Author Topic: Here's How Much Home You Can Afford...say what?  (Read 10499 times)

NESailor

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Here's How Much Home You Can Afford...say what?
« on: January 20, 2017, 11:41:58 AM »
http://finance.yahoo.com/news/heres-figure-much-home-afford-194416239.html

That is some spectacularly poor advice.  We are currently at 9% of our monthly gross for mortgage+taxes+insurance and I don't feel like we would be comfortable any higher...

Here's one pearl from the article  "According to self-made millionaire and financial adviser David Bach, buying a home is " an escalator to wealth .""

You know there are people out there with monthly payments between 29% and 41% of their gross. In the words of our new fearless leader: Sad!
« Last Edit: January 20, 2017, 11:49:32 AM by NESailor »

ducky19

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Re: Here's How Much Home You Can Afford...say what?
« Reply #1 on: January 20, 2017, 12:50:24 PM »
We're at 17.1% - and that's with a 2nd mortgage the bank gave us to avoid PMI. Once that's gone (which will be soon), we'll be at 15.3%. On a 15 year note.

Chris22

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Re: Here's How Much Home You Can Afford...say what?
« Reply #2 on: January 20, 2017, 01:05:22 PM »
I was doing the math, thinking "what are you guys talking about, something in the 20s is reasonable...."  Then I realized that I was doing the net math.  Yikes.  We're at 12% gross, and that's only salary, not taking into account bonuses, rental income, etc. 
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solon

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Re: Here's How Much Home You Can Afford...say what?
« Reply #3 on: January 20, 2017, 01:11:01 PM »
The house we rent takes up 15% of our household gross.

This is an interesting metric. I wonder what we would learn about wealth by studying people's housing expenditure as a percentage of gross income? Would it be different for owners vs. renters? Older vs. younger? Would it vary by race, gender, region of the world?

RWD

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Re: Here's How Much Home You Can Afford...say what?
« Reply #4 on: January 20, 2017, 01:12:19 PM »
We're around 10% of gross, but only because we got a 15 year mortgage.

Quote
Bach says the smartest investments he ever made were all in real estate. He tells CNBC: "I first bought a home in San Francisco. It skyrocketed in price. I moved to New York and bought another home. It skyrocketed in price. My net worth has gone up millions and millions of dollars, simply because I've lived."
Sounds like that guy just got lucky with timing/location...

gimp

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Re: Here's How Much Home You Can Afford...say what?
« Reply #5 on: January 20, 2017, 01:28:16 PM »
As a single guy whose biggest expense is rent, my rent is about 50% of my "net". Granted, that's net after taxes and after savings - so essentially everything left is rent, a few bills, and "disposable" income. And that percentage goes down as the year goes on because right now I'm massively front-loading investments for the year.

In my current situation, I wouldn't really mind around double that if I could buy a home, for PITI + maintenance. I guess that'd be around 35% of gross. Wouldn't be a problem for me. Of course, as a single guy, I'd be able to rent out a bedroom or two to cut down massively on the expense.

When rent/housing is the overwhelming majority of your expenses, 35% of gross seems pretty easy to do if you want to.

LalsConstant

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Re: Here's How Much Home You Can Afford...say what?
« Reply #6 on: January 20, 2017, 01:46:15 PM »
I don't think that's nutty at all.  I priced out a small condo (500 sq ft) (or you can go as large as a 1200 sq ft townhouse if you are willing to commute another half an hour) and if you're willing to buy somewhere with bad schools or with some outdated decor or other minor issues, to afford it on my salary you'd be paying out about 30% of gross on a 15 year mortgage with 5% interest assumed.

If you can do better, great, you either live in a better place or make more money than most people and good for you.

Indexer

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Re: Here's How Much Home You Can Afford...say what?
« Reply #7 on: January 21, 2017, 12:49:59 PM »
On one income I'm paying 15% of my gross. 1200 square feet.

29% doesn't surprise me. Depending on the source the general rule of thumb is to stay under 28% or 30%.

41% on the other hand...


