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Median household income in the US is about $60,000. Take home pay on that might be about $3,500 a month. That gives you up to an $875 mortgage payment to work with. Call $75 of that insurance. Maybe another $200 for taxes. $600 on a 4% 15 year is $80K, plus you put down 20%, so you're looking at $100K homes.
It's not an unreasonable standard in my opinion. It gets you at least a starter home in most of the country, and in those more expensive cities...well you either need to have a higher income or larger down payment to make it work.
I can see where people think it's a tough standard, but it's still realistic. It's not exactly "small loan of $1MM" territory.
I think you bring up the main issue here, most people aren't okay with the 100K home. Even young millenials, nobody wants a starter home and to build up to a dream home, everyone deserves a starter home NOW!!!
I bought a starter home for $86,000. It wasn't my dream home, it was safe but not in the best area of town, it wans't as big as I wanted, it backed up to train tracks, but I could afford it. I rented two rooms to buddies for a couple years, I continued working, got small incremental raises. At some point I realized someone else isn't gonna pay me what I need to be paid so I started hustling, I started blogs, I started small side hustles and businesses. I grew my income about 5x what it was back then and then I bought a home for 200K.
Note I didn't buy the $475,000 home I was approved for, I bought a 1000 square foot house for 200K.
Nobody wants to delay gratification, nobody wants to be conservative and logical, everyone wants what they want now and if the numbers don't work, let's force them because I deserve the best lol or that's unfair I can't live in my dream home in XYZ city because I don't make enough money
A $100k home where I live is a one bedroom condo, a mobile home that’s probably an hour from work, or a cash only purchase because it’s in such poor condition that you can’t write a mortgage on it (and is probably being sold as a tear down in the last case because you can put a new house on it and make a nice profit) And none of those are necessarily great options for a typical first time buyer who wants to sell in a few years
And I live not in a big city but small metro area Florida.
I don't think keeping home expenses at 25% of net is realistic for many people. The median household income in my city is about 70K. The median home price is 260k. So not exactly a HCOLA.
With 20% down, at 4.1% interest, and 15 year fixed, the payment (with taxes and insurance) would be about $1925. With 20% down, at 4.4% interest, and a 30 year fixed, the payment (with taxes and insurance) would be $1500 a month.
Neither payment fits into the 25% of net rule for a median household income. In order to fit the the 25% of net rule with a 15 year mortgage the home price would need to be 130k or less. That isn't impossible, just very difficult. There are less than 50 homes for sale that meet those parameters (nothing larger than a 2/1) out of about 2500 homes for sale. So even in my LCOLA while it's not impossible to follow Dave's guidance, it's pretty freaking difficult.
However, I do really like that he makes people think more carefully about their mortgage payments. I know that I was approved for more than 5 times my income. There was no way I could manage that sort of mortgage payment. I'd have been in foreclosure within a year.
I think you bring up the main issue here, most people aren't okay with the 100K home. Even young millenials, nobody wants a starter home and to build up to a dream home, everyone deserves a starter home NOW!!!
I bought a starter home for $86,000. It wasn't my dream home, it was safe but not in the best area of town, it wans't as big as I wanted, it backed up to train tracks, but I could afford it. I rented two rooms to buddies for a couple years, I continued working, got small incremental raises. At some point I realized someone else isn't gonna pay me what I need to be paid so I started hustling, I started blogs, I started small side hustles and businesses. I grew my income about 5x what it was back then and then I bought a home for 200K.
Note I didn't buy the $475,000 home I was approved for, I bought a 1000 square foot house for 200K.
Nobody wants to delay gratification, nobody wants to be conservative and logical, everyone wants what they want now and if the numbers don't work, let's force them because I deserve the best lol or that's unfair I can't live in my dream home in XYZ city because I don't make enough money
That's just not correct. The folksy view of "people are not working as hard as I am and want too much" is wrong
First of all, $86k homes near major job centers don't exist. As a result, it is pretty hard to buy that. They are a lot more expensive. there is a reason why some areas are so cheap - because there are no jobs.
