Author Topic: Did MMM ever develop a "how much house can you afford" calculator?  (Read 14692 times)

chesebert

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Did MMM ever develop a "how much house can you afford" calculator?
« on: September 26, 2015, 08:07:28 AM »
Need a sanity check on the purchase price. Need to buy a house but don't want the house to have a material impact on stashing and FI.

Has MMM ever developed a "how much house can you afford" calculator for mustachian minded people? I don't need another calculator developed by mortgage brokers.


Thegoblinchief

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #1 on: September 26, 2015, 08:26:01 AM »
No, not that I'm aware of.

Most folks around here recommend the NYTimes rent vs buy calc.

There's also a host of other considerations like time planned to spend in the house, lifestyle preferences, DIY capability, etc.


chesebert

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #2 on: September 26, 2015, 09:33:07 AM »
No, not that I'm aware of.

Most folks around here recommend the NYTimes rent vs buy calc.

There's also a host of other considerations like time planned to spend in the house, lifestyle preferences, DIY capability, etc.

Okay. Thanks. I have already gone through most on-line calculators and most gave me ridiculous figures (50% is still quite a lot). Oh well.
« Last Edit: September 26, 2015, 11:58:49 AM by chesebert »

dess1313

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #3 on: September 26, 2015, 05:36:59 PM »
why not post some details, or do a case study?  the collective mind might have some ideas to help

Melody

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #4 on: September 26, 2015, 05:47:51 PM »
Some questions from my financially conservative retired early parents to me:
-Less than 1/3 after tax income? (1/3 for house, 1/3 for living, 1/3 for saving/investing/extra payments)
-Can you afford it at 2x the interest rate?
-Do you have 20% down?
-Contingency plan if you loose your job (this is essentially forcing a rent out vs repayments calculation... if the gap is too big you'll struggle to find a working contingency plan)

I think these are pretty good starting points. Alternatively pick a desired saving rate. Split your house payment into Principle and Interest - P is savings, I is expense. Add in all your other expenses (including the cost of owning the house, e.. land taxes etc) - work the payment backwards to match your desired savings rate.   (the 3/3 thing above will give you about a 50% savings rate depending on the interest rate.)

happy

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #5 on: September 26, 2015, 06:33:23 PM »
Some questions from my financially conservative retired early parents to me:
-Less than 1/3 after tax income? (1/3 for house, 1/3 for living, 1/3 for saving/investing/extra payments)
-Can you afford it at 2x the interest rate?
-Do you have 20% down?
-Contingency plan if you loose your job (this is essentially forcing a rent out vs repayments calculation... if the gap is too big you'll struggle to find a working contingency plan)


Nice Melody!
I like the 1/3,1/3,1/3ůmost people do 1/3 house, 2/3 spending!

chesebert

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #6 on: September 26, 2015, 06:42:27 PM »
Some questions from my financially conservative retired early parents to me:
-Less than 1/3 after tax income? (1/3 for house, 1/3 for living, 1/3 for saving/investing/extra payments)
-Can you afford it at 2x the interest rate?
-Do you have 20% down?
-Contingency plan if you loose your job (this is essentially forcing a rent out vs repayments calculation... if the gap is too big you'll struggle to find a working contingency plan)

I think these are pretty good starting points. Alternatively pick a desired saving rate. Split your house payment into Principle and Interest - P is savings, I is expense. Add in all your other expenses (including the cost of owning the house, e.. land taxes etc) - work the payment backwards to match your desired savings rate.   (the 3/3 thing above will give you about a 50% savings rate depending on the interest rate.)

Yes, this is the kind of "calculator" I need.

-Less than 1/3 after tax income? (1/3 for house, 1/3 for living, 1/3 for saving/investing/extra payments): check (~20% take home)
-Can you afford it at 2x the interest rate?: check (less than 1/3 after doubling interest rate)
-Do you have 20% down? check
-Contingency plan if you loose your job (this is essentially forcing a rent out vs repayments calculation... if the gap is too big you'll struggle to find a working contingency plan): use my rental as primary and rent out this expensive pile of construction materials. I should be able to carry the payment on the rental and absorb 30% loss on renting out the primary without going over 4% SWR.