Travis

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Re: Here's How Much Home You Can Afford...say what?
« Reply #8 on: January 21, 2017, 02:27:51 PM »
We're around 10% of gross, but only because we got a 15 year mortgage.

Quote
Bach says the smartest investments he ever made were all in real estate. He tells CNBC: "I first bought a home in San Francisco. It skyrocketed in price. I moved to New York and bought another home. It skyrocketed in price. My net worth has gone up millions and millions of dollars, simply because I've lived."
Sounds like that guy just got lucky with timing/location...

Luck is what gets you a sound byte on CNBC so they can declare you an expert.

fattest_foot

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Re: Here's How Much Home You Can Afford...say what?
« Reply #9 on: January 23, 2017, 09:21:54 AM »
I was doing the math, thinking "what are you guys talking about, something in the 20s is reasonable...."  Then I realized that I was doing the net math.  Yikes.  We're at 12% gross, and that's only salary, not taking into account bonuses, rental income, etc.

I did the same thing, although mine might be even worse because I forgot to add back in the $47k for 401k's and IRA's. So I did net with retirement already out, and it came to 25%.

Gross is about 12%, and I still feel like we've got more mortgage than I want. I wish we had about 2/3 of the amount of house we have.

v8rx7guy

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Re: Here's How Much Home You Can Afford...say what?
« Reply #10 on: January 23, 2017, 09:33:54 AM »
Our PITI is 29% gross.  23% gross looking just at Priciple and Interest. 

ketchup

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Re: Here's How Much Home You Can Afford...say what?
« Reply #11 on: January 23, 2017, 10:05:39 AM »
Gah, no thanks.  We're at PITI totalling about 15% of gross.  It was more like 22% when we bought (household income has gone up).  41% would be madness...
« Last Edit: January 23, 2017, 10:10:12 AM by ketchup »

acroy

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Re: Here's How Much Home You Can Afford...say what?
« Reply #12 on: January 23, 2017, 10:07:44 AM »
In the words of our new fearless leader: Sad!
haha, good one.
And here we are on an 'alt' website for financial advice - because we don't trust the MSM advice!
Sad, but awesome MMM and other resources are so easily available these days!
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boarder42

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Re: Here's How Much Home You Can Afford...say what?
« Reply #13 on: January 23, 2017, 10:10:35 AM »
15% of salary and bonus gross

When you account side hustles this drops to 12
PM me about how to save 6% on your annual grocery Bill!

There is a 35k starwood bonus right now as well. PM me for the info.

NoStacheOhio

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Re: Here's How Much Home You Can Afford...say what?
« Reply #14 on: January 23, 2017, 10:24:17 AM »
We're a little over 10% gross on a 30-year note if you include PITI + HOA. We're paying about $11k/yr on just over $100k gross, though 2017 will be our first year making that much.
The first step is acknowledging you have a problem, right?

Hunny156

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Re: Here's How Much Home You Can Afford...say what?
« Reply #15 on: January 24, 2017, 12:15:26 PM »
Ah, David Bach, my first foray into financial self help books.  I like him much better than Orman and Kiyosaki.  He's the one who coined the term "latte factor".  :)

marielle

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Re: Here's How Much Home You Can Afford...say what?
« Reply #16 on: January 24, 2017, 12:35:24 PM »
My rent is 10% gross.

Houses are so cheap near where I work that a mortgage would be like, $500 for a renovated 3 bedroom and I'm still not buying. No thanks, I'd prefer to be debt free. I can't even imagine buying a house as expensive as that article suggests.

Stachetastic

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Re: Here's How Much Home You Can Afford...say what?
« Reply #17 on: January 24, 2017, 01:00:59 PM »
We're at 8% monthly gross for PITI. P & I alone are 4.7%. That's for a 30 year note, and a testament to our low COL rather than high household income.

Kitsune

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Re: Here's How Much Home You Can Afford...say what?
« Reply #18 on: January 24, 2017, 01:12:05 PM »
I was about to be like '20% seems pretty doable... taxes+insurance+mortgage payments at 20% of take-home is about where we're at' and then I read GROSS.

