The Money Mustache Community
Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: NESailor on January 20, 2017, 11:41:58 AM
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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!
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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.
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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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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?
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We're around 10% of gross, but only because we got a 15 year mortgage.
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...
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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.
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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.
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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...
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We're around 10% of gross, but only because we got a 15 year mortgage.
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.
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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.
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Our PITI is 29% gross. 23% gross looking just at Priciple and Interest.
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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...
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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!
'It was the best of times, it was the worst of times'
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15% of salary and bonus gross
When you account side hustles this drops to 12
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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.
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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". :)
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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.
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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.
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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!
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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.
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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!
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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.
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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?”
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As a fun time-waster, check out the houses you could buy if you were willing to carry that kind of mortgage.
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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.
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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. :)
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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. . . :)
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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.
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Those percentages would be pretty common in Australia (especially Sydney).
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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.
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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.
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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.
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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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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.
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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.
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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)*******
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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.
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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.
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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".
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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...
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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... ;)
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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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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.
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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.
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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.
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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'.
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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.
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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.
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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.
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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.
Any chance you could convert that into a subsidized mortgage?
So why do people buy these nice homes and leave after a few short years? Do people move around that much? Constantly want a new home? Buy and realize three years later they can't afford them? Buy it, finish the details and flip it?
When I see a nearly new home here it makes me wonder. I figured you'd want to stay somewhere for five years or more just to make the transaction costs pay for themselves.
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My mortgage is $550 income 11800 (most months)
Making my mortgage 4.66%
That being said, we have hoa dues and property taxes that would raise that but still. I'm never going to spend 4k a month on a mortgage...
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Mine including PITI is 10% of my gross living in the midwest.
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I'd challenge that the most mustachian mortgage (for Americans) is the 15-year mortgage. I have a fixed rate for the first sixty payments (5/1 arm). People who value paying off their house quickly shouldn't have any use for the fixed rate after year 5, while people who plan to maintain a mortgage balance will enjoy the lower interest rate.
And for all those slackers, science says you'll probably move (on average) before year 7 anyway.
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Ours is 12% of gross pay. We live in Iowa so LCOL area.
It's amazing in the difference in price of a house between different areas. 200k can get you a really nice 2000 sq. ft home with a large yard and a 2 car garage where I live.
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My mortgage is $550 income 11800 (most months)
Making my mortgage 4.66%
That being said, we have hoa dues and property taxes that would raise that but still. I'm never going to spend 4k a month on a mortgage...
Typically (though not necessarily in the case of this OP), the 5 cited is total cost (including things like HOA which have a right of first lien) vs gross, not just P&I vs gross. I've never seen a bank or other mortgage lender that only used P&I.
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We upgraded from ~10% to ~15% of gross (incl all housing costs not just P&I), in particular to be more frugal and live a better lifestyle.
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My mortgage is $550 income 11800 (most months)
I'm never going to spend 4k a month on a mortgage...
Makes sense to me! The thing with things like McMansions and beautiful sports car isn't their purchase price, but the on-going challenge of maintaining them. I know an extremely wealthy businessman who lives in a GIANT ASS house and he absolutely regrets it. The house has a waterfall in it that he admits he hasn't used since a year after he had it installed because it is expensive to run and breaks-down frequently. His business partner lives near him in a house that's even bigger and he mentioned that there are rooms in it that aren't furnished and that the guy regrets buying it because he has no clue how he's ever going to sell it.
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Ours is 12% of gross pay. We live in Iowa so LCOL area.
It's amazing in the difference in price of a house between different areas. 200k can get you a really nice 2000 sq. ft home with a large yard and a 2 car garage where I live.
Indeed, I'm feeling quite green of folks who earn good salaries in LCOL areas. 200K in MSP buys you something that's old, outdated, on a .25 acre and generally needs updating - and it is way more than I want to spend right now. Or you have to commute from an hour outside the city.
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Within areas, the school premium can swing the price quite a bit, too. If you're able to design a life in which quality schools don't matter, knock $80,000 off the purchase price in Charlotte (about $400/month).
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No one ever agrees on these threads, mostly due to their own perspective and cost of living.
I've lived in Texas which has a low cost of living, and I now live in Seattle, a VHCOLA. A free standing SFH with 1200 sq feet in Seattle proper is a minimum of 750k. For most people, that's going to be a lot of their income going to mortgage and the very high property tax rate. My taxes alone are probably more than some people's mortgages - of course we don't have state income tax, either.