After going through the exercise, I feel better about buying. Thanks! I was getting "you can afford 1.xM house" when I ran the on-line calculator, which weren't helpful at all. 

Melody

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Glad to be helpful :-) my parents followed these rules and were able to FIRE on low incomes (carer and artist). I plan to follow these rules too, but given my desire to live close to the city I will   replace the word house with apartment :-)

frompa

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #8 on: September 26, 2015, 07:06:35 PM »
Rather than a "how much house can you afford" calculation, a better one for FIRE purposes would be a "how little house can make you content" analysis.  From the time I first bought a house in my mid twenties, we were given an absurdly high "how much house we could afford" number by those interested in selling and financing our house purchases.  We had the good sense to ignore what we were told, and as a result were able to easily meet our housing expenses, paid off our one and only mortgage many years early, and did not have to stress over financial obligations, even when the chips were relatively down. I know some people favor holding on to a mortgage and leveraging their available assets, but having a fully paid off house for many years has allowed us to put much money aside to fund FIRE.  Good luck in making the decision. 

K-ice

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #9 on: September 26, 2015, 08:17:46 PM »
I find the online calculators over estimate what I need.

But you can still use it as a "goal". For example if they say you can afford payments of $1500. But you purchase a good home costing you $1000 per month. You should easily be able to take that extra $500 and put it towards extra mortgage payments or investing.


MMMaybe

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #10 on: September 27, 2015, 12:35:06 AM »
Given the historically low interest rates at present, I would also suggest checking if you can still afford the house if rates return to historical averages + a couple of points. For Australia, I think at a guess, the average (d) rate over the last 50 years would be around 8%. So I personally would check affordability for me at 10%. This would of course, vary depending on where you live.

dess1313

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #11 on: September 27, 2015, 01:05:39 AM »
I picked a home that would be a good place even if my life changed from single to not single, have an extra bedroom for guests, and room to grow a little bit.  Need a list of what you really need in it.  bedrooms, yard, garage, etc etc.  Plan out the next few years and life changes.  Otherwise in a few years you might wish you had gotten an extra bedroom or realized you really wanted a garage.  Make sure you get what you really want.  don't settle for something that you'd be bother by later on

Also have a bit of an emergency fund.  Never know when you need to replace a leaking roof, the fridge dies, or foundation leaks.

Its easy for the banks to tell you can get 2x the amount of what is actually safe.  Figure out the future budget including taxes, utilities, etc and make sure the budget you set will be adequate.  This will tell you what you can afford.

i looked at several houses and got estimates of taxes, insurance, utilities, fixing budgets, etc etc.  Then i made a full budget including these to figure out what i thought I thought I could afford.  Was about half of the bank's figures, but that's also why its paid off in 7 years and i'm mortgage free now.  I would also look at if your income dropped or someone had job problems could you survive on 40-70% income if you cut non-essential expenses?  if you can do that the numbers will tell you what you can do.


Roots&Wings

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #12 on: September 27, 2015, 06:37:27 AM »
My financial criteria for buying a house included:
1) Must pass rent vs. buy calculator test
2) Must work as a rental/meet 1% rule in the event I need or want to move. Plan on staying long-term (min 5 years) since transaction costs are huge, but you never know
3) Must allow me to maintain minimum 60% savings rate after all expenses are accounted for (mortgage, property taxes, insurance, maintenance, utilities...not counting mortgage payments as saving, since my FI goal is paid off house + stash)
4) Purchase price of no more than 2x annual income (criteria 1-3 couldn't be met if this threshold was exceeded)
5) Flexible layout/ability to rent out room if needed for extra income

Also basics like planning to stay at least 5 years, have minimum 20% down, and sufficient emergency fund.

terran

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #13 on: September 27, 2015, 07:44:32 AM »
Given the historically low interest rates at present, I would also suggest checking if you can still afford the house if rates return to historical averages + a couple of points. For Australia, I think at a guess, the average (d) rate over the last 50 years would be around 8%. So I personally would check affordability for me at 10%. This would of course, vary depending on where you live.