Um, no. 20% of gross does not leave that much wiggle room for ANYTHING in life going wrong.

Like, oh, say, one's husband getting laid off when one is 8 months pregnant *waves*. And yeah, we'll be fine, but we'll be fine because maintaining ownership of our house doesn't require 100% income at all times!

dogboyslim

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Re: Here's How Much Home You Can Afford...say what?
« Reply #19 on: January 24, 2017, 01:48:41 PM »
We were at 17% of gross salary.  14% of gross salary + Bonus on a 15 year loan, including P&I, RE Tax and Property Insurance.  Net (Taxes, 401k, Health Insurance, ESOP & payroll deduction to United Way) we were at 30% of salary, 24% of Salary+Bonus.

When we went shopping, we had to ask the CU to amend the approval letter to say we were approved for an amount lower than their approval because the home was priced $200k less than their pre-approval amount, and I didn't want the potential seller to see that.

Ebrat

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Re: Here's How Much Home You Can Afford...say what?
« Reply #20 on: January 24, 2017, 01:56:55 PM »
We're at 15% of gross for PITI on a 15-year mortgage (and that's in a high property tax state).  Just looking at the 29-41% payments gives me a stomachache. No thank you!

Ramblin' Ma'am

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Re: Here's How Much Home You Can Afford...say what?
« Reply #21 on: January 24, 2017, 02:39:44 PM »
As a single guy whose biggest expense is rent, my rent is about 50% of my "net". Granted, that's net after taxes and after savings - so essentially everything left is rent, a few bills, and "disposable" income. And that percentage goes down as the year goes on because right now I'm massively front-loading investments for the year.

In my current situation, I wouldn't really mind around double that if I could buy a home, for PITI + maintenance. I guess that'd be around 35% of gross. Wouldn't be a problem for me. Of course, as a single guy, I'd be able to rent out a bedroom or two to cut down massively on the expense.

When rent/housing is the overwhelming majority of your expenses, 35% of gross seems pretty easy to do if you want to.

Yeah, I agree with this. My rent is also about 50% of my take home pay (so after taxes, 401k deductions, and insurance). But I don't have any debt, I have no children, and my landlord pays all my utilities. For people living in expensive parts of the country, it doesn't seem uncommon--but living in a city also means using public transit, having access to great public libraries and other free entertainment, etc. So living on the 50% of take-home that is left after paying rent is not difficult.

FIRE me

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Re: Here's How Much Home You Can Afford...say what?
« Reply #22 on: January 24, 2017, 05:26:45 PM »
http://finance.yahoo.com/news/heres-figure-much-home-afford-194416239.html

That is some spectacularly poor advice.  We are currently at 9% of our monthly gross for mortgage+taxes+insurance and I don't feel like we would be comfortable any higher...

Here's one pearl from the article  "According to self-made millionaire and financial adviser David Bach, buying a home is " an escalator to wealth .""

You know there are people out there with monthly payments between 29% and 41% of their gross. In the words of our new fearless leader: Sad!


Reminds me of how my loan officer at the bank reacted when I chose a house that was about half of the amount that I was pre-qualified for: “Are you SURE you don't want to get a better house?”
FIRE'd on January 4, 2017

Undecided

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Re: Here's How Much Home You Can Afford...say what?
« Reply #23 on: January 24, 2017, 05:46:19 PM »
As a fun time-waster, check out the houses you could buy if you were willing to carry that kind of mortgage.

Drifterrider

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Re: Here's How Much Home You Can Afford...say what?
« Reply #24 on: January 24, 2017, 07:34:36 PM »
When I was house shopping my realtor told me "You can buy a $400,00 house, but you won't".

How right she was :)

11.7% of gross and I think that is tooooo much.

SwordGuy

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Re: Here's How Much Home You Can Afford...say what?
« Reply #25 on: January 24, 2017, 08:42:12 PM »

Our first mortgage was for $60,000 on a $32,000 income.   That's so long ago I have no idea what the payments were.  Rate was 9 3/8%, though.   Income was about $50,000 5 or so years later when we sold.  $32,000 income was tight but do-able.  $50,000 was pretty easy.

