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Lots of people like to keep their powder dry. Maybe you're thinking about keeping some cash available for a future investment. Maybe you figure you're going to need to supplement Social Security out of your own savings when you retire. Maybe you're planning to buy 100 acres in the country in a few years.
With today's low interest rates, the rule of thumb is that one would qualify for a mortgage that's about 5-6x one's annual income. And I know people who have to do that, because the cost of housing is so high where they live. For those of us who don't live in such high cost housing areas, I know families who bought right up to the max, and I know people like me, who bought houses that were about 1-2x household income, because I am financially cautious, and an average house was enough for my family.
It's really no different from cars. Some people buy big fancy, with big loans, some buy outright used cheap, with no loan. Some people die in the black, leaving money for their heirs, some die deep in the red, and the entire house of cards collapses with their death, leaving the heirs a messy load of debt. Some of those people even make it right to the top of the heap on a messy load of debt - like our president. It's all in how people choose to live their lives.
Nice post, until you decided to bash Trump for absolutely no reason.
By the way, if you have 10 billion in assets, and 5 billion in liabilities (like our president) you aren't in a "messy load of debt", but are actually a billionaire... something a financially cautious person will never achieve.
Don't forget - the only people who voluntarily live in Indiana are in the Federal Witness Relocation Program, and hence lenders may not want to lend to them.
Lots of people like to keep their powder dry. Maybe you're thinking about keeping some cash available for a future investment. Maybe you figure you're going to need to supplement Social Security out of your own savings when you retire. Maybe you're planning to buy 100 acres in the country in a few years.
Boy howdy! It's pretty hard to live on just SS. Although a lot of people do, I sure didn't want that to be me. Typically it's recommended to save 15% of you income for retirement in tax advantaged investments, so there's another expense not included in OP's original question.
So just to recap we have the following expenses not included in your original question:
retirement savings (up to 15% of income, so $15k per year for this $100k couple)
medical/ dental insurance premiums, copays, and deductibles (premium alone is up to $12k/year per person)
child care (minimum for 2 kids in daycare $12k per year)
HO insurance (at least $1k per year)
property tax (anywhere from $2k to $10k per year for a $300k home)
private mortgage insurance ($1200 to $4000 per year based upon mortgage balance and credit rating)
student debt payments (the sky's the limit here!)
basic living expenses like food, clothing, utilities, gas
car insurance (up to $1k per year per car, depending on car and driving record)
tuition for non-public school (optional in most areas)
state and federal income taxes (widely variable, but certainly several thousand/ year)
car repairs (?)
home repairs (something usually goes wrong unless it's new construction)
So you see, there's a lot more to affording a house than just plugging in an income and a debt ratio. Life in today's world is expensive, and the more you own, the more it costs to maintain it all.
SO you agree that most households can afford a 300k loan?
You know that the census bureau tracks data, right?
22.4% of Indiana residents make over $100k in household income. So 22.4% of them could afford, assuming good credit and no other debt, a $300k home. 22.4% is not most households.
You know that the census bureau tracks data, right?
22.4% of Indiana residents make over $100k in household income. So 22.4% of them could afford, assuming good credit and no other debt, a $300k home. 22.4% is not most households.
You’re assuming those people have good credit scores, aren’t drowning in school loans, car loans, and consumer debt, and have actually managed to save for a down payment. 20% down on a $300k house is $60k. If you don’t have the down payment, you pay private mortgage insurance and usually a higher interest rate.
My view is a house is discretionary spending to improve your quality of life. If you’re trying to maximize creating wealth, you’d live in a small apartment in a sketchy neighborhood, drive a stripped Hyundai Accent, and invest the difference in the market. Unless you’re in a once in a lifetime real estate market like San Francisco, you’ll always do better in an index fund.
SO you agree that most households can afford a 300k loan?
Whether the answer to this vague hypothetical is 'yes,' or, 'no,' what is your interest in asking?
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