Have run the math. Seems like a safe bet. Plenty left over after mortgage, taxes, etc. not planning on moving for a long time.
Thoughts?
Have run the math. Seems like a safe bet. Plenty left over after mortgage, taxes, etc. not planning on moving for a long time.
Thoughts?
Yeah... that's pretty standard. Why do you think you are "going out on a limb" with this one?
If you make 50k a year... a 200k house is incredibly doable. If you make 100k a 400k house should still be just fine.
What % are you putting as down payment?
What is your salary? Eg 50k salary and 200k house is completely different than 250k salary and 1 million house.
15 or 30 year mortgage?
an on line calc
https://www.zillow.com/mortgage-calculator/house-affordability/
https://money.cnn.com/calculator/real_estate/home-afford/index.html
another viewpoint
A loan officer tells me down payment, location and other debt factors make salary to first house price ratios swing widely. She thinks traditional two income households should stay in the 2.5 times area when the combined income totals under $200.000
I bought an 800k house with a 200k annual salary. I put 25% down ($200k). It’s not necessarily tight by any means but a 700-750k house would have been more comfortable. This is also because my property taxes are about $16k (NY state). I also don’t have any kids.
Doesn’t really matter at this point though because now I have a dual income with the wife which puts us at about $325k for annual earnings so it’s easy to afford with her.
The old rule of thump was that you can afford 3 times of the household income as a mortgage.
Probably not many do it this way these days.
Buy the smallest house you can get away with and get a 15 year loan. It will be way cheaper since you don't have to pay for all of that interest.
Doing 5x gross salary is a more baller move.
I've never done more than 3x, but I'm old. I would feel very uncomfortable with 3x right now, mostly because I want my house paid off in the next 15 years so I can retire, and my income is unlikely to grow over the next 15 years as quickly as it did in my first 15 years when it was relatively easy to get promoted.
While that is certainly a sound financial plan, there are a ton of other issues in home ownership that are as important if not more so. Are there good schools? If not, private schools in most major metros are running $10k-25k depending on whether they are catholic schools (cheaper due to support from arch dioceses) or just private. What is your commute like? There are people in my office who live 45 miles away on the edge of the suburbs. They have big houses on big lots, but it takes them 90 min to get to work due to all the traffic. They see their little kids for about 45 min before they go to bed.
And what is the trajectory of your housing market? Where I am, there is still a lot of land for residential development. People pay a premium for a new house because they feel special picking out floor plans and finishes with their builder. But when the subdivision falls out of favor, they are lucky to get 80% of their money back 30 years later. One guy I used to work for paid about $600k in the 1980s for a 5k sq ft house on a golf course in the burbs. He had to spend $70k to update everything just to get $600k for it in 2015. The golf course had fallen into disrepair and now was public/private. The schools now have metal detectors at all the entrances. And all the nice new development moved to the north. But, if your area is going in the other direction, buy as much house as you can get and grow into the monthly payments. My dad bought a condo in the Back Bay in Boston in the 1980s after my parents divorced. He could barely afford it at the time while making child support and alimony payments to my mom. He sold it 15 years later for double the purchase price and bought a bigger condo in the same neighborhood. When he sold that one he had enough cash to buy a house in Vermont and a condo in Miami for his retirement. Had he bought a crumby single family house in a suburb that was much more affordable, he would have probably missed out on $750k in market appreciation.
If you are early into your career and expect to do better as you go along, then 4X or 5X current income is not a bad idea.
You may struggle a bit at first, but the ratio gets better as your income rises and mortgage stays the same.
What may be worse is putting off buying until you make that money and miss out on the equity building.
Or buying less house and selling in a few years to upgrade. The closing costs if you sell too soon would be greater than any gains in equity.
If you are unsure about future earnings are expect them to be flat, the 3X salary would be a better idea.
My first house was 5 times my salary, but I was in my early 20s and my friend rented a room that covered about 20% of the mortgage.
Currently my house is a much lower multiple, but I wanted a 15 year. Also, my wife stays at home with the kids so I didn’t want the stress of a huge mortgage in case anything happens with my job.
Like others said, if you are young and have a good career trajectory, it’s not too big of a swing.