Second mortgage (on second house) was for $130,000 on a $75,000+ income.   Income was about $120,000 when we sold about 6 years later.  Again, not a problem, never felt stretched.

Third mortgage (on third house) was for $114,000 on a 15yr note on a $150,000+ income.   But we also had a $55,000 business loan and $32,000 for 2 cars to pay off.   Never felt stretched.

Fourth mortgage (on fourth house) was for $180,000 on a $180,000 income.   This actually feels a lot more stretched.  But that's because we had a $55,000 HELOC to pay down for a rental property, a really high savings/investment rate, the same rental house to renovate, and another house to renovate and flip. 

4th mortgage was 12.3% of gross income.   We are aggressively paying down the HELOC so if I include that, we were up to 19% of gross when the loan originated. 

Income is now $20,000 higher due to farm income I inherited.   HELOC is down to $40,000 in 17 months. 
Our intent is to pay it off next December 2017.  (We get free closing costs if the loan is open for at least 2 years). 
We should have two more properties rented by the end of the year, for another $14,400 of income and SS for about another $20,000.

That will take us down to 10.1% of gross income by the end of 2017.

However, in 2018 our income will take a dive because we'll be FIREe.   
Very conservatively, our income will drop to $90,000 which would raise our percentage to about 25%.
That's a lot tighter than I would like, especially as health care costs for us would rise substantially.   

About a year later, we should be able to sell the house we're flipping.  That will free up the capital to either pay off the mortgage, pay a chunk on the mortgage and then recast it to a more comfortable % of income, or invest.   Don't know yet which we'll do.   

I suspect stock market conditions at the time as well as how well the rental business works out over the next two years will have a lot of impact on our decision. 

If we're in the midst of a crash we'll probably buy a lot of stock.   If inflation picks up we'll probably not pay off the mortgage.   And if the rental business isn't making the money we predict, well probably pay off the mortgage to cut our costs.

I probably over-think this. :)


Reynold

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Re: Here's How Much Home You Can Afford...say what?
« Reply #26 on: January 26, 2017, 04:00:11 PM »
I recall when we were first house shopping, when I got my first permanent full time job in a new state, the real estate agent wanted us to work out what we could afford with the assumption my DW would find a job like the one she had come from to supplement our income.  We said "No, thanks, we'd rather not assume we will always both be perfectly employed to keep the house." :)   Never regretted getting less house, we paid it off 12 years early, coincidentally just when I got laid off and we had to sell it so I could move to another state for a new job. 

Though my DW did kind of panic when I got laid off, and went out and bought a 40 lb sack of potatoes and 10 lb sack of onions to make sure we wouldn't starve.  I was pretty sure the full sized freezer and kitchen cupboards packed with food would ensure that. . . :)

mwulff

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Re: Here's How Much Home You Can Afford...say what?
« Reply #27 on: January 29, 2017, 02:00:59 AM »
Our house is currently at 8.3% of our take home income. That's acceptable to me as we live close to a somewhat big city.

Little Aussie Battler

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Re: Here's How Much Home You Can Afford...say what?
« Reply #28 on: January 29, 2017, 02:53:47 AM »
Those percentages would be pretty common in Australia (especially Sydney).

SeaEhm

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Re: Here's How Much Home You Can Afford...say what?
« Reply #29 on: January 29, 2017, 10:00:57 AM »
I am shocked at some of these responses.

My mortgage is 100% of my gross income after taxes, savings, retirements, and expenses!  How could I even live!?!

Interesting perspective regarding people who say one cannot afford to do anything with a mortgage that is 20% of gross.
Just use an arbitrary income of $100k.  Your mortgage would be $20k.  That leaves you with $80k.   After taxes, you have $4,500 per month to spend.

How could one live on such a feeble amount of money!  Let's start a gofundme page for them! 

I saw that advice last week and was blown away at the recommendations.  I am not debt adverse nor am I luxury adverse, but I would never mortgage myself to that extent. 

