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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 think most people who are buying in that range aren't first time home buyers. If it's a step up, then they're selling a home to buy another one and they have the profits from the sale of one home to buy another bigger/better one.
I agree. The equity in an existing home is a HUGE factor. Particularly for people moving from markets that skyrocketed in recent years like D.C.
As far as your question, I'd think if you only had 20% down, you'd definitely want to make at least $150K or even more (presuming putting $ away in 401(k), etc.).
In addition to what Kellycrash said, for the past five years or so many of the people buying houses have been using creative financing to be able to get into their "dream home". Their interest rate my be only be 1% for a year or they have 3/1 ARM's or maybe they have interest only loans etc.
They are able to get into a house above their means because of the financing. Unfortunately (as can be seen by the foreclosure rates), when those ARM's end and interest rates have come up, they can't afford to refi.... so they have to give up that house.
It is really relative to your total financial obligations. Some people have school loans, car payments, credit cards...etc.
The most common financial formula is not exceeding 1/3 of monthly growth income for mortgage payment, and I think it is a misleading one.
IMO, for a family making over 100K they should retain a surplus of at least $500 a month, after paying all the monthly financial obligations including household expenses, mortgages, personal taxes, child care, and personal spending, gas, car insurance, etc
In my own situation, I can afford more expensive home than most people in my income bracket, because, I don't have any car or credit card payment. I don't have children, I drive an economical car, I don't smoke, and I am not a big drinker. The only debt I have is my school loans. You get the idea?
All the posts above are good ones. Going back to something in the first post, I'll add that $140K for a 2 income family around here is not that unusual either. At a lot of the RTP companies, you have quite a lot of folks making 6 figures on just one income.
It is really relative to your total financial obligations. Some people have school loans, car payments, credit cards...etc.
The most common financial formula is not exceeding 1/3 of monthly growth income for mortgage payment, and I think it is a misleading one.
IMO, for a family making over 100K they should retain a surplus of at least $500 a month, after paying all the monthly financial obligations including household expenses, mortgages, personal taxes, child care, and personal spending, gas, car insurance, etc
In my own situation, I can afford more expensive home than most people in my income bracket, because, I don't have any car or credit card payment. I don't have children, I drive an economical car, I don't smoke, and I am not a big drinker. The only debt I have is my school loans. You get the idea?
Agreed, if you're spending 2600/mo in piti payments for the home, but you've only got one car payment and a couple of small credit cards, you can do just fine with as little as 6000/ month on the other hand if you've got two car payments, student loans and a bunch of credit cards that are maxed out, you've got to have a higher income coming in.
If you go by total debt (piti, credit cards, auto loans, and other loans) if you are below 45-50% of your total income you should be fine.
Then you have the rest for your food, utilities, entertainment, and auto insurance.
In the end it is whatever each person is comfortable with. Some people want the house to take up a bigger portion of their income because it is the most important thing, some want a smaller mortgage payment to spend money elsewhere, private schools, vacations, eating out every night etc. because those are more important to them.
It all depends......
Equity in the home you currently own and are selling
other debt, obviously the less the better
other expenses, like food! Food prices have gone up considerably lately and with a family of 9, our grocery bill is the size of a house payment already.
Even so, we live in a 1700 sq ft house with a few upgrades where it counts (like better insulation in the attic) and do just fine. A bigger kitchen would be nice . Sometimes more is just more. Having said that, I'd pay 350K for a house with land, barn, stream, etc...in a heartbeart, lol
The old rule of thumb was to buy a house for a max of 2.5 times your annual salary or $250K in your case. That seems like a more reasonable debt for a first home at that income level. You need to be able to sleep at night. Personally, I like 0% debt, but that takes discipline and a fondness for peanut butter
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. Sometimes more is just more. Having said that, I'd pay 350K for a house with land, barn, stream, etc...in a heartbeart, lol
