Affordability rules (Boston: mortgages, loans, houses)

[BostonMike7]

Originally Posted by Dm84

I'm glad it worked out for them. A lot of people simply don't want to spend their limited free time cleaning their house.

I agree.


We are a family of 4 with two toddlers. Whatever limited free time we had was spent cleaning the house, and finally got to the point we didn't want to do that.


A cleaner was $70 a visit, 2x a month. I'd rather pay for that vs cable.

[Boston_Burbs]

Originally Posted by NewfieMama

I've been mulling over in my head how a family of 4 with 2 young kids could "easily" afford an $800k mortgage ($1M home with 20% down) on $300K/year. I plugged in a few numbers from the internet + our own budget and have this spreadsheet (which won't copy and paste well at all)--the starting amount $25K/month:

Item Monthly Expense Balance
Fed & State/local Taxes $7,500 $17,500
Social Security $1,100 $16,400
Medicare $350 $16,050
Mortgage (800K @ 4%) $3,800 $12,250
Property taxes $1,000 $11,250
Home Insurance $200 $11,050
Home Maintenance $650 $10,400
Daycare $3,000 $7,400
Retirement $2,000 $5,400
Health Insurance $600 $4,800
Life Insurance $200 $4,600
Car Insurance $200 $4,400
Heat $300 $4,100
Electricity $200 $3,900
Phone/TV $300 $3,600
Water $50 $3,550
Groceries $450 $3,100
Restaurant (1x per week) $200 $2,900
Meals @ work (~$10 day for both spouses) $200 $2,700
Vacation ($5K/year) $400 $2,300
College Savings $500 $1,800
Gym membership $100 $1,700
kids classes/lessons $150 $1,550
Clothes/shoes $200 $1,350
Beauty $200 $1,150
Household Items (non-grocery) $450 $700
Gas for cars $200 $500
House cleaner $250 $250
Entertainment $200 $50
Car repairs ($600/year) $50 $0

This means that a family of 4 with pretty typical expenses has NO savings at the end of the month. This also assumes that: 1.) the family has no debt at all, including car payments 2.) the family has no pets, which are an expense in and of themselves 3.) the family already has a fully-funded emergency account with 6 - 12 months of the household income set aside 4.) neither of the spouses spend money on designer shoes/bags or has any expensive hobbies 5.) both have reasonable commutes--when my husband and I both took the commuter rail + parking, it was over $500/month, but I didn't include commuting expenses (other than gas)

If the family wants to save for new furniture, new cars, home remodels (which is separate from maintenance), send kids to a private school etc., it has to come from somewhere. Either you give up family vacations, you eat into the kids' college accounts or your retirement. And don't forget, when you make $300K a year, you don't get the same tax credits that others get because you're hit with the alternative minimum tax.

There is no way to have an $800K mortgage on $300K a year and still feel comfortable (with kids)

The mr money mustache forum will have a field day with this one!

[jayrandom]

Originally Posted by Boston_Burbs

The mr money mustache forum will have a field day with this one!

Thankfully this isn't that forum.

[Parsec]

Originally Posted by NewfieMama

I've been mulling over in my head how a family of 4 with 2 young kids could "easily" afford an $800k mortgage ($1M home with 20% down) on $300K/year. I plugged in a few numbers from the internet + our own budget and have this spreadsheet (which won't copy and paste well at all)--the starting amount $25K/month:

Item Monthly Expense Balance
Fed & State/local Taxes $7,500 $17,500
Social Security $1,100 $16,400
Medicare $350 $16,050
Mortgage (800K @ 4%) $3,800 $12,250
Property taxes $1,000 $11,250
Home Insurance $200 $11,050
Home Maintenance $650 $10,400
Daycare $3,000 $7,400
Retirement $2,000 $5,400
Health Insurance $600 $4,800
Life Insurance $200 $4,600
Car Insurance $200 $4,400
Heat $300 $4,100
Electricity $200 $3,900
Phone/TV $300 $3,600
Water $50 $3,550
Groceries $450 $3,100
Restaurant (1x per week) $200 $2,900
Meals @ work (~$10 day for both spouses) $200 $2,700
Vacation ($5K/year) $400 $2,300
College Savings $500 $1,800
Gym membership $100 $1,700
kids classes/lessons $150 $1,550
Clothes/shoes $200 $1,350
Beauty $200 $1,150
Household Items (non-grocery) $450 $700
Gas for cars $200 $500
House cleaner $250 $250
Entertainment $200 $50
Car repairs ($600/year) $50 $0

This means that a family of 4 with pretty typical expenses has NO savings at the end of the month. This also assumes that: 1.) the family has no debt at all, including car payments 2.) the family has no pets, which are an expense in and of themselves 3.) the family already has a fully-funded emergency account with 6 - 12 months of the household income set aside 4.) neither of the spouses spend money on designer shoes/bags or has any expensive hobbies 5.) both have reasonable commutes--when my husband and I both took the commuter rail + parking, it was over $500/month, but I didn't include commuting expenses (other than gas)

If the family wants to save for new furniture, new cars, home remodels (which is separate from maintenance), send kids to a private school etc., it has to come from somewhere. Either you give up family vacations, you eat into the kids' college accounts or your retirement. And don't forget, when you make $300K a year, you don't get the same tax credits that others get because you're hit with the alternative minimum tax.