I'm guessing in Australia you don't have fixed rate mortgages? If the OP is in the US, I'm not sure this or the "can you afford it at twice the interest?" question really matter as long as they get a 15 or 30 year fixed rate mortgage.

chesebert

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #14 on: September 27, 2015, 08:08:24 AM »
Given the historically low interest rates at present, I would also suggest checking if you can still afford the house if rates return to historical averages + a couple of points. For Australia, I think at a guess, the average (d) rate over the last 50 years would be around 8%. So I personally would check affordability for me at 10%. This would of course, vary depending on where you live.

I'm guessing in Australia you don't have fixed rate mortgages? If the OP is in the US, I'm not sure this or the "can you afford it at twice the interest?" question really matter as long as they get a 15 or 30 year fixed rate mortgage.

You are correct floating rate is not applicable to us. We will get 30yr fixed, but the exercise is informative nevertheless (e.g., if we decide we want to pay off the mortgage in less than 10 yrs and get 10yr ARM but adverse circumstances derailed the plan and we are in a high-interest rate environment when the rate rests - okay that's a pretty out there hypo :)
« Last Edit: September 27, 2015, 08:45:23 AM by chesebert »

Civex

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #15 on: September 27, 2015, 08:48:49 AM »
I like the household income to purchase price ratio; this can be affected by down payment size. We went with a 1:1 ratio and have been happy that we chose to. I think a person could safely go closer to 1.5x their HHI and be pretty safe though.

K-ice

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #16 on: September 27, 2015, 09:26:51 AM »
You can also get a 25 or 30y mortgage.

But most places will let you make extra payments per month (double down) and lump sum (15%/year).

In our case, if you maxed those payments, the loan was gone in less than 6 years.

Or you can conciuosly plan to  make payments equivalent to a 10 or 15 year payoff.

The benifits of going with the 25y but pay like it is 10y plan are:

The actual intested paid is no different than the 10y plan. (Assuming the same rate.)
You are only on the hook for 25y payments.
So if life things change, parental leave, unemployment etc. it is nice to fall back to the lower payments for a short time. This should just be a simple call or online request instead of negotiating a new mortgage. 

MMMaybe

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #17 on: September 27, 2015, 09:28:41 AM »
Given the historically low interest rates at present, I would also suggest checking if you can still afford the house if rates return to historical averages + a couple of points. For Australia, I think at a guess, the average (d) rate over the last 50 years would be around 8%. So I personally would check affordability for me at 10%. This would of course, vary depending on where you live.

I'm guessing in Australia you don't have fixed rate mortgages? If the OP is in the US, I'm not sure this or the "can you afford it at twice the interest?" question really matter as long as they get a 15 or 30 year fixed rate mortgage.

We can usually fix for a much shorter period of time, like 3 or 5 years. So you can get caught out if rates are higher, when its time to renew.

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #18 on: September 27, 2015, 10:27:52 AM »
Rather than a "how much house can you afford" calculation, a better one for FIRE purposes would be a "how little house can make you content" analysis.

Yes, this. "How much house can I afford?" is the wrong question. The sites that purport to answer that question assume you'll be working at your current job until 65 and want to spend just enough on your house to allow you to retire at that time. We tend to reject that kind of thinking around here.

The more you spend on a house, the longer you will take to achieve FI. It's that simple. If you think a bigger house will increase your lifetime happiness enough to make a longer working career worthwhile, then by all means buy that bigger house. Otherwise keep things simple. Do more with less.

K-ice

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #19 on: September 27, 2015, 10:54:09 AM »
I believe Canada is like Australia. You can get a 20,25 or 30y amortization but the rate is only fixed for usually a 5 year term.

So far in my mortgage lifetime (~last 12y) the rates have always been lower at renewal time. Call it luck!

We also can't deduct the interest unless it is a rental property. I think that helps the Canadian mentality to pay it off faster. Or conversely, hurts the U.S. mentality for some to drag it out.

Because we need to negotiate every 5 years I think that unknown rate is also more incentive to pay it off faster.

If ever rates went up, one could renew for a longer amortization again if needed. But then you could theoretically be paying your mortgage for decades if you abuse this.

For Mustacians maybe the best calculation is to determine what mortgage you can pay off before your FIRE date.


