How much house should I buy? (Houston, Sugar Land: apartment, rent, health insurance) - Texas (TX) - City-Data Forum

Faster10154 · 04-21-2012, 01:09 AM

Okay guys,

Since I'm using an alias here, I don't mind sharing some personal info. in hopes of getting some honest answers with regards to buying a new house in the Sugar Land area.

My wife and I both work full-time and we're in our late 20s. We currently rent in the Galleria for about $1100 per month. Our combined base salaries are about $139K per year (74K + 65k). With my average OT pay, bonus, company stocks that vest yearly (I sell immediately), and side business income, we make 173K annually pre-tax.

All this doesn't make much sense on a pre-tax basis...of course we have taxes, 401k contributions, health insurance premiums, etc....so I'll give you guys 2 numbers that will help.

First, our monthly take home (including side business, but after charity donations) is about $8,900. This does not include bonus, OT, or liquidated stocks. With that, you can assume it would be $10,300 per month take home.

The only debt we currently have is a car payment of $475, nothing else. We charge all our expenses on credit cards and pay the entire balance off monthly (free reward points for making the purchases we would make anyways with cash).

Without getting into too much details about our savings, we have a decent amount in our 401k/Roth IRA for only working for 3 years. The side business we own includes an equity stake in property, and then we have some cash tied up in an investment group.

Currently, we have 40K in cash not invested and fully accessible.

What price range house should we stay within? Since we have a lot of family in the greater Houston area (her parents are in Sugar Land and so are my uncles and aunts), our intentions are to stay in our first home for at least 8-15 years...could be longer. We're not interested in a starter home.

Let me know if other information is needed to provide an accurate response.

My wife and I of course have decided on a specific range we'd like to stay within, but of course I'd like to compare to your answers before tell you guys what we were thinking.

ToyYot · 04-21-2012, 02:01 AM

How much can you put down, is 40k it?

Felixmp · 04-21-2012, 03:55 AM

One thing you can do, if you haven't already, is create a spreadsheet with your average monthly income and your average monthly expenses. You'll have to make adjustments like not counting your apartment rent since that can go to a mortgage expense. And then make an assumption on typical monthly expenses for a house. That'll give you an idea of what monthly cash flow is available towards a mortgage, insurance, + taxes. You want to avoid those online calculators that say you can afford a $700k house. That is one reason we had the housing recession. Too many people using those calculators, getting the big loan and house, and realizing too late they don't have the cash flow to support the mortage, ins, tax.

The other thing to keep in mind is to ask yourselves, will you both keep working or is one of you going to one day stay home with the kids, leaving you with about half the cash flow you have now. That will have a big impact on the size of house you can afford. The other thing is to think about is increases in future income. Are you guaranteed a big promotion next year that you can bank on? That will increase your cash available for monthly payments.

I would estimate the high side is around $350k for your current situation, half if one of you is going to stop working and stay home with kids. A safer number would probably be around $300k. Then you'll have money left over for that media room upgrade you'll eventually want and the new kitchen upgrade she'll want. This equates to about 25-28% of your monthly take home pay for mortage, tax, insu. I would recommend staying within 30% of your monthly take home pay. You can read more here:

Don't make yourself house poor

This is my personal opinion and you are doing the right thing asking others how they feel. Good luck.

Johnhw2 · 04-21-2012, 05:55 AM

Quote:

Originally Posted by mpgerma

One thing you can do, if you haven't already, is create a spreadsheet with your average monthly income and your average monthly expenses. You'll have to make adjustments like not counting your apartment rent since that can go to a mortgage expense. And then make an assumption on typical monthly expenses for a house. That'll give you an idea of what monthly cash flow is available towards a mortgage, insurance, + taxes. You want to avoid those online calculators that say you can afford a $700k house. That is one reason we had the housing recession. Too many people using those calculators, getting the big loan and house, and realizing too late they don't have the cash flow to support the mortage, ins, tax.

