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Old 08-24-2007, 01:05 AM
 
460 posts, read 2,421,504 times
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There is no way to tell what someone has to buy a home generally. Many of us are not first time home buyers, have cash put aside and have a home worth MORE than what we are buying. I intend to spend 100,000 less than my home is worth here. Not everyone is the same as me some people are going all out/bigger/more expensive. A lot of what factors a mortgage is income and debt to earning ratio and credit score.
A lot of the people who the OP says are buying 350,000 homes are putting down a lot of down payment. They have cash equity from their home sales.
As for what a family should save per month, I personally think if your budget is calculated on 2 incomes you should not factor one of those incomes into the bill paying and or mortgage.
Of course that is just my opinion. People decide what is important to them. For some it is house, for some it is cars and for some it is the extras, vacations, toys and or hobbies.
I learned long ago never to tell people how to spend their money. If you want a 400,000 home in NC, only your mortgage company can tell you if you can afford it. Then it is up to you to decide if you agree.
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Old 08-24-2007, 09:09 PM
 
Location: PA
1,032 posts, read 4,263,111 times
Reputation: 434
We bought our current home for $355k, and at the time my husband was making $105k. We only had one car payment and little credit card debt, so it really was fine.

We have three small children and aside from a week at the beach and a trip to Flroida to see Grandma and Mickey, we aren't doing much traveling/vacationing. However, swim lessons, soccer, Little Gym classes, preschool and camp really do add up - not to mention feeding and clothing them.

At the moment we are building a house that costs $440k - a big jump for us, but again I blame the kids, three boys take up a lot of room! However, the only reason we are even doing this is because my husband got a good promotion which included a full relocation.

Since we know that we will need more house as the kids get bigger, we would be stupid not to take the relocation - they cover all closing costs, realtor fees, etc., and pack and move us - in addition, we have a decent buy out on our house, which in this market is very valuable.

So, you see, every situation is different.
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Old 08-24-2007, 09:39 PM
 
522 posts, read 1,793,740 times
Reputation: 151
Quote:
Originally Posted by monkeyboy View Post
I'm looking at buying this year, and as I put together my budget, I have to wonder how all these people afford a house in the $350k range. Putting down 20%, the mortgage, taxes, and a maintenance allocation on a $350k house is about $2150/month. If you max out your 401k, include some additional savings every month, maybe take a class or two, and have some money for a vacation, you need a household income on the order of $140k/yr. That would seem on the high end for a two income household.

All I can figure is that people have cut way back on the retirement savings and savings outside of retirement?
I have to wonder myself. There are lots of people who could not afford to live in the homes they currently live in if they had to buy them today. Historically, home prices have appreciated by about 4% per year. The past 5 years or so, though, has seen unprecidented value appreciation- many places, especially on the West Coast, seeing 400% and 500% gains. There is very little in the way of real market data to support these gains and as you are beginning to see with the credit crunch, many people couldn't afford these homes in the first place. I think most people would be much better off to get the "$300,000 starter home" idea out of their heads- this will be a thing of the past in a matter of years as the country begins to realize it requires an affordable housing stock to draw new buyers into the market.

My thought is "if you have to ask, you can't afford it". If you currently do not own a home, and are renting (and are AFFORDING that rent) you can easily do a quick calculation to see what the money you are currently spending on rent would get you in the way of a single family home. I speak with many people who are renting for say, $800/mo, and are saving a couple hundred each month in a "rainy day fund" and are looking to purchase homes with $2,000 and $3,000 monthly mortgage payments. This simply does not jive. If you were only saving a couple hundred before, you'd be a couple THOUSAND in the hole after the purchase.

NEVER EVER EVER EVER EVER finance anything, including a home, that gives you a negative monthly cash flow. No matter how much cash or equity you have on hand. Negative monthly cash flow means you are stretching to buy a home, and being "house-rich" and "cash-poor" is not a good place to be.

And contrary to what many will say, $140k/year household income would put you in the top 5% of all incomes nationwide. Unfortunately, in today's market, it won't get you into a "top 5%" house. Many are finding themselves priced out of the market-especially first time homebuyers-and are financing themselves into oblivion. When the credit bubble finally bursts for good, you'll see how "all these people are affording $350k homes"...by not even remotely affording them at all.

sorry for the novel.