Villanelle

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #20 on: September 27, 2015, 07:48:24 PM »
I like the household income to purchase price ratio; this can be affected by down payment size. We went with a 1:1 ratio and have been happy that we chose to. I think a person could safely go closer to 1.5x their HHI and be pretty safe though.

It's always a nice kick in the teeth to be reminded of how affordable other housing markets are. In San Diego, $500,000 buys you a 2000sqft townhouse with aging finishes and no yard.  1.5 income?  Even if you are making $125k, there's is probably nothing habitable at even 2x that.  I seem to recall San Diego was named something like #2 least affordable housing (when house prices were compared to average salaries). 

Civex

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #21 on: September 28, 2015, 08:37:16 AM »
Cost of living, potential salaries, and proximity to family did factor into our decision on where to live. The other area we considered living after graduation would have roughly doubled the housing price for similar homes, and not increased our income. I am saying household income too; dual professionals in San Diego,would  likely earn a combined $200-300k (conservatively) I would guess, which 2x still puts you in the bottom of your habitable category. The area we moved to is a bit extreme, the average household income is something like ~$35k and the average house is valued at less than $130k.

Tyler

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #22 on: September 28, 2015, 09:40:01 AM »
I personally take the simpler, more literal approach to this question. You can afford to purchase as much home as you have savings to purchase one with no loan.  If you can afford to pay in cash but choose instead to get a mortgage because you believe investing the money is the better long term deal, that's great. But if the home you want is more than your current net worth, perhaps it makes more sense to rent until you can save up. And if real estate in your city is so expensive that saving up may never be practical, then just keep renting and maintain your financial flexibility.

IMHO, thinking of it in terms of savings instead of income would keep a lot of people out of trouble.

Villanelle

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #23 on: September 28, 2015, 10:14:46 AM »
Cost of living, potential salaries, and proximity to family did factor into our decision on where to live. The other area we considered living after graduation would have roughly doubled the housing price for similar homes, and not increased our income. I am saying household income too; dual professionals in San Diego,would  likely earn a combined $200-300k (conservatively) I would guess, which 2x still puts you in the bottom of your habitable category. The area we moved to is a bit extreme, the average household income is something like ~$35k and the average house is valued at less than $130k.

That would be a reasonable income for highly educated, experienced workers who have had a good amount of success, perhaps.  Median income for a family of 4 (so that probably includes many, or even mostly, dual income families) is only ~$64,000 according to http://www.sandiego.gov/housing/resources/whatis.shtml.  Not anywhere close to 2-300k.two times that $64k, or $128k, buys pretty much nothing that is livable and not an hour+ commute to major working areas. 

Lady Fordragon

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #24 on: September 28, 2015, 12:21:52 PM »
Rather than a "how much house can you afford" calculation, a better one for FIRE purposes would be a "how little house can make you content" analysis.  From the time I first bought a house in my mid twenties, we were given an absurdly high "how much house we could afford" number by those interested in selling and financing our house purchases.  We had the good sense to ignore what we were told, and as a result were able to easily meet our housing expenses, paid off our one and only mortgage many years early, and did not have to stress over financial obligations, even when the chips were relatively down. I know some people favor holding on to a mortgage and leveraging their available assets, but having a fully paid off house for many years has allowed us to put much money aside to fund FIRE.  Good luck in making the decision.

Agree!  DH and I paid off our 15y mortgage in 4y and now are able to invest so much more.

MDM

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #25 on: September 28, 2015, 12:59:44 PM »
...having a fully paid off house for many years has allowed us to put much money aside to fund FIRE.
Agree!  DH and I paid off our 15y mortgage in 4y and now are able to invest so much more.

Water under the bridge now but how would things stand if, instead of paying extra on the mortgage, that extra cash had been invested in some reasonable index fund(s)?

mountainstache7

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #26 on: September 28, 2015, 01:47:45 PM »
After going through this process several times, I like the idea of 25% of take home pay for PITI. Even better if you can hold to that on a 15yr with 20% down. The banks of course will borrow you all the way up to the limits that will make you house poor. Their calculations on what you can afford are not in the consumer's best interests.

ketchup

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #27 on: September 28, 2015, 01:53:56 PM »
The smallest amount you can get away with.  Or more accurately, the amount that lowers your overall cost of living the most ($100/mo rent would still a bad deal if you work 200 miles away and only have access to a 15mph farm tractor to get to work).