Median household income in the US is about $60,000. Take home pay on that might be about $3,500 a month. That gives you up to an $875 mortgage payment to work with. Call $75 of that insurance. Maybe another $200 for taxes. $600 on a 4% 15 year is $80K, plus you put down 20%, so you're looking at $100K homes.
It's not an unreasonable standard in my opinion. It gets you at least a starter home in most of the country, and in those more expensive cities...well you either need to have a higher income or larger down payment to make it work.
I can see where people think it's a tough standard, but it's still realistic. It's not exactly "small loan of $1MM" territory.
Good job with the math and your breakdown. However, the main problem is that the US home values are at least double than 100k.
That's just not correct. The folksy view of "people are not working as hard as I am and want too much" is wrong
First of all, $86k homes near major job centers don't exist. As a result, it is pretty hard to buy that. They are a lot more expensive. there is a reason why some areas are so cheap - because there are no jobs.
Thirdly, people do a lot of things to get an affordable home, such as putting up with very long commutes.
So no, it is not because people don't want to put up sweat equity. It is because those homes don't exist.
Why is it so hard for people to look up stats? Nobody cares about "back in your day" advice because things have changed.
Yeah, exactly. Show me a house for 86,000 in a major metro with actual career level jobs and it either has an atrocious commute or it’s in a place you don’t want to drive thru let alone live in.
That's just not correct. The folksy view of "people are not working as hard as I am and want too much" is wrong
First of all, $86k homes near major job centers don't exist. As a result, it is pretty hard to buy that. They are a lot more expensive. there is a reason why some areas are so cheap - because there are no jobs.
Thirdly, people do a lot of things to get an affordable home, such as putting up with very long commutes.
So no, it is not because people don't want to put up sweat equity. It is because those homes don't exist.
Why is it so hard for people to look up stats? Nobody cares about "back in your day" advice because things have changed.
I bought a 3 bedroom 2 bathroom 1200 square foot townhome/duplex 40 minutes outside Chicago for $86,000. It wasn't my dream home, I backed up to railroad tracks, it wasn't the best block around but was in a desirable school district.
Yeah, exactly. Show me a house for 86,000 in a major metro with actual career level jobs and it either has an atrocious commute or it’s in a place you don’t want to drive thru let alone live in.
This is just a few places, but around 85k, some within 10 minutes of Downtown Chicago, others about 3-40 minutes outside. All are safe places to live, have schools raning from decent to pretty good. Granted they aren't better homes and gardens and most are condos, but tried to focus on 2 bedrooms. If we upped the budget another 10k to 15k it definitely opens up townhomes and maybe even SFH in some areas.
It's just false that you can't find housing at those prices. It may not be your dream house but not everyone can live in the hottest nieghborhood in the city in their dream home and still stay under Ramseys housing limits should they choose to follow that way of budgeting and dealing with their money
ZONED MULI FAMILY. EXISTING TRIPLEX IS DEEMED TO HAVE NO VALUE. MAJOR ROOF LEAKS AND BLACK MOLD. WE DO NOT RECOMMEND ENTERING THE BUILDING. THIS IS A TEAR DOWN. VALUE IS IN THE LAND.
REO Property has fire damage that has not been repaired. The electric meter has been pulled & will need inspections & work before power can be turned back on . There is smoke damage & mold.
There are a few other sub-$100K properties in FWB that tend to be in pretty bad areas or condo complexes with poor reputations and you're pretty much buying a problem there.
Decent one bedroom in a better area and well-run complex, which is the only sub-$100K home in Niceville right now.
I like how people are quoting Chicago, the murder capital of th US. It's expediting rapid emigration as people flee to Indiana. So yeah the homes might be cheap but in ten years they'll practically be free like in Detroit!
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