I was also looking at some suggestions for how much I could spend on rent!  YEAH RIGHT! The rent allowance was RIDICULOUS! I would never use that much money for rent. 
Just here to feel guilty about my purchases which are often irrational, wants, and in an atypical budget.

CheapScholar

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Re: Here's How Much Home You Can Afford...say what?
« Reply #30 on: January 29, 2017, 11:12:13 AM »
We are at about 7.5% for mortgage/insurance/taxes.

We are lucky to live in a LCOL area that also has good schools.  I would find it hard to ever go above 20%.  The 29% that all the "experts" say is ok really upsets me.  People so often buy the max and I feel that it inflates housing prices.  Also, the 29% is riddled with problems.  For one, as income goes up, marginal tax rate sky rockets.  I get that basic living expenses are typically met before those higher dollars are earned, but I'm amazed at how many upper middle class people just buy the most expensive house a bank will let them before comparing their monthly NET pay to the monthly housing cost.

RWD

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Re: Here's How Much Home You Can Afford...say what?
« Reply #31 on: January 29, 2017, 11:43:34 AM »
My mortgage is 100% of my gross income after taxes, savings, retirements, and expenses!
After tax income is not gross income... Based on the rest of your post I assume you mistyped here. But still, unlike the metric from the article, using a percentage post savings and expenses is useless for comparison. Of course it will be 100%.

Interesting perspective regarding people who say one cannot afford to do anything with a mortgage that is 20% of gross.
Just use an arbitrary income of $100k.  Your mortgage would be $20k.  That leaves you with $80k.   After taxes, you have $4,500 per month to spend.
Average US household income is $52k. The article's lower percentage is 29%, not 20%, so that means ~$15k/year. After taxes and such that probably leaves $24-27k to live off of, depending on filing status and state taxes. Certainly doable but not excessive, especially for a family. I agree that once income is higher (like your $100k example) it becomes much easier to spend a higher percentage on housing.

Mezzie

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Re: Here's How Much Home You Can Afford...say what?
« Reply #32 on: January 29, 2017, 11:55:01 AM »
Ours is 16.4% of gross, which seems on the high end here, but is definitely on the low end among peers.
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CheapScholar

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Re: Here's How Much Home You Can Afford...say what?
« Reply #33 on: January 29, 2017, 12:56:08 PM »
If anyone here thinks a family making 100K gross income should spend 29K per year on housing (mortgage+insurance+taxes) for 30 years then you're just like every typical American out there. 

FIT_Goat

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Re: Here's How Much Home You Can Afford...say what?
« Reply #34 on: January 29, 2017, 01:26:25 PM »
I am currently at 16.5% which is an amount that I consider ludicrous.  And, I expect my property taxes to go up, and my percent to go up.  I estimate that the high end should be 18.8% next year.  I have no other debt, so that's well under the 41%.  It's still well under the 29%.  It's way higher than I like.  I am jealous of those with lower percentages.

I am currently over-paying it, so my actual percentage of income is worse.  My massive over-payment represents less than 27.5% of our gross income.  STILL under their recommendation.  But, it represents a large amount of potential stress.  I enjoy the knowledge that I can reduce that payment, if something comes up.  I can't imagine being locked into that high of a percentage.  It would give me very little wiggle room.

clarkfan1979

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Re: Here's How Much Home You Can Afford...say what?
« Reply #35 on: January 29, 2017, 01:30:25 PM »
People who live in low cost of living areas get to brag about their low housing costs, relative to income. However, their incomes are typically low as well.

Family A: Dual income of 70K in low cost of living area. Housing is at 10% and savings is at 30%.

Family B: Dual income of 200K in high cost of living area. Housing cost is at 30% and savings is at 20%.

I would rather be Family B, saving $40,000/year instead of family A saving $21,000/year.

We just moved from Florida to Hawaii for a higher paying job. Even though our housing costs increased, our savings increased.


