Absurdity found on TikTok: how much income to afford $350k house?

[fat-johnny]

Answer this question:  In your opinion, what yearly gross salary would you need to have to afford a $350k house?

Now, with your answer in mind, go watch this 30sec TikTok video:  https://vm.tiktok.com/ZTdahdJpv/

I’d love to hear the responses from the Mustachian community.  (and for more comedy gold, watch any/all of this clown's other videos)
FJ

Spoiler: show

He says you can buy a $350k house on a $59k gross household income

[DadJokes]

Our house was purchased for $325k with a $90k income back in 2018. That was more than we wanted to spend, but still easily affordable. Income has gone up since then, and we've refinanced to a lower rate (much lower than the 3.99% he's using). He's also citing some 45% of gross income limit on payment, but I prefer to stick with 30% of net. I don't think someone making $60k is losing 15% of their income to taxes, unless they are single, in which case I'd suggest getting a roommate to share some of the costs.

[RWD]

Personally I'd probably want to have an income of at least $80-90k. But I don't think there is anything wrong with the TikTok as framed. He's basically stating the bare minimum to get qualified for a loan to buy a $350k house. He didn't conveniently forget about PMI, homeowner's insurance, or taxes. Though 4% interest rate is probably optimistic for an FHA loan, I think closer to 5% is more common right now.

[OtherJen]

Answer this question:  In your opinion, what yearly gross salary would you need to have to afford a $350k house?

Now, with your answer in mind, go watch this 30sec TikTok video:  https://vm.tiktok.com/ZTdahdJpv/

I’d love to hear the responses from the Mustachian community.  (and for more comedy gold, watch any/all of this clown's other videos)
FJ

18 years ago, my husband and I were approved for a maximum $100K loan. Our total household income at the time was $50K, we had more than 3% for a down payment, and we had credit scores over 700. I'd laugh at the absurdity of this video, but I know that a lot of people are probably taking this as sound financial advice (which is depressing).

[fat-johnny]

I don't think someone making $60k is losing 15% of their income to taxes, unless they are single, in which case I'd suggest getting a roommate to share some of the costs.

Assuming ZERO pretax deductions, the income taxes on a $60k salary are $8,948.50......which is 14.91%

Granted, having ZERO pretax deductions would be very, very rare.
FJ

[innkeeper77]

Answer this question:  In your opinion, what yearly gross salary would you need to have to afford a $350k house?

Now, with your answer in mind, go watch this 30sec TikTok video:  https://vm.tiktok.com/ZTdahdJpv/

I’d love to hear the responses from the Mustachian community.  (and for more comedy gold, watch any/all of this clown's other videos)
FJ

18 years ago, my husband and I were approved for a maximum $100K loan. Our total household income at the time was $50K, we had more than 3% for a down payment, and we had credit scores over 700. I'd laugh at the absurdity of this video, but I know that a lot of people are probably taking this as sound financial advice (which is depressing).

It looks like 2004 rates were in the high 5% range then, which would decrease the total loan value people could afford somewhat relative to today's lower rates (And last years significantly lower rates), but additionally general rent is much higher today, meaning it could make sense for more people to buy even if they DO have to stretch a bit.

I also know, and in the past was one of these people, a number of people that ended up qualifying for a mortgage based on ONE income in a two income household, due to paperwork, new jobs, or other reasons- which isn't nearly as big of a deal as stretching the total household budget. (Like Dicey below, I'm in a M-HCOL area which is, at this time, not negotiable)

[Dicey]

The elephant in the room is "other debt". I was always able to live comfortably with mortgage payments that ate up a higher-than-recommended percentage of my income because I had no car payments, SLs, or CC Debt, none of which this dude mentions.

Semi-related question: do lenders look at how much you're loading into your retirement accounts? I wonder if rolling back your contributions to merely match level just ahead of the buying process would allow you to qualify for more?

If you live in a HCOLA, especially if you're not a high wage earner, you often don't have the luxury of "buying something cheaper", because it just doesn't exist and rents are crazy, too. On one hand it sucks sucked, on the other, property appreciation has definitely made it worth the sacrifice over the last thirty years, even through the Great Recession, provided you managed to ride it out. You could, because as a badass mustachian, you still managed to save, despite the high mortgage payment.

[moof]

I personally believe in 3x your salary max for a a mortgage.  We were barely over that for our house 15 years ago, and despite no debt it felt really tight for a few years till I got a few raises.  I think I was at about 90k for a 290k loan.  Interest rates were a little higher back then, but not that much more.

Spending 45% of your gross income leaves very little to live on after taxes take another quarter to a third.

[roomtempmayo]

If you live in a HCOLA, especially if you're not a high wage earner, you often don't have the luxury of "buying something cheaper", because it just doesn't exist and rents are crazy, too.

I have to imagine that rising interest rates are going to make more areas feel HCOL.