Precious Roy wrote:
While that is certainly a sound financial plan, there are a ton of other issues in home ownership that are as important if not more so. Are there good schools? If not, private schools in most major metros are running $10k-25k depending on whether they are catholic schools (cheaper due to support from arch dioceses) or just private. What is your commute like? There are people in my office who live 45 miles away on the edge of the suburbs. They have big houses on big lots, but it takes them 90 min to get to work due to all the traffic. They see their little kids for about 45 min before they go to bed.
And what is the trajectory of your housing market? Where I am, there is still a lot of land for residential development. People pay a premium for a new house because they feel special picking out floor plans and finishes with their builder. But when the subdivision falls out of favor, they are lucky to get 80% of their money back 30 years later. One guy I used to work for paid about $600k in the 1980s for a 5k sq ft house on a golf course in the burbs. He had to spend $70k to update everything just to get $600k for it in 2015. The golf course had fallen into disrepair and now was public/private. The schools now have metal detectors at all the entrances. And all the nice new development moved to the north. But, if your area is going in the other direction, buy as much house as you can get and grow into the monthly payments. My dad bought a condo in the Back Bay in Boston in the 1980s after my parents divorced. He could barely afford it at the time while making child support and alimony payments to my mom. He sold it 15 years later for double the purchase price and bought a bigger condo in the same neighborhood. When he sold that one he had enough cash to buy a house in Vermont and a condo in Miami for his retirement. Had he bought a crumby single family house in a suburb that was much more affordable, he would have probably missed out on $750k in market appreciation.
10-25k for private school in a major metro area. Good luck with that Roy.
We bought a 750k house on 180k income with 150k down. Ended up with some unexpected medical bills and then got a parallel job offer in another state that was more appealing to my wife and I. We sold the house and moved to a rental while we scope out neighborhoods and schools in our new state. Income in the new job is 200k and we’re looking to buy a 600-650k house with 150k down.
I wouldn’t do the stretch again.
How does everyone make so much money??? There are like 2 jobs that make that much money where I'm from. Doctors and Laywers. That's it!
you're fine.
The old "3X your salary" rule of thumb was popular when interest rates werer 7-10%. At 2.5%, the multiple is going to be way higher.
not an alumni wrote:
How does everyone make so much money??? There are like 2 jobs that make that much money where I'm from. Doctors and Laywers. That's it!
Are you in a flyover state? The "middle management" tier at my company makes $300k-$1m+ per year (lower end if you haven't benefited from stock appreciation, could be much higher if you have), and I'm not even in NYC/SF. Once you get to a more senior level in finance, consulting, or a corporate that gives a lot of equity compensation like all the major tech companies do, this level isn't hard to get to. Starting overall comp for any fresh MBA grad from a top school is usually $200k or more, and while the slope of the trajectory may vary you should definitely be making much more than that after 5-10 years.
My guess is all of this money which people keep throwing around are full comp. Though I agree, these are still a small % of people. I think you just get high income earners responding to these posts. But think of it this way...
Base Salary - $120K (Middle Corp Management Role). Not talking SF or NYC either.
Bonus - 15% - $18K
Yearly Restricted Stock - $50K (vested over a few years, but people consider yearly comp)
Total - $188K.
Go ahead and double that if you are with a partner doing the same stuff, which isn't unheard of. Imagine meeting a woman or guy at work, falling in love, and getting married. Next think you know, you are pulling in $376K.
I work in the Corp world. There are alot of folks that do some 'whatever' type project management jobs pulling this in (more $ to be honest). Not putting them down, but making this kind of money is out there more than you think...and it's not rocket science. Restricted stock is where the real money is being made. Large down payments on homes, beach homes, etc...
Midwest, so yeah, a flyover state.
But for a 35 year old (10 years + experience), 131k is 90th percentile. 50th percentile is 50k!.
It just blows my mind every time I hear about random management jobs at banks/insurance/finance companies making so much money.
Personally, I'd go for a 30 year mortgage. Rates are ridiculously low right now, and you can invest the extra cash you save on mortgage payment. It also gives you some extra breathing room if you were to take a financial hit. You can always pay it off sooner too.
Just closed on a house last week in the central Ohio area. Paid 453k on HHI of 225k. We'll call it 2x salary and be happy with it.
IT has totally changed the salary game. I have no college education and yet my salary is 151k, yet my RN wife only makes 75k. We both have 20+ years in now. I could make a bunch more too, but I have a position where I still like what I do, and not much is expected. Business knowledge makes me valuable.
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