***I just did the math and we are at 12.57% for housing (including utilities) in Hawaii. When we lived in Florida, we were at 13.33% (including utilities)*******





« Last Edit: January 29, 2017, 01:37:14 PM by clarkfan1979 »

SeaEhm

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Re: Here's How Much Home You Can Afford...say what?
« Reply #36 on: January 29, 2017, 01:54:02 PM »
My mortgage is 100% of my gross income after taxes, savings, retirements, and expenses!
After tax income is not gross income... Based on the rest of your post I assume you mistyped here. But still, unlike the metric from the article, using a percentage post savings and expenses is useless for comparison. Of course it will be 100%.

Interesting perspective regarding people who say one cannot afford to do anything with a mortgage that is 20% of gross.
Just use an arbitrary income of $100k.  Your mortgage would be $20k.  That leaves you with $80k.   After taxes, you have $4,500 per month to spend.
Average US household income is $52k. The article's lower percentage is 29%, not 20%, so that means ~$15k/year. After taxes and such that probably leaves $24-27k to live off of, depending on filing status and state taxes. Certainly doable but not excessive, especially for a family. I agree that once income is higher (like your $100k example) it becomes much easier to spend a higher percentage on housing.

The 100% was in response to someone's post about how they calculate their mortgage based on their income after those "expenses".

Average US household or median?  yes, at that income range the left over money is a bit more challenging as food costs, car costs, and others are really the same across the board. 

A $30k car is a $30k in a place where homes are $1mm or $30k.
Just here to feel guilty about my purchases which are often irrational, wants, and in an atypical budget.

RWD

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Re: Here's How Much Home You Can Afford...say what?
« Reply #37 on: January 29, 2017, 02:35:21 PM »
My mortgage is 100% of my gross income after taxes, savings, retirements, and expenses!
After tax income is not gross income... Based on the rest of your post I assume you mistyped here. But still, unlike the metric from the article, using a percentage post savings and expenses is useless for comparison. Of course it will be 100%.

Interesting perspective regarding people who say one cannot afford to do anything with a mortgage that is 20% of gross.
Just use an arbitrary income of $100k.  Your mortgage would be $20k.  That leaves you with $80k.   After taxes, you have $4,500 per month to spend.
Average US household income is $52k. The article's lower percentage is 29%, not 20%, so that means ~$15k/year. After taxes and such that probably leaves $24-27k to live off of, depending on filing status and state taxes. Certainly doable but not excessive, especially for a family. I agree that once income is higher (like your $100k example) it becomes much easier to spend a higher percentage on housing.

The 100% was in response to someone's post about how they calculate their mortgage based on their income after those "expenses".

Average US household or median?  yes, at that income range the left over money is a bit more challenging as food costs, car costs, and others are really the same across the board. 

A $30k car is a $30k in a place where homes are $1mm or $30k.

Median US household income.

slugsworth

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Re: Here's How Much Home You Can Afford...say what?
« Reply #38 on: January 29, 2017, 04:08:55 PM »
High cost of living areas make this pretty tough for a lot of people. In the Seattle area the going rate for studios is ~$1200 and up. Shared living and apodments are around $800/mo. For someone at $15/hr even the $800/mo works out to 32℅ of their gross income.

All that said, I agree with everyone that low housing costs as a percent of income is key to a high savings rate.  Much like everyone else in this group, my housing cost is well below "normal".

BlueMR2

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Re: Here's How Much Home You Can Afford...say what?
« Reply #39 on: January 30, 2017, 10:00:01 AM »
I guess I should quit griping about my property taxes, they must not be that bad after all (even though they're 10% of my yearly budget).  Those specified house numbers added up are just over 3% of gross for us...

Kitsune

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Re: Here's How Much Home You Can Afford...say what?
« Reply #40 on: January 30, 2017, 10:10:30 AM »
I guess I should quit griping about my property taxes, they must not be that bad after all (even though they're 10% of my yearly budget).  Those specified house numbers added up are just over 3% of gross for us...

Yeah, my heart bleeds for you... ;)

Dicey

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Re: Here's How Much Home You Can Afford...say what?
« Reply #41 on: January 30, 2017, 12:04:39 PM »
This thread would be a lot more relevant if everyone disclosed their COLA.

