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I've been reading the threads on this forum for awhile and trust and respect what people have to offer. My wife and I are hoping to purchase our first home soon. Here's our situation:
We gross about 175,000 a year and the homes we are looking at are in the 475,000-500,000 range. Pricey, but we live on Long Island, so that's what you get! These homes also have taxes that run about 7,500 a year. We have about 35,000 to put down as a down payment.
Our debt:
800 a month in daycare
800 a month for a loan - two years left
175 - cell phones
150 - cable
250 - car
200 - insurance
150 - student loan
Then there is gas, food, utilities, and LIVING a life, which is a top priority for us.
I have run the calculators, but each one comes up different. My mortgage broker says this borrowing the 450,000 (roughly) would be no problem (at all).
I am curious what you think? We're not big spenders, but we don't want to be house poor. I get nervous when I look at the 3,500 a month mortgage, but I guess that's reality these days (for where we live).
My household income is comparable to yours, and even with expenses, ours seem to line up differently but comparably. We are considering houses around the $400,000 mark and I have been worried about that. I live in Alaska so costs here are high as well, but taxes are considerably less. (No state income tax, no state sales tax, local sales tax is only 2.5%, but if you go into town you have none). Our property taxes are considerably lower than yours as well. Regardless of what the mortgage brokers say you need to look at your life spending.
For me to come up with our top dollar I looked at what I actually spend (my checking account itemizes categories) and figured out where I felt we would cut back and where we knew we wouldn't. The mortgage broker looks at what you can afford for a house, not for a lifestyle. I think that is where the real estate market got really into trouble. We qualify for a lot more than we are willing to spend. I have excellent credit, but it got that way through doing what I thought I could handle, not what credit cards and others thought I could. You know your habits better than anyone.
Also, consider size and the cost of utilities. Most people disclose their expenses or I believe you can look it up. You need to be able to accurately assess how much it will cost. A larger home can cost more, but the home I live in now is considerably large but costs less to heat (again Alaska) than homes half its size because of construction.
Forget what you gross. How much do you actually get paid each month after taxes. Then deduct all your expenses from that. Include gas, food, utilities, and LIVING a life. Does that number include putting something in savings? (401K?). If not, deduct something to go in saving every month.
Now you know how much you have to pay your mortgage/taxes/insurance.
You know, you are 1/2 way there to a formal monthly budget. Why don't you finish it up? I've attached a budget worksheet, try to be realistic and see how much money you have to live on at the end of the month. With the use of ATM cards, it's easier than ever to track your spending.
And, as an FYI (for the agents, not the OP), I have all marginal buyers prepare a budget showing how they plan to be able to handle the mortgage. Underwriters really do like to see that the buyer has given a budget a lot of thought. And it can be usefull on the more expensive FHA homes, too. Drawing a big red circle around $4000 to live on after expenses (even though the ratio is high), is a great compensating factor.
On $500K and $35K down payment, you will have PMI so you should factor that in as well in your costs.
And as you mentioned taxes
And maintance...When we bought our home the HVAC went within a year as well as the garage doors. That was $13K we hadn't thought of.
We also have spent on Trugreen and a pest management company. I got rid of Trugreen but kept the Pest which is about $90 every 3 months.
And we have an HOA-we pay $190 every 3 months for that
Just some things to consider when factoring in your costs.
We make about $25-$35K less and we bought our home for $527K. But we put down 33% or so...so our payments are about $2400 a month.
Good luck! Just don't overspend b/c you CAN. THe bank had offered us $550K WITHOUT the down payment and we knew we couldn't afford that. Our mortgage is on $380K or something like that. We got more than what we needed without having to spend as much as they offered.
I have kept track of my budget for the past 4 years now. The trick is to write down ALL of your expenses - bills, doctor visits, insurance, gas for the car, food, etc. Find out where your money is going and how much of it is going towards those things - this allows you to see where cuts may need to be made. If you keep all your old bills you should be able to tally it up and take an average to see how much you're paying all the time.
Once you have all of these expenses written down you can then decide on how much of a monthly payment you can afford if you want to live a certain lifestyle and/or save some money each month. The payments you listed before bills/food/doctors/savings/living totalled about $2,525.00. You should attempt to keep track of all those things not listed as well so you have a better total.
After all of your expenses are in your budget you can then see how much of a house you can afford. Just because a bank says "oh you can afford a much bigger loan" does NOT mean you should do so! I was approved for a $225,000+ (up to $250k) loan but I kept my house searches at $150,000 or under due to high property costs and taxes here in New Jersey. I know what I can afford and what my needs are (many doctor bills, and I am unlucky - lots of problems crop up in life, expensive ones) so I didn't want a mortgage/PMI/taxes that was too much over what I was already paying in rent. I just bought a house and my total monthly payments are now $1,087 - well within my budget and won't make a serious dent in my life style compared to my previous $915 in rent. (150 more for a home of my own!).
EDIT: Of course now I will have problems with the house that need to be addressed, and I already need to paint the insides, buy furniture, purchase lawn care stuff, rip up the carpets, etc etc - it's going to be an adventure!
a) your mortgage (PITI) shouldn't exceed 28% of your gross monthly income, and
b) your total monthly debt (mortgage, loans, car payments, credit cards/all consumer debt) shouldn't exceed 36% of your gross monthly income
Thanks for the advice! The house we are looking at is 470,000 and I have taking PMI into account. I've run the numbers many times and do feel confident we won't be house poor. Plus, in the upcoming five years our salaries will increase nicely.
I've been reading the threads on this forum for awhile and trust and respect what people have to offer. My wife and I are hoping to purchase our first home soon. Here's our situation:
We gross about 175,000 a year and the homes we are looking at are in the 475,000-500,000 range. Pricey, but we live on Long Island, so that's what you get! These homes also have taxes that run about 7,500 a year. We have about 35,000 to put down as a down payment.
Before even looking at your spending, this part bothers me. Less than 10% down on a very expensive house? I'd be concerned about your ability to save for unexpected expenses that always seem to come up - I guess the fact they come up isn't unexpected, but the timing of them seems to be.
Anyway, if I were worried about it I'd put together an estimated budget for the amount of house you plan to buy. Live with it for 6 months or a year and put the extra amount away in savings you promise not to touch. No cheating - every month put away that extra amount. It's the only way to really tell if you can or can't live like that.
If you expect to need an extra $3000 a month to afford the house, that will double your down payment in a year or get you near 20% after two. It will also show you that you really can afford the place, or at least show you what sacrifices you'll have to make to scrape by. And with the extra money down, you'll save on P&I, and save enough and you'll eliminate PMI as well.
The funny part about this is that 475,000 is not really a "very expensive" house on Long island.
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