In the few years I've lived here, the housing price estimate on my house has gone up approximately 75-100k per year we have owned. That's a lot of money. 10% per year of something big is better than 10% of something small. :)
And yes, housing prices go up and down, but I'm not concerned. Seattle is just on the upswing right now. 50k people per year are expected to come here the next few years. Housing prices will continue to go up.
Just for the record, our mortgage, taxes, and insurance is around 15%.
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We're just below 10%, and I don't see how we could afford more. Of course, I pay for the home 100%, and DW pays for Daycare, but even with just my salary, it's 17%. If it was 29%, we would have $600 less each month!
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We live in San Diego, and our (outrageous) mortgage is 18.4% of our gross, or 27.5% of our take home. I feel we spend WAY too much on our house and if my husband was on board we would be downsizing to something half the size with half the mortgage ASAP. When I look at what we supposedly "can afford" I can't fathom being so house poor. We are too house poor as it is! There just isn't any margin for the unexpected if you go with the calculators.
I see people move into our neighborhood and I don't see how they can afford it...thinking specifically of the family a few doors up, they bought their house for $200k more than we paid for ours (we got very lucky on timing), not jobs that I would think pay enough. They must be in massive debt or have other money I guess (leaning towards debt based on the toys...OMG that drone).
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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)*******
I would rather be Family C: housing at 10% gross and saving 60% all on 200K.
Mine is at 14% with HOA (10% without HOA) but we don't have any car expenses because of our location (HCOL).
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Good Lord. I wouldn't be able to sleep at night at anywhere close to 29%. Currently we are at 7.8% of my W2 wages for PITI. That doesn't even account for my wife's pension or the rental income from our nine other houses.
This isn't because we live in a LCOL area, its because we made a conscious decision to reduce our debt. There are plenty of 500,000 to one million dollar homes around. We spent 70k and put about 10k into remodeling.
Back when I was just starting out, we were.told by everyone involved in the process that we could a afford a home that cost 3x our annual income. Even being young and dumb I thought that was insane.
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I was 17% before I decided to kill my mortgage; 12% was the mortgage itself. (I'm in a rather high property tax area by choice). I honestly didn't notice the payment all that much and could have easily gone up to 25% while continuing to save 15%, or maxing out my HSA, 401K and IRA. Now I just put that mortgage payment into a vanguard taxable account.
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My rent (HCOL area) is nearly 10% of my gross just to share a 2br apartment with someone.
I'm a little envious of the 9%-of-gross-to-have-a-house crowd. I need to figure out how to move my income to a LCOL area...
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My rent (HCOL area) is nearly 10% of my gross just to share a 2br apartment with someone.
I'm a little envious of the 9%-of-gross-to-have-a-house crowd. I need to figure out how to move my income to a LCOL area...
Jobs of all kinds here in Indianapolis.
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This is LESS than we can "afford" per the high end of the rule.
https://www.zillow.com/homedetails/1734-W-Chicago-Ave-Chicago-IL-60622/2096359734_zpid
Our PITI is 7% of gross, in what I would call a sweet spot of high city wages and MCOL. However, we have a 30 year mortgage. Would be 9.5% with a 15 year.
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This is LESS than we can "afford" per the high end of the rule.
https://www.zillow.com/homedetails/1734-W-Chicago-Ave-Chicago-IL-60622/2096359734_zpid
Our PITI is 7% of gross, in what I would call a sweet spot of high city wages and MCOL. However, we have a 30 year mortgage. Would be 9.5% with a 15 year.
Did you include the $1000/month HOA fee?
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This is LESS than we can "afford" per the high end of the rule.
https://www.zillow.com/homedetails/1734-W-Chicago-Ave-Chicago-IL-60622/2096359734_zpid
Our PITI is 7% of gross, in what I would call a sweet spot of high city wages and MCOL. However, we have a 30 year mortgage. Would be 9.5% with a 15 year.
Did you include the $1000/month HOA fee?
Holy crap, that's ridiculous!
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This is LESS than we can "afford" per the high end of the rule.
https://www.zillow.com/homedetails/1734-W-Chicago-Ave-Chicago-IL-60622/2096359734_zpid
Our PITI is 7% of gross, in what I would call a sweet spot of high city wages and MCOL. However, we have a 30 year mortgage. Would be 9.5% with a 15 year.
Did you include the $1000/month HOA fee?
Holy crap, that's ridiculous!
Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
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This is LESS than we can "afford" per the high end of the rule.
https://www.zillow.com/homedetails/1734-W-Chicago-Ave-Chicago-IL-60622/2096359734_zpid
Our PITI is 7% of gross, in what I would call a sweet spot of high city wages and MCOL. However, we have a 30 year mortgage. Would be 9.5% with a 15 year.