Cap
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Old 08-26-2007, 11:17 AM
 
Location: Liberty Township, Ohio
122 posts, read 958,788 times
Reputation: 74
I did not read through all the answers, but generally, your house payments should be not more than 1/3 of your income (1/4 is better), depending on your debt to income ratio.
BTW - to calculate your payments, I use; Amortization Calculation
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Old 08-26-2007, 11:25 AM
 
Location: Liberty Township, Ohio
122 posts, read 958,788 times
Reputation: 74
Quote:
Originally Posted by CaptainObvious View Post
NEVER EVER EVER EVER EVER finance anything, including a home, that gives you a negative monthly cash flow. No matter how much cash or equity you have on hand. Negative monthly cash flow means you are stretching to buy a home, and being "house-rich" and "cash-poor" is not a good place to be.
Cap
I could not disagree more!!! This is complete nonsense!

So you are renting (negative cash flow)? How is that a good thing???

I own 19 houses, and have 17 mortgages. I'm not house poor - I'm house rich! They all produce a positive cash flow! ($4k per month)

You say you rent. If you rent for 30 years, what do you have at the end of 30 years? NOTHING! And your landlord has paid off his loan, thanks to you! (Bless people like you!!!) AND, your rent has increased when ever the LL feels like it. Trust me, all my tenants are paying my mortgages and I'm making a profit! At least if you had a mortgage, it will be paid off in 30 years so you can retire with minimum home expense. Not so, if you are renting!!!

You can OWN cheaper than renting!!! I do a lot of Lease With Options To purchase, specifically to help people quit wasting their money paying RENT!
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Old 08-26-2007, 02:40 PM
 
Location: Dandridge, TN
69 posts, read 125,980 times
Reputation: 16
[color="DarkRed"]As a broker, many of the people that purchased these homes where I was from (Miami, FL) obtained 100%, secondly the lenders were allowing up to 55% debt to income ratios on SISA (stated income stated assets), Most obtained Option Arms, Interest Only, and such type loans, most did not escrow either, as the lenders allowed them to waive escorws and MI... The foreclosure statistics mostly includes people as mentioned above, which I think the lenders offered to many hear no evil see no evil, speak no evil loan products.COLOR]

Quote:
Originally Posted by monkeyboy View Post
I'm looking at buying this year, and as I put together my budget, I have to wonder how all these people afford a house in the $350k range. Putting down 20%, the mortgage, taxes, and a maintenance allocation on a $350k house is about $2150/month. If you max out your 401k, include some additional savings every month, maybe take a class or two, and have some money for a vacation, you need a household income on the order of $140k/yr. That would seem on the high end for a two income household.

All I can figure is that people have cut way back on the retirement savings and savings outside of retirement?
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Old 08-26-2007, 06:41 PM
 
522 posts, read 1,793,740 times
Reputation: 151
Quote:
Originally Posted by Linda Pratt View Post
[b][i]I could not disagree more!!! This is complete nonsense!

So you are renting (negative cash flow)? How is that a good thing???
Um. No, I am not renting. Not sure where you got that from. But even if I were that wouldn't imply a negative cash flow as you did above. Negative cash flow is simply when your expenditures exceed your income. Renting something doesn't mean you can't save money.

Quote:
Originally Posted by Linda Pratt View Post
You say you rent. If you rent for 30 years, what do you have at the end of 30 years? NOTHING! And your landlord has paid off his loan, thanks to you! (Bless people like you!!!)
No, I don't say rent. I have absolutely no idea where this is coming from. Maybe you read some other post on some other thread and accidentally replied to this one? I am not sure why you replied to this...

Originally Posted by CaptainObvious :
NEVER EVER EVER EVER EVER finance anything, including a home, that gives you a negative monthly cash flow. No matter how much cash or equity you have on hand. Negative monthly cash flow means you are stretching to buy a home, and being "house-rich" and "cash-poor" is not a good place to be.

...with a lecture on renting vs. buying. My statement had about as much to do with renting vs. buying as your post does about the price of tea in China. You call my advice-- to make sure you don't put yourself in a position where you have a negative monthly cashflow-- "nonsense" and then tell me how your 19 homes are producing a positive cash flow. Why are you subscribing to my advice if you think it is so silly... surely you misunderstood something. Making sure your income exceeds your expenditures on a monthly basis certainly is good advice and would be a pretty big leap to call it "nonsense".

