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Old 02-03-2011, 03:44 PM
 
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I would advice against 3-4x your agi. 2-2.5 is a better and safer number.
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Old 02-03-2011, 04:14 PM
 
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I'm not a fan of the whole based on gross income and think it needs to be done based on net. And I am no expert. But I do listen to one

I personally will not spend more than 25-30% net based on a 15yr loan including property taxes.
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Old 02-03-2011, 06:10 PM
 
Location: Pasadena, CA
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My opinion is that you shouldn't even ask this question until you figure all your monthly bills. A person who makes 100k/year and has 1200/month car/credit card payments can afford much less a house than a person who makes 100k/year and has no car or credit card payments. No magic number here without taking all factors into consideration.
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Old 02-03-2011, 06:11 PM
 
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Quote:
Originally Posted by tk06 View Post
I live in a very expensive area where homes generally start at $300k. I spoke to a mortgage broker whose figure for monthly payment (mortgage + property tax + insurance + PMI) on a 280k house comes to about 43.3% of my net income. Is this ratio a really bad idea? I usually see recommendations of 28% which wouldn't buy any property in this area.
In my area houses generally begin at double that even after the downturn. I've been paying 43.3% net income on my home for years and been quite comfortable with no shortage of money for cars, trips, etc. Instead of looking at percentages, workout all your obligations and then all the things you enjoy spending money on and see if you have enough.

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I also have other debt such as a student loan that I'd really like to pay off ASAP.
If you're paying 6% or higher in interest then settling the student loan should likely be your first financial priority.

Quote:
It seems like when you add in the HOA fees that the monthly payments on condos come very close to the mortgage on a single family home.
You say "HOA fees" like it's a bad thing. Those HOA fees are generally used to provide you services, unlike interest payments to the bank. For example, my HOA fees are spent on a gym, clubhouse, heating a pool and spa, gardening, new plants, pest control, security, water, sewage, and garbage. And you know what? You're in the HOA! This December we decided we were on track budget-wise and voted not to collect fees.

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Is 3.5% down on a property really enough? Seems like most recommend 20% but I'll never be able to afford that
If you have student loans and can't put 20% down those are both yellow caution flags to hold off for now unless you must own a home.

Quote:
(I don't see how anybody could afford 20% down when the average asking price is 400k).
How to save $80,000? It's as simple as setting aside $1,000/mo for 6 years, or $2,000/mo for 3 years.

A savings account with a good interest rate helps. You can have your bank or employer set aside funds for you automatically. That assumes you have few obligations (like a car or student loan) and aren't renting beyond your means. If you spent lots of money you didn't have on your education, hopefully it was an investment, i.e. you studied hard for a career that pays. If you spent money on something you enjoyed that doesn't pay... well... you had your fun, now you have to pay for it.
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Old 02-03-2011, 09:01 PM
 
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Buying a home at 25% of net at 15y is ultra conservative. If you make 100k, you probably net about 6k month. 25% of that is 1.5k. At 15y with property tax and insurance, you're looking at a house in the 150k.
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Old 02-03-2011, 09:23 PM
NCN
 
14,087 posts, read 12,457,266 times
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I haven't bought a house in years but the going rate used to be one weeks pay or 25% of your income.

Everybody is different. Some people go out more and drink more and have more expensive habits. So sit down and figure out what the minimum it would cost for you to live your life the way you like. Divide the list into necessary and wants and see what you have left. If that is not enough, then see what you would be willing to give up in order to own rather than rent.

What I am seeing on this thread explains to me why there are so many people losing their homes. You should never pay more than twice your annual salary on a home unless your salary is really high and you are willing to live a lower lifestyle.

My daughter was thinking about looking for a newer home and got with a bank to see what they would loan her. The amount he wanted her to borrow blew her mind. She said, "Well yes, if I did not have a daughter that will be in college in a few years and if I never want to go on a trip and was willing to sit in the livingroom every night watching TV."

The interest rates are lower now than when we bought our home, but I still think the 25% for housing is a good rule.

http://www.visualeconomics.com/how-t...heir-paycheck/

Last edited by NCN; 02-03-2011 at 09:36 PM..
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Old 02-03-2011, 10:44 PM
 
4,153 posts, read 5,999,320 times
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Quote:
Originally Posted by pinipig523 View Post
Buying a home at 25% of net at 15y is ultra conservative. If you make 100k, you probably net about 6k month. 25% of that is 1.5k. At 15y with property tax and insurance, you're looking at a house in the 150k.
Better to be conservative. But even at 30% net isn't bad. 30% gross just seems way to much. That's almost 50% net towards your mortgage.
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Old 02-03-2011, 10:50 PM
 
78 posts, read 179,998 times
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Quote:
Originally Posted by pinipig523 View Post
Buying a home at 25% of net at 15y is ultra conservative. If you make 100k, you probably net about 6k month. 25% of that is 1.5k. At 15y with property tax and insurance, you're looking at a house in the 150k.
Not quite. Assuming your math's correct, you would only be looking for a $150,000 loan. The property could cost considerably more. Most people I know who make $100,000+ either have extended amounts of schooling or many years of life experience, and in either case are usually wise enough not to shop for an interest-only loan. Again, I encourage paying more attention to your real obligations and cost vs. renting than a hard percentage, but it was worth pointing out.

Quote:
"Well yes, if I did not have a daughter that will be in college in a few years and if I never want to go on a trip and was willing to sit in the livingroom every night watching TV."
Hehe.
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Old 02-15-2011, 08:15 PM
 
145 posts, read 356,766 times
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Don't worry about the ratios. What really matters are your personal finances. Add up your bills and other expenses, including monthly loan payments, and subtract them from your take-home pay. Do you have enough left over to maintain your house? Do you have enough left over to continue contributing to your 6-month emergency fund and retirement, and maintain the same kind of luxuries you allow yourself in your current lifestyle? Don't make the mistake of thinking you'll cut back after you buy a house. Your expenses will actually go up.
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Old 02-16-2011, 03:57 PM
 
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Budget and decide what you are able to afford monthly AND still pay off debt. While I agree the housing market is less expensive then it has been in a long time (and interest rates are low), it doesn't matter if buying a house makes you a slave to the mortgage payment. Don't forget to factor in utilities, insurance, and bigger-ticket repairs (which you can get a better sense of once you get a home inspection report). Of course, I am a firm believer in a savings cushion as well (three months of your monthly bills is a good start).

That said, what is the drive to buy? If it's going to put you into a painful financial situation, is it worth it? Would it make more sense to pay off the student loans and then save up 20%? Renting is not a bad thing, particularly in places with pricey real estate - NYC comes to mind.

Owning a house can be a huge headache and is a major decision. Make sure you are comfortable with what you pay - a mortgage broker may put you in a bigger mortgage than you may be really able to pay without considerable sacrifice. I know I like to go out to dinner, take vacations, and buy the occasional treat. If my mortgage didn't allow me to do that, I'd feel like a prisoner to my bills. The house I'm buying is about $60,000 less than the amount I was approved for but exactly within my ability to maintain my standard of living, etc.
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