And yes, mortgage bankers' advice is 100% useless.  I myself was preapproved for a mortgage about 30% more than we planned on buying together as a dual-income couple.  Madness.

Lady Fordragon

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #28 on: September 28, 2015, 05:36:38 PM »
...having a fully paid off house for many years has allowed us to put much money aside to fund FIRE.
Agree!  DH and I paid off our 15y mortgage in 4y and now are able to invest so much more.

Water under the bridge now but how would things stand if, instead of paying extra on the mortgage, that extra cash had been invested in some reasonable index fund(s)?

We'd probably have more money in our investments; however, I really hate debt and I just wanted the peace of mind that came from being debt-free.  My husband and I had a similar conversation with one of our good friends when we first starting putting more towards the mortgage.  He shared your thoughts as well.  It is indeed water under the bridge now, but I do not regret our decision.

MDM

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #29 on: September 28, 2015, 06:42:49 PM »
We'd probably have more money in our investments; however, I really hate debt and I just wanted the peace of mind that came from being debt-free.  My husband and I had a similar conversation with one of our good friends when we first starting putting more towards the mortgage.  He shared your thoughts as well.  It is indeed water under the bridge now, but I do not regret our decision.

That seems a perfectly rational decision, based on how you value (in a non-financial sense) "lack of debt" vs. "higher net worth."

If, given the relatively low mortgage rates available today and assuming average historical long term returns (at least in the US), people do understand that the likely financial winner is to invest, then let 'em make the right choice for themselves, whatever that choice may be.

Mikila

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #30 on: September 28, 2015, 06:59:14 PM »
You have been given a lot of good advice here.  I agree with the majority, and would urge cautious thoughtfulness.  You have demonstrated this already, and you will make the right decision.  Listen to your gut.

Bob W

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #31 on: September 28, 2015, 07:29:01 PM »
It is a very simple calculation.  A = amount of money you have.  A = how much house you can afford.   

Jeremy E.

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #32 on: September 28, 2015, 07:58:56 PM »
A "how much house can you afford" calculator, would be for consumer suckas, I don't think MMM would ever speak positively of something like this, much less develop one.
You should instead, first decide if you really want a house or if you'd rather rent, here are some related articles,

http://jlcollinsnh.com/2013/05/29/why-your-house-is-a-terrible-investment/
http://jlcollinsnh.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/
http://www.mrmoneymustache.com/2015/07/27/rent-vs-buy/
http://jlcollinsnh.com/2015/09/23/case-study-14-to-dream-the-impossible-dream-and-then-realize-it/

That last one isn't completely relevant, but is a recent case study on someone who regrets buying houses.

After deciding you're sure you do want a house,
deciding your job is stable and you don't plan on changing very much for the next decade,
deciding you'll either live in it long enough to make the expense and HUGE annoyance of house buying worthwhile, or rent it out afterwards(which could affect a future house purchase),
deciding that you're okay being liable for maintaining your home and paying all the exorbitant fees that go along with owning your own home,
and deciding that you're okay not having the flexibility of those who rent

You should then figure out how much house you really need.
I'm not sure where I read it as I can't find the exact article, but Mad Fientist(another financial blogger) did an experiment to see how much stuff actually made his life better, rather than just asking himself if X makes his life better, he started getting rid of things and seeing if it made his life any worse. I think if you could somehow do an experiment similar to this, but with housing instead of items, to see how much house you actually need, it would be very beneficial. Also if there are things you know will change in the future making you need a different house, you should consider
1) renting a place that will meet your needs until then, and then buy, or
2) buy a house that will meet current needs as well as future needs.

Good Luck!

chesebert

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #33 on: September 28, 2015, 09:06:28 PM »
All good advice. To make the advice more relevant to my situation, I am linking to my other thread in the RE section where I have some background on my finances: http://forum.mrmoneymustache.com/real-estate-and-landlording/chicago-real-estate-gold-coast-good-buy-or-foolish/

Here I complain about recreational sellers: http://forum.mrmoneymustache.com/real-estate-and-landlording/i-am-really-sick-of-seller-listing-properties-at-unrealistic-prices/







K-ice

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #34 on: September 28, 2015, 09:31:56 PM »
https://tools.td.com/mortgage-affordability-calculator/


This calculator with $100K/year and $100K down 3% rate estimates

$660K for a 25y Mortgage

this drops down to

$375K for a 10y Mortgage.

