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Old 05-18-2017, 10:22 AM
 
2,169 posts, read 1,928,942 times
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Quote:
Originally Posted by Lowexpectations View Post
Well first the tax benefit is often grossly oversold and two if you understand your finances your net income should reflect accurately the tax benefit already by electing the correct w-4 selection so you aren't over withholding

Correct, but depending upon the amount of house you have (taxes and interest)directly impacts the amount you bring home because I'll be getting that write off figured each pay period. "come tax time" was just a figure of speech.

Point is, we are at 20% of gross and very comfortable. We are maxing out retirement savings, paid off a lot of debt, have a 6 month emergency fund, and are currently saving up to break into real estate investing... isn't that kinda the whole point?

If your "house poor" and it is preventing you from reaching financial goals that is a big problem. If you've looked at your personal situation and at 25% or even 30% of gross you're still able to max out your retirement fund, pay off debts ahead of time, have money left over for emergencies and leisure then I'd say you're doing something right.. but again you need to look at YOUR situation
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Old 05-18-2017, 10:28 AM
 
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just consider the following: Two families have the exact same income netting $10,000 a month and are trying to decide how much to spend on a house. Family 1 is only spending 10%.. Family 2 are crazy and spending 25%. But lets look at THEIR situations.

Family 1) housing costs $1,000, just had twins paying $2000 a month in daycare, both parent smoke a pack a day ($450 a month), dad has child support from a previous marriage $900 month, and they have student loans of $500 a month.

Family 2) housing costs $2,500, Has no kids with no plans to, don't smoke, no child support and no student loans.

In this case Family 2 is financially ahead of Family 1 each month by $2,350 even though they are spending 25% on housing and Family 1 is only spending 10%..

Looking at % is dumb.. look at YOUR situation, housing in reality is just 1 small piece of the pie.
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Old 05-18-2017, 10:28 AM
 
Location: Centennial, CO
2,247 posts, read 3,028,279 times
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If you are grossing $120k, then your true take home after FICA, state income taxes, any 401k/pension, and medical/dental is likely somewhere in the range of 70% of the gross. So if that $120k equates to $10k per month, then you're take home is probably closer to $7k (true for me as I'm really close to that). Depending on your debt load, you'd qualify at most for 40% of your take home, but more likely 36% depending on lender. So figure $2,500-2,800 is most you'd qualify for for a payment.

That said, I wouldn't buy a home right at the top of what I'd qualify for. I'm going to try to get the best house that fits my needs (plus most wants) and is in the location that is the best and makes the most sense (thinking about things like schools, crime, distance to work, amenities, shopping, etc). If that $2,500-2,800 means a $400-450k house, I'm probably still shooting for lower than that if I can get it in a preferred neighborhood. Of course, the amount of house you can buy is also going to vary a lot by property taxes that you have to account for, any PMI you might have to pay, and HOA fees if you have them.

The complexity of all this is why mortgage underwriters exist. Each individual financial situation is different - it's not simply based on your gross income.
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Old 05-18-2017, 10:41 AM
 
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Quote:
Originally Posted by ShampooBanana View Post
If you are grossing $120k, then your true take home after FICA, state income taxes, any 401k/pension, and medical/dental is likely somewhere in the range of 70% of the gross. So if that $120k equates to $10k per month, then you're take home is probably closer to $7k (true for me as I'm really close to that). Depending on your debt load, you'd qualify at most for 40% of your take home, but more likely 36% depending on lender. So figure $2,500-2,800 is most you'd qualify for for a payment.

That said, I wouldn't buy a home right at the top of what I'd qualify for. I'm going to try to get the best house that fits my needs (plus most wants) and is in the location that is the best and makes the most sense (thinking about things like schools, crime, distance to work, amenities, shopping, etc). If that $2,500-2,800 means a $400-450k house, I'm probably still shooting for lower than that if I can get it in a preferred neighborhood. Of course, the amount of house you can buy is also going to vary a lot by property taxes that you have to account for, any PMI you might have to pay, and HOA fees if you have them.

The complexity of all this is why mortgage underwriters exist. Each individual financial situation is different - it's not simply based on your gross income.

Spot on.. and as a previous poster mentioned spending only "20% of net" that would be $1,400 all in with tax, insurance, mortgage. Thats like a $150k house with $4,500 in taxes.. To get a house like that in NJ where the roof doesn't leak you're probably not going to want to live in that area, going to be high crime rates and very unsafe with bad schools.

