may actually get approved for more house than they can afford in real life because the math says they are low risk and don't have much else to pay for. Even if they did, the mortgage banking assumption is that your mortgage payment takes priority over every other debt you pay. So... Taking that into account, you can afford a certain payment.... And figure out whatever else.

There. A little insider info.

Buy a HOUSE you can afford not a mortgage payment you can make. Make sense?

+1.

I would also say "Okay, I want $X dollars to cover all of my housing a month. What can that get me?"

Then break it down:

$300,000 Mortgage, assume 0% down, 30 year fixed 3.875%:

Principal and Interest: $1,411
Property Tax: $6,000 yearly or $500 a month
PMI: $200 (aggressive)
Home Owner's Policy: $2,000 (aggressive): $167

Total Payment: $2,271 Monthly Payment

If you take home $5,200 cash monthly (~$100k salary, 15% Savings, $200 a check Health), that accounts for 43% of your take a home a month.

Can you live off 57% to pay utilities, food, schooling, gas, car payments,etc?

Now do that for a $400k mortgage, prob $8k tax bill, HOI, etc. Reality will hit you.

[North Beach Person]

Originally Posted by octo

Are there people who buy a $450k house who don't have the cash for a lawn mower?!

Many end up not having money for furniture and curtains let alone for frippery like a lawn mower.

[BLDSoon]

Originally Posted by gocubs418

Let the Joneses, be the Joneses.

How do they do it? They live in debt and paycheck to paycheck.

Two loans for one house.... eek. I didn't think that was possible.
.

Man.... You can get three loans on one house, four, ten.... If the house has enough equity you can get any number of loans on it. Some game the system by getting new loans before the old one has recorded.... Used to be a pretty common scam actually. Not so much anymore.

Getting a first and 2nd together was a common practice before the bubble crashed. But I'm a little stumped on how.... Really why, they would have him get a 2nd at all. He has a down payment. Zero equity. A pre-existing home in this market probably wont be sold with any equity to the buyer...so i'm stumped on how that would work.I sure hope we arent going back to these loan acrobatics.

[Aceraceae]

Our mortgage is 1.64 times our gross. We are fortunate our jobs are north, so we can have a nice house for less per foot. This works well because we are paying a boatload each month to my wife's student loans, so we aren't paying on them forever.

[aggierk]

Originally Posted by gocubs418

Then break it down:
$300,000 Mortgage, assume 0% down, 30 year fixed 3.875%:
Principal and Interest: $1,411
Property Tax: $6,000 yearly or $500 a month
PMI: $200 (aggressive)
Home Owner's Policy: $2,000 (aggressive): $167

Total Payment: $2,271 Monthly Payment

If you take home $5,200 cash monthly (~$100k salary, 15% Savings, $200 a check Health), that accounts for 43% of your take a home a month.

Can you live off 57% to pay utilities, food, schooling, gas, car payments,etc?

Now do that for a $400k mortgage, prob $8k tax bill, HOI, etc. Reality will hit you.

I had already done similar breakdown for 467k home and thats what got me started on this "is it worth it" question.
Principal+interest = 2051
Property tax = 895 (2.3%)
PMI = 151
Home Insurance = 250
HOA = 100
Total= 3464

Basically the taxes amount to my total rental cost.
I would have $2300 every month I could invest elsewhere by staying a bit longer in rental.

[ds1]

It is probably pretty helpful to post these ratio for the original poster.
We are dual income, and our mortgage to gross income ratio is 1.31.
If one of us lost our jobs or stayed home, our mortgage to gross income ratio is 2.55

The first number is very comfortable/conservative.
The second number is doable for us, but severely limits our savings.

If you make 100K annual salary, the 2.55 ratio would lead to an outstanding mortgage of 255k

If you bought a house for $300k, you could do:
Downpayment of 30K (it's not a good idea to empty your savings on this purchase)
First Mortgage for 240K
Second Mortgage for 30K (15 year note, can pay down early as it makes sense)
Do an 80-10-10 loan (10% down, 10% second, 80% first) to avoid PMI.

And you would be at a "single earner" ratio of 2.7, with the possibility of dropping to 2.4 when the 2nd mortgage is relieved.

Your payment would be:
1st Mortgage (30 yr 4%): 1145
2nd Mortgage: (15 yr 75): 270
taxes (assume 2.3%): 460
Insurance (assume 1800/yr): 150

For a total monthly payment of: 2025 which is 24% of your gross income.

Maybe you want to be less conservative than this, but the big picture, is you SHOULD NOT be buying a $450K house.