There is no way to have an $800K mortgage on $300K a year and still feel comfortable (with kids)

You missed my point and your budget is completely ridiculous. Let's take those same numbers for a family of 4 making $200k/year, but I'll make adjustments to the income tax, withholding and housing amounts. I'm going to go for the most conservative example possible to make my point. Let's assume this family inherits a $500k house and only pays $500/mo in property taxes.

Income = $16,667 per month.

Fed & State/local Taxes $5,000 instead of $7,500
Social Security $1,100 (same as family earning $300k because they are taxed up the max)
Medicare $233 instead of $350
Mortgage (800K @ 4%) $0 instead of $3,800
Property taxes(@ 1%) $500 instead of $1,000

Even with NO MORTGAGE this example still nets down to a balance of NEGATIVE $1,216. This shows your example is bogus because your hypothetical family earning $200k can't even afford their lifestyle with an inherited house. This DOES show a family earning $300k can barely afford a $1 million house though, even with your bogus budget.

All I was saying earlier was that if a family earning $200k can afford a $400k mortgage then a family earning $300k can EASILY afford a $800k mortgage, assuming they save and spend the same amount on everything else with the exception of paying higher income tax. I don't think it's unreasonable for a family earning $200k to carry a $400k mortgage, so why would it be unreasonable for a family earning $300k to carry a $800k mortgage? If you want to play with your budget to make it net to $0 for a famiy earning $200k, then adjust the budget for a family earning $300k with higher taxes and housing costs while leaving everything else the same, you'll see what I'm talking about.

[Aara5]

Whether or not the sample numbers are 100 percent accurate is not totally the point. I think it does a good job of showing that lifestyle and participation in activities/leisure time are affected by the numbers you feel comfortable with and its a matter of priorities. Especially when you are considering what's more important, putting limited funds towards travel or classes that can give your kids experiential learning vs choosing the best school district you can manage and being limited after that.

[NewfieMama]

how is this budget ridiculous? Seriously, i didn't even include things like school loan debt, car payments, pet costs, or charitable giving in this spreadsheet, which I think most households have. Obviosuly those making less would need to make some cuts--no cleaner, cheaper groceries, no college fund for kids, less retirement, no date nights, no vacation, cut the cable, etc.

$300k is 150% of $200k, but an 800k mortgage is 200% of a 400k mortgage, so I'm not sure how that math works. Not to mention the "extra" costs of a more expensive home (more maintenance $, more taxes, higher bills) that aren't a part of the mortgage, but increase as home size and value increase.

ETA: not trying to be argumentative, just pointing out how quickly expenses add up (especially when kids are involved) and that there is a lot to consider when thinking about how much mortgage a family can afford when also thinking about future planning (retirement + college savings) and how much "living" (vacations, kids classes, going out, etc.) you can do. IT AIN'T CHEAP!

[massnative71]

Originally Posted by timberline742

Sure, sometimes there are allergies/etc, but if it is a preference its a luxury (i.e. organic vs conventional), still, their money, they can spend it as they wish. I do even splurge on good bacon occasionally.

I probably spend $100/week on myself. Do I go overboard? Maybe. But my body could also be thanking me in 20, 30, 40 or 50 years. Even if it's considered a "luxury"; spending a little extra on things like the food I eat, the mattress I spend 8 hours a day sleeping on, and the footwear I spend 8 hours of the day walking in; will have far more return than spending that much extra on a vehicle or better data plan.

I understand some may be stretched too far to pay for anything beyond the bare bones, and some just live for the moment. I respect both, it's a free country after all. But the way I see it is, can I really afford "not to" give myself the best I can for those critical items?

[Partial Observer]

Originally Posted by NewfieMama

$300k is 150% of $200k, but an 800k mortgage is 200% of a 400k mortgage, so I'm not sure how that math works.

The math works because of something called "marginal utility." In the hypothetical example, the family making $300K can literally put every extra dollar toward the mortgage without sacrificing any other needs or wants.

[NewfieMama]

I would say that a salary bump from 200k to 300k doesn't mean all other costs stay the same and the additional income goes toward the home. I'd argue home budget increases would be parallel to quality of life increases. $200k income with a $400k mortgage still means watching your budget.

[Partial Observer]

Originally Posted by NewfieMama

I would say that a salary bump from 200k to 300k doesn't mean all other costs stay the same and the additional income goes toward the home. I'd argue home budget increases would be parallel to quality of life increases. $200k income with a $400k mortgage still means watching your budget.

If people insist on spending more on other line items in the budget simply because they can, that's their choice. Keeping up with the Joneses is the new national pastime. I'm simply explaining why the math works if a family making $300K can deign to live like a family making $200K.