As borrowing costs rise, house prices may be sticky and not fall proportionately.  If so, the supply and demand curves diverge and sales don't happen.  Or, as the WSJ wrote yesterday, individual homeowner demand may just end up being replaced with investment money that's looking for a vehicle that can track inflation with rising rents.  Either way, it seems like a recipe for lots of social frustration.

[remizidae]

Semi-related question: do lenders look at how much you're loading into your retirement accounts? I wonder if rolling back your contributions to merely match level just ahead of the buying process would allow you to qualify for more?

Mortgage lenders look at the ratio of debt to gross income, so contributing to a retirement account wouldn't hurt you.

[CTEC_Stache]

Answer this question:  In your opinion, what yearly gross salary would you need to have to afford a $350k house?

Now, with your answer in mind, go watch this 30sec TikTok video:  https://vm.tiktok.com/ZTdahdJpv/

I’d love to hear the responses from the Mustachian community.  (and for more comedy gold, watch any/all of this clown's other videos)
FJ

Spoiler: show

He says you can buy a $350k house on a $59k gross household income

That is absurd!

My wife and I are currently searching for a home. Our local market's average 3/2 home (which we are looking for) is right around $350k so I have some direct insight here. Our current household income is $67k and we will have roughly $100k - $130k for a down payment depending on what we can sell our current home for. That being said our mortgage loaned amount would be $220k - $250k and I'm not even comfortable with that! In the fall our household income will increase to about $80k. At that point I feel comfortable spending up to $350k for the total purchase.

[JAYSLOL]

$80k if i had prospects of yearly increase in income to at least keep up with inflation.  $100k if it was a fixed income with no prospect of the income keeping up with inflation

[Chris22]

Our first house was similar, we paid $275k IIRC, but the payment was similar because we had higher property taxes and a higher interest rate (2007, think we were 4.75%?). We made around $120k combined at the time, but did have other debt (car payment).  It felt about right, monetarily, right up until we we had a kid and suddenly paid $1500/mo in childcare. Then it felt tight. Fortunately our wages increased over time as well.

I think 2.5-3x gross is a good rule of thumb. We’re currently right around 2x gross on our house (15 years later, different house) and it’s comfortable and allows us to splurge in other places.

[nessness]

Personally I'd probably want to have an income of at least $80-90k. But I don't think there is anything wrong with the TikTok as framed. He's basically stating the bare minimum to get qualified for a loan to buy a $350k house. He didn't conveniently forget about PMI, homeowner's insurance, or taxes. Though 4% interest rate is probably optimistic for an FHA loan, I think closer to 5% is more common right now.

His math seems basically sound, but I wish he'd framed it as "how much income you need to qualify for a mortgage on a $350k house " instead of "how much income you need to afford a $350k house" because those are NOT necessarily the same.

[partgypsy]

Personally I'd probably want to have an income of at least $80-90k. But I don't think there is anything wrong with the TikTok as framed. He's basically stating the bare minimum to get qualified for a loan to buy a $350k house. He didn't conveniently forget about PMI, homeowner's insurance, or taxes. Though 4% interest rate is probably optimistic for an FHA loan, I think closer to 5% is more common right now.

yes, and as someone else mentioned, being able to qualify for that loan of a 350K home does not = being able to afford said 350K home. 

[PoutineLover]

I think house prices are so out of whack with incomes that it becomes really hard to know what is truly "affordable". My spouse and I make a decent income, and 3x our income wouldn't even be enough to buy a two bedroom condo in our city, let alone a whole house. Our online pre-approvals say that we could get a home at 5x our income, which sounds insane, but that's basically what it would take to get a 3 bedroom home that isn't a long commute away.

So we have the choice of renting (which is what we're doing now) or extending ourselves more than we are comfortable just to buy something now, in the expectation that the market will continue to rise and we may be priced out forever. I wouldn't fault someone who bought a little more than they could comfortably afford just because that's all that was available.

[shureShote]

I did some memory straining to run down the six houses I have had over the years. In terms of purchase price versus gross salary for household they were

2x
1.9x
2.4x
2.3x
2.3x
2.1x

I would feel a lot of stress if we approached 3x. We are fortunate to have decently high incomes, but no way I’d be comfortable with some higher numbers. Especially since you normally are not buying quality homes any longer. Dumping a large payment into the shitbox houses that have been built over the last too many decades hurts me.

[charis]

I think house prices are so out of whack with incomes that it becomes really hard to know what is truly "affordable". My spouse and I make a decent income, and 3x our income wouldn't even be enough to buy a two bedroom condo in our city, let alone a whole house. Our online pre-approvals say that we could get a home at 5x our income, which sounds insane, but that's basically what it would take to get a 3 bedroom home that isn't a long commute away.