Some people who live in very cheap cost of living areas of this country just can't wrap their heads around how a 3bedroom 1 bath starter home in an "okay" area with good schools can cost $300,000+ in higher cost of living areas... They think you're not being realistic in your home search your that you're greedy and superficial. Just is what it is.
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Old 05-18-2017, 10:44 AM
 
18,481 posts, read 15,431,088 times
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Quote:
Originally Posted by 191185 View Post
Hello,

together we gross $120,000 .

How much should our house payment be to not "live beyond our means"

thanks
The usual rule of thumb is 25-30% of your take-home, but it is much better to work out a complete budget than to rely on the rule of thumb. How much you can afford for the mortgage depends, in reality, on your other expenses and goals.
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Old 05-18-2017, 10:46 AM
 
466 posts, read 421,896 times
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Quote:
Originally Posted by ericp501 View Post
Correct, but depending upon the amount of house you have (taxes and interest)directly impacts the amount you bring home because I'll be getting that write off figured each pay period. "come tax time" was just a figure of speech.

Point is, we are at 20% of gross and very comfortable. We are maxing out retirement savings, paid off a lot of debt, have a 6 month emergency fund, and are currently saving up to break into real estate investing... isn't that kinda the whole point?

If your "house poor" and it is preventing you from reaching financial goals that is a big problem. If you've looked at your personal situation and at 25% or even 30% of gross you're still able to max out your retirement fund, pay off debts ahead of time, have money left over for emergencies and leisure then I'd say you're doing something right.. but again you need to look at YOUR situation
Maybe I'm off in my thinking, but when you say max your retirement savings, I'm assuming you mean putting 18k in the account (or 36k if its dual income?)
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Old 05-18-2017, 10:51 AM
 
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Live beneath your means. Things change at the drop of a hat. Don't spend more on a mortgage payment than you need to.
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Old 05-18-2017, 10:51 AM
 
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EricP,

I agree with your statement about real estate in NJ. Add to the fact that proximity to a place where your salary warrants a 20% of net, you'd have to be in the 1% of incomes in the state.

However, I think the offset is that the higher COL can "somewhat" be baked into your retirement if you're willing to move to a low COL area. By the time you sell the home and then move to a low COL, you've earned quite a bit of money (hopefully). It might even be equivalent to the amount a person saves by having 20% NET in a lower COL.

Many people become expats in other countries during retirement with the same logic.
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Old 05-18-2017, 10:56 AM
 
2,169 posts, read 1,928,942 times
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Quote:
Originally Posted by Ranredd View Post
Maybe I'm off in my thinking, but when you say max your retirement savings, I'm assuming you mean putting 18k in the account (or 36k if its dual income?)

Actually, when I say "Max your retirement savings" I mean max it out to YOUR plan. Everything I focus on is individual based. Some people might "need" $5,000,000 to comfortably retire and a work 401k just isn't going to be enough. Maybe someone else sat down with a financial advisor and based upon the lifestyle they want at retirement only need $600,000 to be comfortable and happy so they only need to put away $3,000 a year.

Once you have a goal in mind you need to make sure you're maxing your retirement savings to meet that goal and not selling yourself short.. With that said, if an employer offers a 401K match you should always max to the match no matter what your goal is as thats just free money.

My wife and I have a government pension and are still young with many saving years ahead of us, so fully contributing to our ROTH ira ($11,000) a year with the pension is plenty for us to reach our goals. We want to invest in real estate to see if we can get to that goal faster. To each their own, just be honest to yourself and don't sell yourself short once you've made a budget and a plan.
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Old 05-18-2017, 11:00 AM
 
2,169 posts, read 1,928,942 times
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Quote:
Originally Posted by Ranredd View Post
EricP,


However, I think the offset is that the higher COL can "somewhat" be baked into your retirement if you're willing to move to a low COL area. By the time you sell the home and then move to a low COL, you've earned quite a bit of money (hopefully). It might even be equivalent to the amount a person saves by having 20% NET in a lower COL.

Many people become expats in other countries during retirement with the same logic.

YES!!! I say this alllll the time! My wife and I have a nice home we purchased to grow a family in so we didn't feel like we needed to move in 3 years giving back any equity to the realtors commsions. If we thought it would always just be the 2 of us we'd probably have a cute little old rustic house 2 bedroom 2 bath. So once we retire we're going to do just that.. We'll move from Jersey to the Carolinas or something. We'll sell our $400,000 house for a $100,000 house down there and the extra $300,000 will be part of our retirement and our new little house will be paid off.
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