How much home can we realistically afford? (Houston, Rule: lease, insurance)

[elmonorojo]

Hi there,

We are a young family, moving back to Houston later this year. I am an RN, and my wife will be getting into education. We have 2 small children. I will be in the market for a 1500-2000 sq ft house (3 or 4 bedrooms). I am seeing a somewhat large variation in prices depending on the area and neighborhood. We are thinking pearland, friendswood, league city, or pasadena. For annual income, we will probably be grossing anywhere from 60k to 80k a year, likely closer to 80k, and increasing as my wife gets established in her career. Simple lifestyle here; we enjoy church, family, outdoors, and exercising, just want a safe and simple neighborhood to raise children in. What should our price range for a house realistically be? Right now the range is huge, like 100k to 220k - I need to try to narrow it down to a better price range so that we know what we can afford. Anyone have any suggestions?

[hendersj31]

hard to say without knowing your other expenses. A loan officer\mortgage broker can give you a better idea as well as what you would actually qualify for based on your expenses, credit, reserves and down payment.

[cheryjohns]

Think about $150-180K. You will qualify for more, but why stress your budget?

[Oildog]

Target 2.5 to 3x your income max. That's what I've used. Or assume 30% of pay goes for housing.

I'd listen to chery though, she's in the industry.

[PedroMartinez]

The biggest conundrum I encountered was balancing between "I don't want to be house poor" and "I don't want to outgrow this house".

If you know there is a good chance you'll be moving in the not too distant future, stay low in your range. If you are like me and would love to try to find your "house for the rest of my life", you may want to push the envelope a bit to get what you think you'll be happy in for a very long time.

[Restrain]

Rule of thumb: 25% payment, 35-40% gross for total debt payment. Go out to mortgagecalculator.org. You can take your data and figure out what representative payments will be. Current rates are realistically about 4.5%. Figure $2.50 per hundred for taxes, $200 per month for insurance.

Don't get 'house-poor'. As appraisers we see people with big houses who have sheets on the windows, mattresses on the floor. You don't want to be so strapped that you are sweating the next payment. Don't buy planning on the next raise, etc. buy what you can afford now, buy up later as the situation warrants.

[Schumacher713]

Lease

[cheryjohns]

Originally Posted by Restrain

Rule of thumb: 25% payment, 35-40% gross for total debt payment. Go out to mortgagecalculator.org. You can take your data and figure out what representative payments will be. Current rates are realistically about 4.5%. Figure $2.50 per hundred for taxes, $200 per month for insurance.

Don't get 'house-poor'. As appraisers we see people with big houses who have sheets on the windows, mattresses on the floor. You don't want to be so strapped that you are sweating the next payment. Don't buy planning on the next raise, etc. buy what you can afford now, buy up later as the situation warrants.

Good advice - but I am going to tinker a little with your numbers, for Houston.

Figure $3 per hundred for taxes, to be safe.

Unless you are in a flood zone, you can drop insurance to about $100-$150 per month, depending on who you choose.

There is a mortgage calculator on www.har.com.

Rates are going to depends on your credit and your loan. Avoid FHA if you can - lowest down payment at 3.5% but it has the hideous PMI attached for the LIFE OF THE LOAN now. If credit is good - you can do a 5% down - and a 80/15 loan package to avoid PMI. There is also a loan where you can pay a lump sum PMI amount on a 95% loan - and not have any further PMI payments.

[DSL_PWR]

Originally Posted by Oildog

Target 2.5 to 3x your income max. That's what I've used. Or assume 30% of pay goes for housing.

I'd listen to chery though, she's in the industry.

I wish I could have talked my wife into doing this. We didn't even buy close to that. I guess it was a good thing though.

As others have said, don't stress your budget as it only causes headaches later on.

[dd1153]

Forget rule of thumbs. What really matters is debt to income. Here is how to tell what you really afford

MORTGAGE PAYMENT / TOTAL GROSS INCOME = keep under 30%
TOTAL MONTHLY DEBT + MORTGAGE PAYMENT / TOTAL GROSS INCOME = keep under 45%

Obviously the lower you can keep your DTI the better.