I live in the Bay Area, outside of San Francisco. Each of my homes cost more than 50% of my net pay. I still managed to save, avoid debt and eventually FIRE. I even enjoyed some international travel and a lot of domestic trips, too.

Housing costs are very high, my income was not. I wanted the stability of home ownership and the appreciation. It involved sacrifices, but I made it work, while still enjoying a comfortable life.

I used Stated Income Loans, (now aka liar's loans) to qualify. I only nudged the numbers as high as they needed to be to qualify. I had big down payments, excellent credit and high assets, so they were never questioned and I never missed a payment or sought any kind of relief, aka HARP. Didn't need to.

It CAN be done, if necessary. I'm FIRE now because the invested in Real Estate. Still do. The experts are right, "most people" can't do this. Then again, mustachians are not "most people."

Random factoid: my newspaper, when it was a real paper, used to have a Money Makeover feature. They'd analyze your budget, send you to a professional, take a few pictures, then publish your story. I did it about 15 years ago, pre-MMM, when I was feeling my way in the dark. The Financial Advisor? David Bach's sister. Word. I did not invest with their firm, but I took all the best advice and ran with it. It really was a turning point in my FIRE journey.  Thanks, Emily Bach!
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golden1

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Re: Here's How Much Home You Can Afford...say what?
« Reply #42 on: January 30, 2017, 12:37:05 PM »
I am paying 16% of our gross income for mortgage, taxes and insurance.  26% on net income in suburban Boston, a high COLA.  I guarantee you it is far less than most of our neighbors.  We got lucky.  We bought in 1999 before prices really ramped up during the housing boom, so our home value has roughly doubled.  Our town was also less "desirable" than many of the neighbors, but that has changed in the last five years because of rising rents plus improved schools and other town improvements.  Our house is a very modest one compared to many in our neighborhood, but still has plenty of space for our needs. 

talltexan

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Re: Here's How Much Home You Can Afford...say what?
« Reply #43 on: January 31, 2017, 09:35:21 AM »
I'm not sure how you calculate this %, but I think we're at about 9%.

If the rest of the world (savings rate: 0) tells you that 25% of income is your target, but you're a true mustachian--with a goal of living on 40% of your income, then 10% really should be your target here (before you adjust for COL, of course). Many people seem to be below this.

marcela

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Re: Here's How Much Home You Can Afford...say what?
« Reply #44 on: January 31, 2017, 12:18:19 PM »
Our rent is currently subsidized to around 6% of gross income. The cost will go up $1000 in June, but so does our income. We'll end up at 11.5% of gross income.

COEE

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Re: Here's How Much Home You Can Afford...say what?
« Reply #45 on: February 04, 2017, 09:52:55 AM »
This thread is comical!  Really.

My current mortgage payment puts us at about 13.5% of our current income (PITI).  We have a modest home from the 1970's compared to even some of our best friends in similar career tracks.  I think our income is lower than most of our friends also though so it evens out. 

According to the 29% rule we could afford something like this though:
https://www.redfin.com/CO/LYONS/151-STONE-CANYON-DR-80540/home/35140094
That house is incredible - and I did consider something like that... albeit briefly... when we recently purchased our 3rd home.  We could have made it work - but it would have been tight and opened us up to a TON of risk if I ever lost my job.

But wait!  It gets better.  Because I have no debt I should spend 'as much as 41 percent' which would put me into something like this: https://www.redfin.com/CO/Berthoud/3341-Landmark-Dr-80513/home/34764872.  Of course, I'd need to take out a second mortgage to buy furniture and a legitimate John Deere tractor to mow the yard.

Honestly - I liked the first home better.  And I'm surprised by how the jump in $100k purchase price doesn't really buy a whole lot more extravagance at these price points.

