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My point was more that most households should be able to afford a decent home. Not necessarily max out a mortgage. More of a point on household income.
Debt service, including both mortgage and car loans, CC debt, etc, should not exceed 30% of income.
Many people are not able to save the money for a 20% down payment. If you pay less than 20% down, you also have to include PMI with the mortgage. There are also many other expenses involved in home ownership over and above the mortgage that also need to be considered...HO insurance, property taxes, repairs and maintenance, increased utilities versus a rental (most renters don't pay sewer/water/garbage and have smaller places, so less elec/gas), furnishing the home, doing or hiring yard maintenance. It's also important to have an emergency fund in place for the $12,000 needed to replace your HVAC system when it blows up in February.
Two income families often also have childcare costs in excess of $1000/month. Don't forget medical/dental insurance costs if the employer doesn't pay those (could be up to $2000/month without subsidies). Add into all this that many people have bad credit ratings, less than a year in their current job, insecure marital situations or other family issues. It's actually really easy to see why so many people don't own homes.
I'm always curious because there are young adults (under 35) with homes, small children etc. I know they make less than me and my wife and always wonder how they are able to afford it.
My point was more that most households should be able to afford a decent home. Not necessarily max out a mortgage. More of a point on household income.
Only a home that costs the maximum of what a dual income couple can afford (on paper) qualifies as a "decent home?"
Are you taking anything else into consideration outside of this hypothetical mortgage? The inevitability of rising taxes and homeowner's insurance? Maintenance costs? (The bigger and grander the home, the more expensive the maintenance costs in general--and maintenance is an ongoing expense even in a new home.) Utilities? Furnishing said home?
Only a home that costs the maximum of what a dual income couple can afford (on paper) qualifies as a "decent home?"
Are you taking anything else into consideration outside of this hypothetical mortgage? The inevitability of rising taxes and homeowner's insurance? Maintenance costs? (The bigger and grander the home, the more expensive the maintenance costs in general--and maintenance is an ongoing expense even in a new home.) Utilities? Furnishing said home?
Yes. All that is taken into account. I wasn't saying people have to get the max they qualify for.
I guarantee you are one of those people preaching home ownership as a good "investment".
I'm always curious because there are young adults (under 35) with homes, small children etc. I know they make less than me and my wife and always wonder how they are able to afford it.
I would say that many, if not most, of those young adults are what they refer to as "trust fund babies." In my area this is extremely common and everyone is away of it. It's a lot of smoke and mirrors. A combination of "help" from parents in some way, shape, or form, and/or over-extending themselves. Even 40+ age group are having mother or father pick up the tab. The unfair truth is that they will get everything they want with no consequence once the parents pass on. This is life...
Yes. All that is taken into account. I wasn't saying people have to get the max they qualify for.
I guarantee you are one of those people preaching home ownership as a good "investment".
And three houses in, you'd be dead wrong in your assessment (or "guarantee" as you put it).
My house (and the two houses that I owned with my former husband prior to the ownership of my current house), is *not* an investment, but it *is* an asset in which I so happen to live. I did choose my neighborhood carefully when I bought this house (I once lived here as a renter, so I knew the area well) partially with the thought that if I or a family member should have to either sell it or rent it out, they'd have a relatively easy time doing so and make a bit of money in the bargain.
In an area where it's often less expensive to own rather than it is to rent (especially if a buyer is able to put down a full twenty percent when buying a house as I did and plans on remaining in the house long-term as I am), it was a wise move for me to buy when I sold my last house even with the ongoing costs of maintenance.
Last edited by Formerly Known As Twenty; 01-22-2020 at 08:03 AM..
I would say that many, if not most, of those young adults are what they refer to as "trust fund babies." In my area this is extremely common and everyone is away of it. It's a lot of smoke and mirrors. A combination of "help" from parents in some way, shape, or form, and/or over-extending themselves. Even 40+ age group are having mother or father pick up the tab. The unfair truth is that they will get everything they want with no consequence once the parents pass on. This is life...
It’s really a shame, because you didn’t used to need to be a trust fund baby to buy a home. In the late 70s, my brother was able to buy a home with an auto mechanics job at Goodyear, and his wife was able to be a stay at home mom. I don’t think people fully realize how drastically the economy has changed for the working class.
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.
5-6x our household income is bonkers.
Families need to work backwards. Figure out how much money they are bringing in. Deduct all monthly expenses and a cushion for emergencies. Then look at what's left and let that determine how much you can reasonably spend on a mortgage.
It’s really a shame, because you didn’t used to need to be a trust fund baby to buy a home. In the late 70s, my brother was able to buy a home with an auto mechanics job at Goodyear, and his wife was able to be a stay at home mom. I don’t think people fully realize how drastically the economy has changed for the working class.
Yup! While I wasn't alive during that time period, I was raised to be hyper aware of costs/finances from the past and present. The cost of living and housing has drastically changed. The working class has the choice of staying in the desirable areas (being in significant debt, living paycheck to paycheck, etc.) or being forced out with all low income earners and commuting back in. But it's funny, because the working class is needed to operate inside these desirable areas.
Quote:
Originally Posted by GiveMeCoffee
5-6x our household income is bonkers.
Families need to work backwards. Figure out how much money they are bringing in. Deduct all monthly expenses and a cushion for emergencies. Then look at what's left and let that determine how much you can reasonably spend on a mortgage.
Yes, you're right. But what I have noticed is that human desire takes over more often than not. I'm sure we've all been there at least once at the dealership when we were younger. That shiny new car looks amazing. You think to yourself that your friends and family would be so impressed, even jealous. All of a sudden the question looming in the back of your head as to whether or not you can swing the payment disappears and you give in. It's all good driving off the lot until the payments, insurance, and cost of ownership catch up.
There are also plenty of homes out there that used to be absolutely beautiful years ago only to now look run down, used as crack houses, condemned, etc. No body thinks about affording the upkeep and taking pride in such as large "investment."
It’s really a shame, because you didn’t used to need to be a trust fund baby to buy a home. In the late 70s, my brother was able to buy a home with an auto mechanics job at Goodyear, and his wife was able to be a stay at home mom. I don’t think people fully realize how drastically the economy has changed for the working class.
What sort of home did he buy?
I find that average expectations of today's first timers, or small families, are significantly different than what expectations in the 1970's were.
We see smaller families wanting as many bedrooms as larger families did in the 1970's
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