The ten year plan is something I would be more comfortable with.




Abe

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #35 on: September 28, 2015, 10:09:20 PM »
I looked at the Gold Coast when buying 4 years ago and couldn't stomach to high HOA fees. I don't think in general they are good value for services received. We live in wicker park and only occasionally regret living farther away from the lake. We then remember that we've saved >$20k in HOA fees and interest.  It really comes down to how much you value the convenience of being close to downtown and the lake. Financially I think you can afford the cost to buy, but over long term HOA fees may cut more deeply than anticipated, especially as the buildings get older.

chesebert

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #36 on: September 29, 2015, 04:26:51 AM »
I looked at the Gold Coast when buying 4 years ago and couldn't stomach to high HOA fees. I don't think in general they are good value for services received. We live in wicker park and only occasionally regret living farther away from the lake. We then remember that we've saved >$20k in HOA fees and interest.  It really comes down to how much you value the convenience of being close to downtown and the lake. Financially I think you can afford the cost to buy, but over long term HOA fees may cut more deeply than anticipated, especially as the buildings get older.

We will try to not own a car. Hopefully that will be enough to offset the insane HOA fee - we all know keeping a personal vehicle is like adding 500-700/month in expenses when all aspects of ownership is considered (I am talking about a used car, new car is significantly worse on a per month basis).

Lady Fordragon

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #37 on: September 29, 2015, 09:32:38 AM »
We'd probably have more money in our investments; however, I really hate debt and I just wanted the peace of mind that came from being debt-free.  My husband and I had a similar conversation with one of our good friends when we first starting putting more towards the mortgage.  He shared your thoughts as well.  It is indeed water under the bridge now, but I do not regret our decision.

That seems a perfectly rational decision, based on how you value (in a non-financial sense) "lack of debt" vs. "higher net worth."

If, given the relatively low mortgage rates available today and assuming average historical long term returns (at least in the US), people do understand that the likely financial winner is to invest, then let 'em make the right choice for themselves, whatever that choice may be.

I completely agree with you, MDM.  It's really up to the individual to make the choice that's right for them.

neo von retorch

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #38 on: September 29, 2015, 09:39:20 AM »
It's interesting... in my area the NYTimes rent v. buy calculator indicates that, based on my current rent (of a 2BR/2BA condo), we could afford a $365k house (which in this area could easily be a 4BR/3BA...) we do plan on getting a house, but we hope to keep the costs below $300k, but it will likely be 3BR and single family, an upgrade from what we have now (as we start a family.)

clarkfan1979

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #39 on: September 29, 2015, 12:51:53 PM »
This is a tricky one because MMM is more of a big picture problem solver. He would definitely be against a large cheap house far away from your job. Let's say that house is 20% of your pre-tax salary. However, there is a smaller house closer to work that costs 33% of your pre-tax dollars. He would be in favor of the closer and smaller house because you would spend less on commuting and utilities.

Abe

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #40 on: September 29, 2015, 03:03:22 PM »
We will try to not own a car. Hopefully that will be enough to offset the insane HOA fee - we all know keeping a personal vehicle is like adding 500-700/month in expenses when all aspects of ownership is considered (I am talking about a used car, new car is significantly worse on a per month basis).

That's a good point. Just see what the HOA fees get you...some buildings seem to do nothing with them while others provide useful amenities. Also try to research their prior special assessments and how they were spent. That will give you an idea of how well the HOA is run and the building's condition.

Cassie

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Re: Did MMM ever develop a "how much house can you afford" calculator?
« Reply #41 on: September 29, 2015, 03:07:55 PM »
When i was young the common advice was never to spend more then 25% of your take home income on housing. It was good advice as it kept people from having too high a mortgage. The banks want to loan as much as possible so have continually upped how much $ people can borrow. Real estate agents will also encourage you to overspend for their commissions.