COEE

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Re: Here's How Much Home You Can Afford...say what?
« Reply #46 on: February 04, 2017, 10:44:17 AM »
And actually, a 29% rule of thumb isn't so awful for most americans that can't save anything - this forces them to save something.  So as mustachians, spending somewhere around 12% of our gross we save around 7% or more of our income in what I assume most of us have 15 year loans.  So if you were to do 29% on a 15 year loan then you're saving something like 20% of your gross right there.  Probably somewhere near 35% of your net.  Which, for the uneducated American, is a pretty good savings rate and puts them into a real asset by the time they are halfway to retirement.

Unfortunately, I think most of Americans take out 30 year mortgages exposing them to lower savings rates on their home due to higher interest rates and a longer term.  When I took out the loan on my second home this is what I did.  When we bought the house our payment to gross income ratio was something like 29%.  Making our savings from our house principle around 5% at the time - About 10% of our net.  Pretty poor.  And another reminder why 30 year mortgages are so awful.  They only benefit the bank. 

I do remember some pretty tough times in the second house financially - but I was trying to pay off the student loans and keep getting the maximum 401k match at work, which didn't leave much (any) extra.  We also ended up pretty good on that house in the end because we bought a foreclosure in a very nice gated community and fixed it up.  We ended up making about 8% yearly gains on that house when it was all said and done.  I don't think the average American does this though - they want the home 'move in ready'.

« Last Edit: February 04, 2017, 10:50:52 AM by COEE »

Dicey

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Re: Here's How Much Home You Can Afford...say what?
« Reply #47 on: February 04, 2017, 01:24:07 PM »
This thread is comical!  Really.

My current mortgage payment puts us at about 13.5% of our current income (PITI).  We have a modest home from the 1970's compared to even some of our best friends in similar career tracks.  I think our income is lower than most of our friends also though so it evens out. 

According to the 29% rule we could afford something like this though:
https://www.redfin.com/CO/LYONS/151-STONE-CANYON-DR-80540/home/35140094
That house is incredible - and I did consider something like that... albeit briefly... when we recently purchased our 3rd home.  We could have made it work - but it would have been tight and opened us up to a TON of risk if I ever lost my job.

House the first interests me. My home was built at about the same time and is on the same size lot. However, it is about half the size. Cost to buy now, according to Zillow, which trends low around here, is twice as much. Apples vs. Oranges, people. Sometimes in a HCOLA, you just have to make it work. Mustachian skills make it do-able. Scorn from folks who have lots of low-cost options isn't especially helpful.
I did it! I have a journal!
http://forum.mrmoneymustache.com/journals/a-lot-like-this/
And hell yes, I am still moving confidently in the direction of my dreams...

flamingo25

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Re: Here's How Much Home You Can Afford...say what?
« Reply #48 on: February 04, 2017, 08:38:19 PM »
As a fun time-waster, check out the houses you could buy if you were willing to carry that kind of mortgage.

I do this sometimes. It's fun.

Our P&I plus taxes and insurance is about 20%, not including bonuses, overtime, or side hustles. . High cost of living area, one income family, 15 yr loan.

Hargrove

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Re: Here's How Much Home You Can Afford...say what?
« Reply #49 on: February 04, 2017, 08:56:41 PM »
High cost of living areas make this pretty tough for a lot of people. In the Seattle area the going rate for studios is ~$1200 and up. Shared living and apodments are around $800/mo. For someone at $15/hr even the $800/mo works out to 32℅ of their gross income.

All that said, I agree with everyone that low housing costs as a percent of income is key to a high savings rate.  Much like everyone else in this group, my housing cost is well below "normal".

Eh. High cost of living areas are not worth living in without a high earnings rate (and eventually, I want to not need mine). I live in the back woods of CT. The nearest affordable COL city is an hour away (and collapsing - used to be a manufacturing hub), but I negotiated better rent with my landlord and have a roommate in a town where a studio often goes for $750-$850. We have all the perks you'd expect in... Maine... with the exception of proximity to NYC. Where I'm not going and blowing my money all the time. My job requires driving all over the place, so commute is kind of unhooked from where I live anyway. 8% for housing and saving everything I can - planning to move out west when I don't need the high-paying job.