So we have the choice of renting (which is what we're doing now) or extending ourselves more than we are comfortable just to buy something now, in the expectation that the market will continue to rise and we may be priced out forever. I wouldn't fault someone who bought a little more than they could comfortably afford just because that's all that was available.

Truly, in my city, we could find a decent house for less than our combined gross annual income, which is just under $200k.

[PoutineLover]

I think house prices are so out of whack with incomes that it becomes really hard to know what is truly "affordable". My spouse and I make a decent income, and 3x our income wouldn't even be enough to buy a two bedroom condo in our city, let alone a whole house. Our online pre-approvals say that we could get a home at 5x our income, which sounds insane, but that's basically what it would take to get a 3 bedroom home that isn't a long commute away.

So we have the choice of renting (which is what we're doing now) or extending ourselves more than we are comfortable just to buy something now, in the expectation that the market will continue to rise and we may be priced out forever. I wouldn't fault someone who bought a little more than they could comfortably afford just because that's all that was available.

Truly, in my city, we could find a decent house for less than our combined gross annual income, which is just under $200k.

That's really lucky. I did a search for my city at that price and the only options available are studio condos, trailers, and parking spots.
At double our annual income you start to see two bedroom condos and small houses (in a flood zone though) or gems like this:

[charis]

Luck has some to do with obviously. But I made a conscious decision to move back and settle down there because it was affordable, yet trending up not down.

[PoutineLover]

My city was fairly affordable until covid hit, and since then it seems like no regions are safe from extreme price increases. I don't think anyone could have planned for this. Median home price in my city went from 402k in March 2020 to 587k in March 2022.

[JAYSLOL]

Yeah it’s 400-500k just for a small lot in my area, and construction costs are absurd.  Absolute minimum for a rundown house is about 600k, average is more like 750-800, and a nicer new house is 900-1.2.  It’s insane.  Could have bought a nice house for 550k two years ago, now it’s 900+, definitely regret not stretching the budget and buying two years ago. 

[NorthernIkigai]

These things always confuse me: It is as if the only way to buy a home is to have a down payment of exactly 20% and no other assets.

As soon as you have other assets/savings/a current partly paid off home, the number won’t be the same anymore. The same goes for if you are a large single income family where the income comes from basket weaving on TikTok versus if you have two solid careers and no dependents.

I mean, we don’t believe the “you need X% of your current income in retirement” crap either, do we?

[poetdereves]

That number really surprised me because my wife and I just got an offer accepted on a $370k house, we make ~$200k gross, and I still felt like it was too much of a percentage of our income. It's probably more the fact that I never lived in a home over $100k growing up, so the mindset of being able to afford a nicer home is still something hard to comprehend for me. Our total PITI will only be about 14% of our total income, which is well within a reasonable range even by mustachian standards.

[Kierun]

Must be nice, SFH median price hit $1.15M a few months back. I consider myself lucky with a recent refinance more than 5.5x our gross and still over 350k in equity. FMV of the house is probably around 8x our gross.

[clarkfan1979]

Must be nice, SFH median price hit $1.15M a few months back. I consider myself lucky with a recent refinance more than 5.5x our gross and still over 350k in equity. FMV of the house is probably around 8x our gross.

What island? I bought a house on Kauai for 603K in 2018 when my W-2 income was 63K and our rental income was around 10K/year. My wife made 10K, but it didn't count for qualifying for the mortgage because it was part-time work and she hadn't been doing it for more than two years. Total PITI was $2650. The primary home had an ohana suite in the basement. We rented it for $1600/month, so that is how it was affordable.

We bought a house for 280K in 2019 in Colorado. My base salary was 52,208/year at the time. I was asked by family if I needed my rental income to qualify for the loan. I replied and said, "no" and people didn't believe me. I think maybe because my only debt was $150/month for student loans. We also had enough money to put 20% down to avoid PMI.

At $52,208, that's 4350/month. At a debt to income of 45%, I can qualify for $1957/month of debt. Deduct $150/month for student loans and I can qualify for a PITI payment of $1807. That would actually get me a house around 400K. Rates were around 4% at the time, so a 320K mortgage at 4% is $1528. Property taxes would be $179/month and insurance would be $96/month. I actually have exact numbers for taxes and insurance because the house is now worth 400K. 

At $52,208/year, I could qualify for a 400K house. If I didn't have any student loans, I could push it to 430K.

His video is accurate. No problems here. 

[Kierun]

Oahu, Honolulu.

[Fomerly known as something]

These things always confuse me: It is as if the only way to buy a home is to have a down payment of exactly 20% and no other assets.

As soon as you have other assets/savings/a current partly paid off home, the number won’t be the same anymore. The same goes for if you are a large single income family where the income comes from basket weaving on TikTok versus if you have two solid careers and no dependents.

I mean, we don’t believe the “you need X% of your current income in retirement” crap either, do we?