Did you include the $1000/month HOA fee?
I don't understand! It's a SFH on a city street, who is in the association and what does it cover?!?!
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Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
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Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
$1k is normal for downtown Chicago. If this were high rise the HOA would be multiple of that for the size of the property.
Well, if you live in a 3500sft house in downtown Chicago you should be rich already so another $1K a month should be irrelevant. I think the property tax must be 20-30k a year for that property.
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Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
$1k is normal for downtown Chicago. If this were high rise the HOA would be multiple of that for the size of the property.
That house is in my neighborhood. :) So "normal" is relative. But yes, we know several people here who live in $1k/month associations.
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Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
$1k is normal for downtown Chicago. If this were high rise the HOA would be multiple of that for the size of the property.
Well, if you live in a 3500sft house in downtown Chicago you should be rich already so another $1K a month should be irrelevant. I think the property tax must be 20-30k a year for that property.
But the point is according to this article, someone can "afford" that house ($4k mortgage, $1k HOA, $1700 property taxes, let's say $250 in insurance) on just over $200k/year. Obviously someone making that much is wealthy, but not "eh, what's another $1k/month" wealthy.
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Wow, what are these HOA's covering???
We pay $120 a quarter, we have a golf course, some nice trees, an elementary school (Not sure how much HOA covers that land, but it's right in the middle of the neighborhood), and several nice play sets.
In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
$1k is normal for downtown Chicago. If this were high rise the HOA would be multiple of that for the size of the property.
Well, if you live in a 3500sft house in downtown Chicago you should be rich already so another $1K a month should be irrelevant. I think the property tax must be 20-30k a year for that property.
But the point is according to this article, someone can "afford" that house ($4k mortgage, $1k HOA, $1700 property taxes, let's say $250 in insurance) on just over $200k/year. Obviously someone making that much is wealthy, but not "eh, what's another $1k/month" wealthy.
You are using the 29% number, right? It's close to $300k a year. I'm sure $1k/month extra gets lost in the rounding error.
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In multiunit buildings in Chicago, the HOA must cover the building insurance, condo insurance only covers walls in. It also covers upkeep on the building and lot, and ours covers water, sewer, and garbage.
But yeah, we pay $168/month, not $1k/month. And I have no idea what an association fee is covering for a SFH.
$1k is normal for downtown Chicago. If this were high rise the HOA would be multiple of that for the size of the property.
Well, if you live in a 3500sft house in downtown Chicago you should be rich already so another $1K a month should be irrelevant. I think the property tax must be 20-30k a year for that property.
But the point is according to this article, someone can "afford" that house ($4k mortgage, $1k HOA, $1700 property taxes, let's say $250 in insurance) on just over $200k/year. Obviously someone making that much is wealthy, but not "eh, what's another $1k/month" wealthy.
You are using the 29% number, right? It's close to $300k a year. I'm sure $1k/month extra gets lost in the rounding error.
Nah, I was using the 41% number because it is more preposterous. At 29% you need 280k in income, but at 41% you only need 203k in income. I suppose most people looking at these homes would have some other debt - gotta finance cars to put in the garage that is larger than my primary residence.
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My cousin (no idea of income; 50 years old in May) just purchased a home in Pacifica, CA, that would come in the neighborhood of that Chicago home (perhaps minus the HOA fee). She mentioned that her rent in the bay area was about $4,500/month, so moving down to the $3,700 mortgage payment represented a relief.
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Interesting article.
I just did the math and I am literally at the upper limit. My mortgage/insurance/PMI is at 41% of my gross income.
Then again, I live in California. The average housing price for my area is just a bit under $300,000.
I bought an 846 square foot home for $240,000. Frankly, I feel lucky to be able to afford a house at all, as a single person. And rent for a one-bedroom in this area is only about $200 a month cheaper than what my mortgage/insurance/PMI is.
So I guess it really depends on where you live.
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My first condo was very close to the 28% limit on mortgage debt (though I was under the 41% total debt), even though the mortgage was less than 2x my annual income, because (a) interest rates were close to 9%, and (b) condo fees were almost half the mortgage. It was worth it to have a short walk to work. It was tight, but just me, so I still managed to pay off my student loans, start an EF and IRA, etc.
