Does your mortgage eat up 40% of your monthly income? (Minneapolis: 2014, car insurance)

[Hockeygirl063]

I think it is good to buy the best you can afford but don't push it too far past what you can reasonably pay. Are the interest rates still really low? I have not really looked since i am not in the position to buy a house right now.

[Clasher]

Thanks cruz, maybe that's what I'm fearing. We both work for the state so our jobs are pretty stable. I guess our incomes should increase and in the 3-5 year mark we should be fine. Thanks everyone! We close at the end of the month.

[Brinson]

Originally Posted by Clasher

Nope we got approve for a monthly mortgage of 2120 and our combine take home is 5186 which is exactly 40%. Buyers remorse sucks and causes lots of stress.

Ah, 40% of take home, not gross. Approval is based on gross. 40% of take home should be fine I think, gross would be hard to manage.

[cielpur]

How I would feel about that percentage would depend on the retirement benefits offered by my employer. If you are offered a state pension, then stashing money away in pretax accounts may be less important.

[ellysbelly]

I've seen plenty of homes that are under $300K that are more than adequate for a family of 4; I haven't looked everywhere in the Metro, just the southwestern suburbs and I've seen some great single family houses in EP, Minnetonka, Chaska, and SLP for around the $250K mark.

I don't think that maxing out your budget on housing is necessary, but it's a completely personal decision how you want to allocate your monthly budget. We are currently renting, but will likely buy within the year, though we'd likely qualify to buy a $500K house, we'll likely stay under $350K both to hedge against any possible interruptions of income, either voluntary or otherwise (hubs is self employed and I might want to go down to part time)-- and to give ourselves as much breathing room in our budget as possible. We also have two competitive athletes (sports cost $$$$), 3 kids that will need orthodontia, and 3 college educations to consider (plus 3 cars/drivers) within the next 10 years-- plus we'd like to retire at some point

It all boils down to priorities and your own comfort level-- personally, I'd rather have money left over to max out our 401Ks, take an annual vacation, pay for extra curriculars, go out for dinner, etc-- while 40% of take home is "normal", personally, that's too close to the bone for my comfort level. But that's MY comfort level, there's plenty of people who max out and that's fine, too.

I do agree with getting a house that will last you for the long run, as the transaction costs of selling a home and buying a new one will negate any potential savings you'd see from getting a cheaper house now. Additionally, a portion of that $2K payment is tax deductible so it's not the same as paying $2K on rent, so there's that aspect to consider, too.

[pvoyd]

Originally Posted by ellysbelly

I do agree with getting a house that will last you for the long run, as the transaction costs of selling a home and buying a new one will negate any potential savings you'd see from getting a cheaper house now. Additionally, a portion of that $2K payment is tax deductible so it's not the same as paying $2K on rent, so there's that aspect to consider, too.

40% of net pay spent on just the PITI (Principal, Interest, Taxes, Insurance) is too high for my personal comfort level. There are also utilities and maintenance/repairs to be aware of. Water/gas/electricity/garbage can easily add up to 500/month on a house priced above the local average ($2,100 PITI payment translates, at current interest rates, to a roughly $300,000 mortgage loan).

Good point on deductibility of interest and taxes. Of the $2,100 PITI payment, $1200-1400 will initially be interest and taxes (depending on the municipality tax rate), and at $5-6k net monthly income, this amount should be fully deductible against AGI (Adjusted Gross Income). So one's annual income will, for tax purposes, decrease by roughly 14-17k.

[Clasher]

That's good information to know. I didn't factor any extra checks (twice a year) and tax refund into my budget and just consider them to be a bonus. I guess another thing I could do is increase my withholding, because I've gotten refund in the past and just treating them as a bonus. $500 for utilities?? Can that be right? in my little 1.50 story house I pay $219 a month.

[Thedosius]

Originally Posted by Clasher

The way the housing market has been it was a impaluse purchase and gone through everything except the closing. The more time I get to think the more I think about what I rather do then be tied up to a house.

Buying a house was an impulse purchase?

Paying 40% of your income to mortgage is a symptom, not a problem. "Impulse buy" and "house" are two words that should have nothing to do with each other, and if they do I have concerns about financial literacy and good financial judgement. I would get to a financial advisor or credit counsellor post-haste.

[pvoyd]

Originally Posted by Clasher

That's good information to know. I didn't factor any extra checks (twice a year) and tax refund into my budget and just consider them to be a bonus. I guess another thing I could do is increase my withholding, because I've gotten refund in the past and just treating them as a bonus. $500 for utilities?? Can that be right? in my little 1.50 story house I pay $219 a month.

I agree that $500/month is on the high end for utilites, but a house priced at 300-400k will likely by above average in size, say, 3000 sq ft. For a larger house, a family is likely to live there, not a single person or a couple. Barring a super-efficient HVAC system and excellent insulation, I can see $50-100 for water, $200 for electricity in the summer, and $200 for heating gas in the winter.

I would still budget $500 in utilities for a typical larger house in the Twin Cities, and consider anything that is left over every month as a contribution to the furnace/AC/water heater welfare fund.

[uptown_urbanist]

utilities are going to vary tremendously by many factors, and won't correlate to the cost of the house. You could always get yourself an energy audit after you move in and see what kind of things you could do to lower your costs, whatever they are. Although I think the advice to budget high and bank the extra for a rainy day (or an especially hot July or an extra cold January).