The other thing to keep in mind is to ask yourselves, will you both keep working or is one of you going to one day stay home with the kids, leaving you with about half the cash flow you have now. That will have a big impact on the size of house you can afford. The other thing is to think about is increases in future income. Are you guaranteed a big promotion next year that you can bank on? That will increase your cash available for monthly payments.

I would estimate the high side is around $350k for your current situation, half if one of you is going to stop working and stay home with kids. A safer number would probably be around $300k. Then you'll have money left over for that media room upgrade you'll eventually want and the new kitchen upgrade she'll want. This equates to about 25-28% of your monthly take home pay for mortage, tax, insu. I would recommend staying within 30% of your monthly take home pay. You can read more here:

Don't make yourself house poor

This is my personal opinion and you are doing the right thing asking others how they feel. Good luck.

Dont forget you get a tax benefit from owning vs renting. The interest deduction and property tax deduction on a $350k house could be $3k/year which I wouldnt use as an excuse to buy a bigger house but it does help the cash flow for owning vs renting and can easily pay for the maintenance cost of a home if its not a new one.

crone · 04-21-2012, 06:01 AM

I would not be counting on mortgage interest deduction for much longer. Every political party has that on the chopping block.

Johnhw2 · 04-21-2012, 06:13 AM

Quote:

Originally Posted by crone

I would not be counting on mortgage interest deduction for much longer. Every political party has that on the chopping block.

Id bet on it continuing, if you think we have a housing crisis now with the deduction so many couldnt afford their homes without the deduction the political flack will scare both parties off this idea. I know the gov cant be counted on to do anything long term but this wont happen in my view. Eliminated the deductions on second homes sure that is going away as part of the soak the rich plan but not this deduction so engrained in our family budgets.

Faster10154 · 04-21-2012, 06:40 AM

@BDFP: Currently we have $40K, but I think by the time we select the home, the building and construction, etc., we'll have a total of $70K or more, however I'd still be comfortable with only using $40K or 10% for the down payment and keep the reserve for an emergency fund and/or funds for furnishings, etc.

@mpgerma: Thanks for the detailed response. I have built a spreadsheet very much in depth to do many calculations of our personal finances and to be safe, $300K did seem like the magic number for us. However, we're interested in only building a new home, to our specifications where we pick out the brick/stone color, to the kitchen sink faucets. Building a nice home in new Sugar Land developments pushes to $350k-$375k, and this kind of frightens me, with the taxes being so high as they are in Telfair and Riversetone....3.34%!

houstonfan · 04-21-2012, 06:41 AM

Doing a cash flow worksheet is a good idea. Always be conservative in case emergency happens....someone loses a job, gets sick, etc. I'd wait a few months until you can put down more on your house, at least 20%....if you're bringing home 10k a month without much debt, that shouldnt' take long to build up that down payment.
Whatever your spreadsheet tell you you can afford, still buy only as much house as you need/want. In Houston, a house in the suburb usually isn't a good investment so don't buy a gigantic house thinking it'll be your golden egg.

Edit: I wrote this comment as you were writing yours above so half of my comment is irrelevant now, seeing you already got it covered, lol.

Faster10154 · 04-21-2012, 06:44 AM

@mpgerma: Also, since we'd be building a new home that comes with a 10 year structural warranty and a 1/2 year warranty for other inclusions, do you think we can afford $375K...or is that pushing it?

We talked about work after having a kid, but my wife insist that she wants to get back to working within 3-6 months after the kid....even if it's part-time. Then, not to long from there, she wants to get back to FT. What do you think.

Faster10154 · 04-21-2012, 06:48 AM

Thanks houstonfan, I do want to be conservative and we def. consider job loss, health, etc., but how conservative is too conservative where you're no longer fully satisfied with what you buy? I'd like to be conservative, but then also not regret buying the smaller or less priced home.

As for suburbs, do you feel that the new houses built in Telfair or Riverstone won't hold their value for the next 10-15 years?