How much to spend on monthly mortgage? (San Jose, Cupertino: rental, insurance)

[frugalidiot]

House prices in the Bay Area are ridiculous. However, we decided to take the plunge instead of spending a lot on rental payments. At least build up equity on the house seems to be a good idea. House in Cupertino/Saratoga/West San Jose.

Question is : what to spend on the house?

My base pay is about $125k + about $15-20k in bonuses and stocks per year+ benefits.
My wife makes about $80-90k (no benefits, bonuses for now.)

So annual gross income is about $200K +/- 15k. No kids yet.

No car debts, student loans, credit cards, whatsoever. Good credit. We are both about age 30. So what is the max I can spend on mortgage payments? Some people say 35% of gross pay, some say 35% of take home pay. What are other people comfortable with? Should I go on a big down payment? Or just get a loan for 5/1 arm or 7/1 arm?

Thanks
Frugal Idiot

[rimmerama]

20% down is a good rule of thumb. Another good rule is that just because you can afford it, doesn't mean you should. Don't feel the urge (as so many do) to buy the most expensive house you're approved for.

Interest rates right now are pretty low, not sure why you'd want an ARM if you're planning on staying there long term, since I don't see interest rates getting much lower (we just refinanced at 3.75%).

[jaypee]

New House Calculator - How Much House Can You Afford?

[vrhunski]

Not more then 3x your total income per year. So 600.000$ should be limit.

[jbunniii]

I recently bought a house, using a standard 30-year fixed mortgage issued by a credit union and backed by Fannie Mae. I was advised by the loan officer that PITI (principal, interest, tax, and insurance) should not exceed 28% of gross base salary, excluding bonuses (boni?) and other variable income such as stock plans. If you have any other debt, the total of PITI + other debt payments must not exceed 35% of gross salary.

Downpayment needs to be at least 20% for a conforming mortgage. (Non-conforming means you have to pay for private mortgage insurance, and may also carry a higher interest rate.) If the lender's appraisal indicates that the house is in an area where values are still declining, they may ask for 25% downpayment. Loan amount cannot exceed $625k for a conforming mortgage. Anything above that is "jumbo" and has higher interest rates.

I was also required to show cash reserves of about $10k above and beyond the downpayment. Credit rating is also important to qualify for the best rate.

All of the above was as of February/March of this year. I don't know if any of it has changed since then.

I personally wouldn't consider an ARM at current interest rates, not when you can lock in ~3.75% for 30 years, or 3% for 15 years!

[frugalidiot]

Thanks!

Houses in Cupertino/Saratoga are so damn expensive that I may be able to afford them but it might be stretching too far. Definitely do not want to go the way of missed payments, penalties, etc.

So looking at the replies, we need to see what is available in the 'comfortable' price range where we do not over-exert ourselves.

Thanks again folks.

[jaypee]

Originally Posted by frugalidiot

Houses in Cupertino/Saratoga are so damn expensive that I may be able to afford them but it might be stretching too far.

One of the major reasons is because of their good public schools.

[MediocreButArrogant]

Originally Posted by jaypee

New House Calculator - How Much House Can You Afford?

Originally Posted by vrhunski

Not more then 3x your total income per year. So 600.000$ should be limit.

These two rules give way different results, probably due to very low interest rates right now. The first tells me to buy a home that costs 6x my annual income. The second tells me to buy a home that costs 3x. I bought a house that costs about what I make in two years.

[justinbro2002]

in order to stay under the jumbo conforming limits you would have to buy a house in the 750-790k level with 20% downpayment which is about 150-175K downpayment with your income and a good credit score this should be easy for you. The payment would be around $3800 a month. in that price range you are looking at condos and townhouses maybe a small house in saratoga or cupertino in west san jose you could get a decent house for that price range. This area didn't experiance the same large drop as some of the rest of the Bay area and inventories are low there and it is a sellers market again there.

[DMenscha]

AVOID any ARM loan! Interest rates are at their historic lows and the there's a whole lot more upside than downside. Talk to several local lenders and see what they advise. Avoid sites like lending tree.

Good Luck!