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Old 08-06-2009, 12:08 PM
59 posts, read 213,810 times
Reputation: 36


I understand some of my assumption on this spreadsheet (see attached pic for calculations) might be incorrect, such as PMI amount, but my biggest question is the "Monthly Tax Adjustment".

Our situation: Annual Gross Income: $150k, DTI = 0, pretty stable job. Only have about $50k in savings. Could we afford a $700k house? What tax bracket are we on? I think 33%? Based on the calculation below, a $700k house with 10% down will actually require a monthly payment of $4,100 after the tax adjustment. Is that a correct calculation? The PITI actually will be $5,321, but at the year end, our actual cost will be $4,100?

Or, is it better to save for another year before jumping on the hole The real estate agent that I talked to keep advising me to buy buy buy... otherwise, interest rate might go up and all the savings we built for another year will not be worth much... we are not a first time home buyer, so we won't qualify for the tax credit.

I know a lot of questions, but any helpful insight from ur experience is appreciated... thanks in advance.

See attach picture for calculations...
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Old 08-06-2009, 12:32 PM
28,460 posts, read 80,825,745 times
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In a general sense, yes if your income is truly $150K and you have no debt and enough cash for 20% down you would probably be green-lighted to borrow the amount for $700K house.

Getting a jumbo (if that is what you'd need) and PMI would result in interest around the 7% that you have in spreadsheet, but if you borrow a smaller amount your rate would likely be much lower on a 30 year fixed.

I don't know if 1.3% is realistic for your local taxes, nor can I verify the amount you have for insurance or maintenance / improvements -- the numbers seem to be all in a veryrough ball park of recommended. I think most people would agree that larger / more expensive homes often cost more on an on-going basis. I do not see any utility info, and again if you think that is not a significant factor I can only hope that things stay that way for you...

Personally you have NOT stated what you current house is worth or other details of your situation so it is very hard to determine what you really want to accomplish. On the one hand, since you claim you only have about $50K saved up, I don't understand why you would calculate your NON-PMI costs at all, and there is a very large difference between being able to technically afford a $700k house and shopping 'down market' where you could use excess income to much more quickly get your equity to the point where PMI is not needed. If similar housing stock would be available to you the decision to "spend to the max" may not be wise...

If you listen to real estate agents to tell you to buy a house, do you also rely on car dealers to determine when you need to buy a car? Not meant to slam either, just that I think you need to lay out more of picture of what you what to accomplish...

Savings can grow in absolute terms, both from interest AND additions. That should be done if you can afford to save up, as 'over borrowing' even at a low rate is never smart. The math on the "ideal point" to buy is less important than having a sold handle of where your current finances are and what your future position is likely to be relative to buyers. I do not foresee any massive changes in rates available to borrowers, nor should prices rise dramatically in MOST parts of the country...
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Old 08-06-2009, 07:24 PM
341 posts, read 1,477,784 times
Reputation: 255
a few things to consider... even if you have no other debt, the "front end" DTI with that mortgage would be on the high side. Even with low overall DTI, the amount dedicated to housing could make a bank pretty cautious.

Also, talk to your accountant about how much of a deduction you'll actually see. For one thing, every month that "deduction" you're budgeting for drops a bit because more and more of your payment will be dedicated to principle. So, your "net payment" will go up a little bit every month... very little, but it's constant.

I'd agree that the property tax estimation you've used might seem low... but hey, I live on Long Island.

good luck on the job hunt!
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Old 08-06-2009, 09:22 PM
Location: Sacramento
2,568 posts, read 6,480,116 times
Reputation: 1927
Even if you feel your job is stable, you should always have an emergency fund. 8 months in this economy according to Suze Orman http://www.suzeorman.com/

So if you need to use all your savings for the down payment then you can not afford this house.
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Old 08-07-2009, 03:00 AM
995 posts, read 3,810,967 times
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Your monthly tax adjustment is over-estimated, if you are currently using standardized deduction. You only get tax benefit for the itemized deduction amount exceeding $11,400, if married.

Your monthly tax adjustment should be = 0.33 * (758.33 + 3 659.76 - (11 400 / 12)) = 1 144.47. And your actual monthly expense will be $4400.

Your assumptions about yearly maintenance and improvement are very low. Is it a new build?
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Old 08-07-2009, 10:29 AM
59 posts, read 213,810 times
Reputation: 36
Thanks everyone for your input... I knew deep inside that I can't afford this house and should save up more money before I can buy or look into a house that's cheaper... it's just that the realtor was trying to get me to change my mind and I wanted to see from others point of view... i'm just gonna save for another year and possibly look at buying in 2011.. thanks again to all.
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Old 08-07-2009, 12:21 PM
Location: Denver, CO
1,921 posts, read 4,548,926 times
Reputation: 1715
Good choice, I don't think you want to be house poor just because everyone says to do it.
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