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Old 12-05-2013, 10:15 PM
 
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I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.
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Old 12-05-2013, 10:16 PM
 
Location: southwestern PA
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125K might not buy much in some areas, but will buy more in others!

Plus, you are forgetting that you should put 20% down.
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Old 12-05-2013, 10:17 PM
 
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It's really 2.5x your HH income. Not just salary
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Old 12-05-2013, 10:37 PM
 
Location: Florida -
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First time home buyers often struggle with sufficient down-payment to keep mortgage payments within early career incomes.
But, extremely low interest rates these days, make a lot more house affordable on a lower income.

The key to buying houses people would otherwise be unable to afford, is that as folks move from first to second to third homes, they traditionally build-up and transfer equity, thus reducing subsequent mortgage balances. Over the last few years, this paradigm has shifted back to old fashioned 'saving and waiting.'
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Old 12-05-2013, 10:47 PM
 
Location: Middle America
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I have lived in areas where 125K would actually get you a decent home. The market varies wildly in different geographic regions, sizes of community, etc.
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Old 12-05-2013, 10:55 PM
 
24,290 posts, read 31,567,640 times
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Quote:
Originally Posted by pete6032 View Post
I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.
So they don't buy a house until their mid-to-late 30's then. Not sure why people think they have to buy a house so quickly these days.


When I bought my house in 1998, it was 1.9 times my salary.
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Old 12-06-2013, 06:25 AM
 
1,020 posts, read 2,719,677 times
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Quote:
Originally Posted by pete6032 View Post
I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.

yes, but if a married couple each makes 50k, the number goes to 250k.

the biggest issue is that in small towns, there are tons of houses that are cheap, but there are no high paying jobs, and in places where there are high paying jobs and people go to college and make 50k (25 an hour) houses will be way more than 250k.
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Old 12-06-2013, 08:45 AM
 
733 posts, read 1,686,069 times
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Quote:
Originally Posted by pete6032 View Post
I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.
The rule of thumb was also a developed when interest rates were in the 7% range. With interest rates in the 4-5% range, that rule of thumb can be (but doesn't have to be) stretched.

For example, using your numbers, a $50k annual salary buying a $125k house at 7% interest would have a monthly payment of $826.81. If you can afford $826.81 per month and get a 4.5% interest rate, you could buy a house at $163,793, or a little over 3.25 times your annual salary. Of course, when interest rates were 12%, the opposite would occur. For a monthly payment of $826.81, you could only buy a house worth $81,185.

Now, I'm not saying that people should spend 3.25x their annual salary if they get a low interest rate. However, the rate of interest should be a factor when determining the applicability of a rule of thumb. This is also why some economists worry that if mortgage interest rates were to return to their historical average (in the 6-7% range), there could be an immense shock to the housing markets as home prices would necessarily plummet.
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Old 12-06-2013, 01:04 PM
 
12,428 posts, read 9,402,921 times
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Quote:
Originally Posted by pete6032 View Post
I hear this rule of thumb all over. Use 2.5x your HH salary as a rule of thumb. If you are a single person in this economy, making $50,000 per year, then the maximum house you could afford is $125,000. That doesn't buy much. How do couples do it when one parent stays home? I really don't understand how we can have so many houses priced $250,000+ in the US? That would be an income of $100,000. That's doable for a couple in their mid to late 30's, but anything younger than that you're probably not going to break $100,000 take home pay as a couple unless you're either a lawyer, doctor, or engineer.
I don't think there is any sort of one solution fits all, here. There are many ways to do it, each one of which is not useful or practical in most cases but with enough, one of them is bound to work for many families:

Help from extended family
Buy a very small house
Big down payment from an inheritance or savings accumulated when there were two incomes and no kids
Rent out part of the house
Buy at huge discount from foreclosure auction and fix up as needed
Take care of others' kids alongside your own (in home daycare) for extra income
Generous employer benefits

etc.
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Old 12-06-2013, 03:33 PM
 
1,256 posts, read 3,205,195 times
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It's tough... that's why some people stretch to near 4x their HH income.

$50K gets you the $200K home.
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