Is 95,000 a year enough to own?? (Boston, Littleton: foreclosure, to rent, insurance)

[J1mbo01]

I have a general question for everyone. Me and my fiance are planning on buying a house in the next few years. As of right now we make about 95,000 a year (We are 23 and 24), and our incomes will rise over the next few years. I hope to be able to but a house for around 300k, and plan on putting about 15k down. I am worried that we will not be making enough money. We have 2 car payments (that will both be paid off in 2 years) and I have a small student loan. We have no credit card debt. Is it possible to own and live on that income? I want to hear from other people on how much is needed to have a comfortable life (a modest home, and a little money left over for savings and some fun).

[Charliekeet]

Yes - I believe you'll find that 3X annual income is the traditional amount for which mortgage lenders/the government deemed a safe amount to spend on housing, so if you 2 make not quite $100 grand/yr and have a nice down payment, you should be able to afford a $300,000 home.

The problem, of course, may be finding a house in the area for $300,000 that doesn't need a lot of work... lots of $450,000 starter homes out there still, in my humble opinion, partly because many people bought a house in the last 10 years for way more than 3X income and are now trying to justify selling it at a bubble-time price even though everyone has seen the light.

[bosphi]

Look for a foreclosure, this is now a buyer's market.

[holden125]

Originally Posted by J1mbo01

I hope to be able to but a house for around 300k, and plan on putting about 15k down.

A buyer's market but mortgage lending has tightened. 15k is only 5% of the total price. I'd suggest that you aim for a larger down payment. Not only will a small down payment make it harder to get a mortgage at all, it will make it likely that the interest rate will be higher. Even at the same interest, borrowing more leads to significant additional payment of interest.

For example:

A monthly payment on a 30-year fixed mortgage of $285,000 at 7% is $1896, not counting mortgage insurance and property taxes. The total interest paid over 30 years would be $397,600.

At 6% the monthly payment on a fixed 30-year mortgage of $285,000 is $1708 plus taxes and insurance, and the total interest paid drops to $330,138.

A $240,000 fixed loan at 6% has a monthly payment of $1439 and the total interest paid would be $278,011.

It's not easy, but saving up for a 20% down payment, if it leads to a one-point drop in the interest rate, could get you a $460 reduction in your monthly payment. Though prices have leveled, and fallen in some places, for a number of years they were high enough that it was more advantageous to rent, even factoring in the tax benefits. Even today it could be better for you to save up more, own more equity in your home going in, and save a lot of money on interest. If you buy with too little down, and prices don't rise considerably, you'll have a high remaining principal balance to pay off and won't really "own" much of the value of the home, making it hard to trade up to something bigger if your circumstances change.

[Valerie C]

J1mbo01, while you're getting good answers here from the CD folks, I would encourage you to go to a reputable mortgage rep to see what you actually qualify for considering your credit score, you debt load, and income. Though your income could (and probably will) rise in the next few years, the reality is that it may not. This is the same thinking that got many folks into trouble with their mortgages ("My salary will rise, my house will continue to appreciate in value, I can refinance to a lower rate later".)

I would encourage you to continue to save for a larger down payment which will result in a lower monthly payment, and possibly eliminating Private Mortgage Insurance. These past several years are unprecedented with the 100% financing, and many financing even their closing costs!

It certainly is possible to purchase a home for under 300K depending on the area you're looking in, and not just in the foreclosure department. However, everyone has a different idea of "home" and unfortunately, many people expect to bypass the traditional "starter home" and jump straight into a palatial digs. Many of these are the ones who are currently in foreclosure...

[RichCapeCod]

The answer to your question would depend, to a great extent, on where in MA you plan on buying. Close in to Boston, or on the Cape, and you'll have trouble finding a reasonable home for $300,000. Out to the western part of the state and you'd do just fine.

Rich

[smarty]

Just want to add other considerations... for future planning
1. If you want kids, it usually means reduced income as one has to pay for child care or some one to stay home.
2. Property tax vary quite a bit amongst towns ($3-6K) can affect your monthly payment. Hence, something to consider as they never goes down.
3. Maintenance... how much work are you willing to do yourself vs hiring someone... even lawn mowing can be expensive at $30-50/wk.... same with snow removal. You have to decide on your lifestyle.
4. You make money when buying your house... hence be selective. Consider if it make sense if you purchase a house for $300K and can only rent it out for $1200. You never know when you have to move due to new job opportunities.

[brightdoglover]

Well, here in my provincial town of Littleton (30 miles NW of Boston, 25 from Harvard Square) you can certainly get a nice house for under $300K. Maybe modest, or needing updating, certainly not a new "colonial," but very nice, rural feeling, easy access to Rts. 2 and I-495.
Property taxes are about $11/thousand, which I gather is about average. Still, haven't noticed my assessment go down along with market value.