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You're comparing apples to oranges. The 3.5 "rule" is fairly new as rates haven't been this low, ever. It's not even a "rule" just a guideline for quick estimates. If you bought the $108k house "years" ago, the rule was probably closer to 2 times your salary at that time. As rates go down, payments go down, so you can buy a higher priced home and have the same payments. It's simple math. If you received one of today's rates compared to your rate a few years ago, your payments would be a lot less and you would not have struggled as much.
You can't compare a comment of 3.5X today to what people would have advised you to do 2 years ago, 5 years ago, etc...
True to a certain extent. When I bought, which was 10 years ago, I was told the "rule" was 3x. Rates at that time were 5.75%. But if rates had been at today's numbers when I bought, and I had bought at 3.5x my income at today's rates, my payment would be $300-350 higher than my current payment (nearly half again what it is now). I would never have made it.
With today's rates, I could have paid the same amount as I currently pay, but gone up to about 2.2-2.4x my income, instead of 1.6x. I still think, even with today's low rates, that 3.5x is too high, unless, as I said, everything else about the person's finances is absolutely 100% perfect.
I just think it is important to point out that there is a "rule of thumb" out there, and yes, as rates go down, the rule goes up, but the rule is for a best case scenerio. Most people who are buying aren't a best case scenerio. Also, you run the strong risk of becoming house poor. Saving anything for retirement would be very difficult under these circumstances.
My lenders, plural, told me to start using that number when rates hit 4%. Now that rates are even lower than that, borrowers can borrow even more money and have the same payment, closer to 3.75x, but I still use 3.5x because the math is easier to compute without a calculator. With excellent credit and very little debt, many people are going to 4x their salary, but that always scares me, and I would never tell one of my clients they should be looking that high unless they have a plan for a larger down payment.
And this 3.5x is used mostly for the 3.5% down FHA or 5% down Conventional. As I mentioned, if you're putting more down like 10% or 20%, the number is different.
Ok, so this makes it sound like you are talking total purchase price. I'm talking loan amount, because that's how I've always heard the "rule" quoted: ie "Don't borrow more than 3x your annual gross income". So definitely apples to oranges, there.
As a Realtor, I'm showing people houses based on the seller's asking price. Asking prices are the searchable terms in the MLS, not potential loan amounts.
With a 20% downpayment of $40k you would be looking at a payment of about $1000 per month. That is around 24% of your monthly income which depending on any other debt load you have may be affordable for you. If you have car payments,student loans, large credit card bills, ect then you may have too much debt to take on a mortgage. Do you have $40k for a downpayment? otherwise you are looking at an fha loan and a larger payment and a less affordable mortgage payment. You didn't say where you live now but in alot of areas around the country buying a house now will give you a payment smaller than what you could rent a house or even an apartment for so if you can buy a house you could lock in a low payment that will probably not be available in the near future or in our life times.
Forget all the "general guidelines". Figure this out from the ground up. You know how much you take home every month. You know what your non housing expenses are (including putting money away for savings/retirment). Figure out how much you have left. That is exactly how much you can afford a month for all your housing related expenses. Anything else is just going to be misleading.
Assume single:
$50K is about $30K after taxes, healthcare, unemployment... That's $2,500/ month in disposable income. You will obviously spend your disposable income on food, retirement savings, debt payments, fun... so that's your choice.
Your payment (assuming 20% down) would be about $925/ month, which is about 37% of your disposable income. Assuming your house doesn't require many improvements, I think that's fine as long as you want/ plan on living there for a while and are good with the tradeoffs of paying $92/month + $40K down
i would be careful buying a 200k home with you income. btw what if you lose your job than what? how about buying a less expensive property and keeping a emergency account incase you have money issues. Also a lot goes into a home ownership. emergency situations like storms floods, fires. repairs of sudden boilers ac roofs that one day need ER removal repair replacement.
you will get ulcers or a heat attack with the stress of buying a home that is too much to afford
your house payment/or rent payment shouldn't exceed 24% of your monthly income.
yes. However, that is just a starting point. As others mentioned, you still need to factor in other debts (student loans, cars, credit cards, etc.) as well as how much utilities, property taxes, and other house-related expenses you may have each month on average. You only make X amount each month, and you have to be able to pay it all with your take-home wage, or you just get further into debt with credit cards or HELOC's.
If you are starting to think that it's a lot to consider, then you are correct. Consider it now, not after you sign the closing documents and are stuck with your decision.
I'm waiting that to take another price cut so if it goes around 280,000 if i do a mortgage for 30 years it will be like $1300 a month not too bad i take home $1500 every 2 weeks i don't have kids.
You can take the girl out of Worcester (Wiss..tah) but you cannot take Worcester out of the girl.
I wish you luck, but to me an old hosue in Worcester has those two strikes against it for the get go.
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