Last edited by CaptainObvious; 08-26-2007 at 06:50 PM..
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Old 08-26-2007, 09:06 PM
 
Location: North Raleigh
820 posts, read 2,787,022 times
Reputation: 475
Quote:
Originally Posted by Wanna Leave Penciltucky View Post
There is no way to tell what someone has to buy a home generally. Many of us are not first time home buyers, have cash put aside and have a home worth MORE than what we are buying. I intend to spend 100,000 less than my home is worth here. Not everyone is the same as me some people are going all out/bigger/more expensive. A lot of what factors a mortgage is income and debt to earning ratio and credit score.
A lot of the people who the OP says are buying 350,000 homes are putting down a lot of down payment. They have cash equity from their home sales.
As for what a family should save per month, I personally think if your budget is calculated on 2 incomes you should not factor one of those incomes into the bill paying and or mortgage.
Of course that is just my opinion. People decide what is important to them. For some it is house, for some it is cars and for some it is the extras, vacations, toys and or hobbies.
I learned long ago never to tell people how to spend their money. If you want a 400,000 home in NC, only your mortgage company can tell you if you can afford it. Then it is up to you to decide if you agree.
Best post of the thread! I'm working hard and smart so I don't lose sleep over my finances; I'm certainly not going to lose any worrying about anyone elses!
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Old 08-27-2007, 02:54 PM
 
Location: San Jose, CA
1,318 posts, read 3,553,620 times
Reputation: 767
Quote:
Originally Posted by Linda Pratt View Post
I could not disagree more!!! This is complete nonsense!

So you are renting (negative cash flow)? How is that a good thing???

I own 19 houses, and have 17 mortgages. I'm not house poor - I'm house rich! They all produce a positive cash flow! ($4k per month)

You say you rent. If you rent for 30 years, what do you have at the end of 30 years? NOTHING! And your landlord has paid off his loan, thanks to you! (Bless people like you!!!) AND, your rent has increased when ever the LL feels like it. Trust me, all my tenants are paying my mortgages and I'm making a profit! At least if you had a mortgage, it will be paid off in 30 years so you can retire with minimum home expense. Not so, if you are renting!!!

You can OWN cheaper than renting!!! I do a lot of Lease With Options To purchase, specifically to help people quit wasting their money paying RENT!
I would have to disagree with this completely. The cost to purchase a place is A LOT higher than renting, just taking rental listings here in the Bay Area that have the address listed and looking up info in Zillow could easily show you that. Take a condo near my office listed for rent $2400/month.

Zillow Estimate: $769,831
Mortage: $ 4,739.98 a month for 30 years for 6.25%, a very low rate for a Jumbo
being optimistic that is $780/month to principal $4000/month to interest (I'm taking the max for the year in each category to bias FOR purchase)

28% Tax bracket to be generous as well.
$428 HOA fee
$7698/12 = $641.50/month taxes. 1% for the county.
Only $100/month Homeowners insurance.
Say no PMI just to be nice. No maintenance to be nice.

Total costs $4000 (interest) + 428 HOA + 641.50 Taxes + 100 Insurance - 1120 Income Tax Refund = $4049.50 (Almost twice the cost to rent, and that with no maintenance or PMI). A person buying to rent it out would have a negative cashflow of AT LEAST $1600/month.

To make blanket statements like paying the landlords mortgage, or buying is always a better investment, and other biased statements toward buying, don't make it true! Anyone renting out in the Bay Area would likely be losing money versus selling, that is the way the market is. The reality is that with that level the landlord would largely be paying his/her own mortgage for many years until market rents get up to at least $4049/month which with a nice 5% rent increase every year would take 11 years.

Of couse the opposite is true for listings in the nothern Dallas suburbs, but I only need 1 counterexample to disprove a generalization, I don't generalize the opposite, because I know better, different markets in different regions.
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Old 08-27-2007, 03:31 PM
 
1,004 posts, read 3,753,830 times
Reputation: 652
Quote:
Originally Posted by cardinal2007 View Post
Of couse the opposite is true for listings in the nothern Dallas suburbs, but I only need 1 counterexample to disprove a generalization, I don't generalize the opposite, because I know better, different markets in different regions.
It doesn't even work well in the northern Dallas suburb of Plano.
For example:
4510 Hawkhurst in Plano, TX, Zillow has it at $293,521, which is probably low for this house.

Zillow Estimate: $293,521
Mortage: $ 1,807.26 a month for 30 years for 6.25%

28% Tax bracket to be generous as well.
$6660/12 = $555/month taxes. (love those DFW property taxes).
$2000/12 = $166/month insurance. (yep, expensive in DFW).
Say no PMI just to be nice. No maintenance to be nice.

It'll cost you $1,807 + $555 + $166 = $2528 each month to own the house. You'll save about $500/month in income taxes at the beginning of the mortgage (interest + prop. tax. deduction - standard deduction).
So this house will cost you $2028/month.

It is currently listed for $1900/month lease.

While much better than the Bay Area lease/buy example, it still isn't viable for a landlord.
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