Once we got married, we generally kept our mortgage to below 2x income -- our plan was always to keep fixed expenses to no more than we could pay on a single income, which meant ignoring the mortgage calculators entirely. We blew the 2x rule for a few years when we had just moved and had our first kid and I was working very part-time telecommuting; and then we pushed it again a few years later when we moved back to our MCOL area in the middle of the boom and housing prices were 50% higher than in our prior LCOL area (the mortgage itself was right at about 2x, but the HELOC for the required remodel pushed the total over). But after 13 years of raises + dropping interest rates + paying off HELOC, the outstanding mortgage is about 0.5x gross, and PITI is about 5% of gross -- and that's for a 15-year.
The one thing we have never done is move just to upgrade houses. We have bought and sold homes many times, but always for work moves, and we have always kept to the one-income budget. So we certainly upgraded over time (although, ironically, the townhouse in the DC 'burbs we bought when we first married is probably worth more than my current SFH on 3/4 acre), but always in line with our long-term financial plans. Which did *not* include high debt loads for pretty shiny things.
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We're at like 13% gross, but that's a 10 year loan.
After my paycheck is "gutted" though (401k, ESPP, HSA) the mortgage is roughly equall to my paycheck. Good thing the wife works :)
8 more years that'll be paid off though. And we'll be FI for sure. What we'll do then, no idea.
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PITI is 12% of gross. I refinanced and I am now 4 years in on a 15 year mortgage, rate is 3 3/8. The house is in suburban Memphis, so it is LCOL. I purchased in 2010, toward the end of the slump, and I bought about half as much house as the other attorneys I work with.
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Using the gross method, we're at 11.3%, and like some of others posting, this seems like too much. This is a downsize from where we were a year ago but we have more house than we really need or should have...
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Does gross % matter in these forums?
We could be at whatever % we wanted depending how much net worth we wished to transfer (or remove) to/from our personal residence.
At the moment, and completely arbitrarily, we are at 12% (of classical wage income) on a 15 yr loan. We (and many here) could be at 'TI' % only if we desired. (I certainly don't desire to be that low due to current mortgage rates).
But perhaps that's the problem with the referenced article. Income is (or should be) only one piece of the home buying puzzle.
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We are at PITI about 19% of gross in a low cost of living area (with low incomes as well) on a 15 year mortgage. It has worked out quite well for us and we will have it paid off within 2 years. Since we had no other debt when we bought the house, that left plenty. Then we added two kids and the associated expenses. Not as easy, but still doable. It will be nice once the mortgage is done (and daycare will drop to just after school care at about the same time) so we can increase our retirement savings, increase kids' college funds, and have a bigger emergency fund. We are not truly that mustachian though, you all are way tighter with your budgets.
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Did the math, and we should be able to 'afford' a $280k house.
There are no homes in our city of 40k people for sale at or above this price. Closest is $225k. There are some homes worth $300k+ around, but not a ton, and they're typically McMansions on acreage. That, combined with a very hot seller's market, makes it impossible as well as ridiculous to own such a monstrosity!
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I'm at 17% gross now. That's just my job income, not counting rental income. My fiancé's income is also not counted, but he pays all utilities and other expenses so I have fewer bills than I otherwise would for other stuff.
When I bought the house I was at 22% but in addition to my SO paying utilities/bills, I was also renting out the 2nd bedroom for over 50% of the piti.
Honestly, were in a town house now and would love a SFH but can't justify the cost (area we work is pricy), even though we both got big raises this year and I was browsing a little but just don't want to tie up so much money in our house. We'll probably buy another rental first.
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We are at about 11% of gross but that may go up if we pick up several rental units in the next couple years.
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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.
Haha, I love the example of what 'could' be afforded with the 29% rule. My wife and I are doing 'well' for ourselves and gross in the low 200s.
In our area (Baltimore) This is just about our 29%.
https://www.redfin.com/MD/Lutherville-Timonium/11-Valley-Hi-Ct-21093/home/9552787
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I love the idea of a house with its own "Bistro".
What could possibly be more mustachian than learning how to operate an entire restaurant out of one room of your home?
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We are just under 8% for PITI on a 13ish year mortgage (20% down, biweekly payments shortening a 15 year mortgage). Its both a low COLA area, and a neighborhood that could be described as a place where "people with options" don't pick to live, so I'd assume I'm a high earner for my community.
I remember sitting in the office of a private lender trying to buy my first house in Miami. The weasel wanted to escrow 100% of my down payment savings for repairs and then set me up for a "zero down" mortgage with payments that skirted the legal limit of what he could lend me so he could profit off the repairs I planned for the house. I promptly left and cursed out my realtor for recommending him. Two months later I had a $550/month balloon mortgage where I was responsible for tax and insurance separately, and three years later sold the house for double what I paid. Screw that guy.