Yup my current home’s purchase price was 3.8x salary and will be 7.8 times my pension income in 2025.  But at the same time I put more than 20% down and I are coasting toward the end of my income earning years.  Also the mortgage is at 2.5 times current income and there is a “reasonable” amount left over without tapping assets with the pension.  It is actually a reasonable expense based on my overall assets.

[clarkfan1979]

These things always confuse me: It is as if the only way to buy a home is to have a down payment of exactly 20% and no other assets.

As soon as you have other assets/savings/a current partly paid off home, the number won’t be the same anymore. The same goes for if you are a large single income family where the income comes from basket weaving on TikTok versus if you have two solid careers and no dependents.

I mean, we don’t believe the “you need X% of your current income in retirement” crap either, do we?

Yup my current home’s purchase price was 3.8x salary and will be 7.8 times my pension income in 2025.  But at the same time I put more than 20% down and I are coasting toward the end of my income earning years.  Also the mortgage is at 2.5 times current income and there is a “reasonable” amount left over without tapping assets with the pension.  It is actually a reasonable expense based on my overall assets.

I think our current home was right around 3.8x total income as well when we purchased in 2019. House cost 280K and our total income was around 74K. I think total income for 2022 will be around 100K and increase about 5K annually. 

[brandon4454]

My house was less than my annual income. My wife's annual income is the same as our house.

We have a pretty good house as well.

[neophyte]

Against mustachian advice I bought a $275k house on a $30k income 5 years ago.  With 20% down of course.  I can walk or bike to work and the grocery store and I rent the spare rooms for enough to cover the mortgage payments. My income has since gone up to $60k and I feel pretty comfortable now.

[lifeisshort123]

We bought our home for about 1.8x our annual income.  I am glad we did not buy any more house than that.  At the end of the day, a home is a liability.  Yes, one that has the ability to be used much more meaningfully and effectively than other liabilities, but it is a liability nevertheless.

[iris lily]

1.5 times your annual income is the price of house you can afford according to the old fashion formula. I don’t know what the current rule of thumb is. But it sure is not what Mr. TikTok is saying.

[ohsnap]

That video made me feel really old - when did lenders start approving loans at 45% gross income?! When we bought our first house, I seem to remember the ratio being something like 25% PITI to income, or 30% total debt to income.

[lifeisshort123]

1.5 times your annual income is the price of house you can afford according to the old fashion formula. I don’t know what the current rule of thumb is. But it sure is not what Mr. TikTok is saying.

I had never heard this before.  That makes a lot of sense to me.  The 3x your income thing never made much sense to me, unless you are at least on the higher end of things and want to prioritize an expensive home.

[eyesonthehorizon]

1.5x annual as the price of the home assuredly made sense in some times & in some markets; it certainly sounds desirable to me. But I don't even live in a particularly HCOL area - per that rule a household earning 2x median in cities around here would be able to afford a single bathroom with under 1000sqft (a bit tight considering the lack of nearby amenities, but livable so far, right?) in a treeless, redlined neighborhood with crumbling streets, no sidewalks, & burglar bars on every ingress with no desirable jobs or even groceries nearby. There's huge growth but it's all on the upper end of the price scale.

The lack of remotely desirable lower-cost homes drives up the price of rent, too, so renters who don't qualify for subsidized housing often end up spending significantly more than prudent (50% net or more) for barely-sufficient housing, with really no choice at all but to have multiple roommates.

Of course, you could say goodbye to everyone you know to move somewhere cheaper, but at that point it's more a gamble on finding work. There's a line between realizing that the options on the table are terrible & thinking that people are foolish for accepting any of them when housing needs have an inelastic baseline.

[iris lily]

I should clarify that the 1.5 figure was the the rule of thumb  for how much you could borrow. That Changes how much you could buy slightly ‘tho  the most people mortgage most of the cost of a house.

 Back then we were dealing with mortgage rates of 10%, 12%, 14%.

Yes prices of houses are much higher now, but are the house payments much higher? I don’t know given those mortgage finance rates.

[RWD]

I should clarify that the 1.5 figure was the the rule of thumb  for how much you could borrow. That Changes how much you could buy slightly ‘tho  the most people mortgage most of the cost of a house.

 Back then we were dealing with mortgage rates of 10%, 12%, 14%.

Yes prices of houses are much higher now, but are the house payments much higher? I don’t know given those mortgage finance rates.

This is one of the reasons why 1.5x or 3x type rules of thumb break down. Depending on the interest rate the affordability will vary drastically. The monthly payment on a 30-year loan at 10% is twice as much as an otherwise equivalent mortgage at 3.3% (principal and interest).

[ender]

3x your income if you make 300k is also a lot more doable than 3x your income if you make 30k.

Many expenses do not scale with your income. So any rule of thumb needs to consider that aspect.