Would you take a mortgage that is 1/2 your net income?

[big_slacker]

I live in a HCOL area, but one that offers high salaries due to local big tech businesses. I'm currently within biking distance of work, easy bus ride into the downtown city area if I ever switch jobs and have to do that madness, *AND* very close driving to the mountains which is my hobby/passion. Ride my bike to the store, to work, good schools, friendly people and so on. Great area, love living here. *BUT*, houses are expensive. They don't get significantly cheaper unless you move out far enough where there will be a 30min-1 hour (1 way) car commute which just sucks and I won't do.

A house popped up a couple blocks from where we're currently renting at a BARGAIN price of only $500k+. While I can throw together a downpayment (10%), the mortgage/taxes/pmi/insurance on it would be around $3100-$3200 all in which is nearly half my net income (after taxes, 401k, healthcare and savings). Currently we rent for $2200 which is an INSANE deal that won't last forever.

I'm not opposed to riding out the low rent as long as it lasts and continue to save, but houses in the area are currently appreciating fairly quickly and I don't know that my savings will win that race. My wife has gotten more frugal and I told her she'd need to be frugal at my level or near it for this to work. She will be starting work again next year when she is done with school and the kids go to school. That should be no less than $25k/yr and depending on hours, tips, etc. up to 50k/yr.

Half of me says go for it because it will get us into a locked in mortgage *AND* force us into pretty frugal living which would continue even after my wife starts working again. The other half of me is scared shitless to have a debt that size and a monthly payment that large. Thoughts? Facepunches?

[Sofa King]

No. I would keep looking for a house you could afford.

[forummm]

So it's not really half your income? It's just half your after tax and maxing 401k income? That's quite a different question. Banks wouldn't let you take out a mortgage with a payment that was half your income.

Are you going to stay in that area more than 5 years?

[redcedar]

50% monthly income into a house is steep. Very steep. But you know that. That type of ratio can be overcome but it is not easy.

$25-50k from wife returning to work would be a big relief. How about your income potential? I ask since hot tech job markets can provide very high income appreciation. It is not unheard of to see 50-100% income increases over 5-7 years. Be realistic though.

Also, what are your thoughts for staying long term in that city. You describe while its ideal but I would imagine that there are a handful of towns with similar features in utah, colorada, and even idaho. Could you relocate, working remotely or changing jobs, in the next few years? If that is a reasonable chance, remain a renter for now.

[Gin1984]

It depends on your gross income and how stable you think your job is.

[sisto]

I agree with what forummm said. I'm in a very similar situation. I own and my payment is about 40-45% of my take home pay. If you are staying more than 5 years it's probably worth it. Is there any way you can come up with 20% for the down to avoid the PMI?

[tobitonic]

As others have noted, it's not quite right to classify it as half your "net" income when "net" doesn't include 401k contributions or savings.

And personally, I prefer using ratios of home cost to gross income for gauging affordability. For me, the ideal ratio is <1. I wouldn't recommend buying any house at 2+.

[Another Reader]

First, if this house is really bargain priced and you live in a hot area, there are probably multiple offers so the discussion my be moot.  However, the real problem here is you are thinking about spending $500k with no knowledge of anything other than the possibility the property is a "bargain."

The reasonable way to approach home ownership is to sit down with a decent lender, find out what loans you would qualify for, what options there are for down payment, and so forth.  Once you know how much you can borrow on what terms, then you and your spouse can discuss if it's the right strategy to own a home where you live now and how much of a sacrifice of other spending and saving you are willing to make to do so.  If it makes sense to buy, get a pre-approval before you start shopping. 

At that point, interview, qualify, and select someone that will represent you as a buyer.  Then, and only then, go house shopping.

[MilesTeg]

I live in a HCOL area, but one that offers high salaries due to local big tech businesses. I'm currently within biking distance of work, easy bus ride into the downtown city area if I ever switch jobs and have to do that madness, *AND* very close driving to the mountains which is my hobby/passion. Ride my bike to the store, to work, good schools, friendly people and so on. Great area, love living here. *BUT*, houses are expensive. They don't get significantly cheaper unless you move out far enough where there will be a 30min-1 hour (1 way) car commute which just sucks and I won't do.

A house popped up a couple blocks from where we're currently renting at a BARGAIN price of only $500k+. While I can throw together a downpayment (10%), the mortgage/taxes/pmi/insurance on it would be around $3100-$3200 all in which is nearly half my net income (after taxes, 401k, healthcare and savings). Currently we rent for $2200 which is an INSANE deal that won't last forever.

I'm not opposed to riding out the low rent as long as it lasts and continue to save, but houses in the area are currently appreciating fairly quickly and I don't know that my savings will win that race. My wife has gotten more frugal and I told her she'd need to be frugal at my level or near it for this to work. She will be starting work again next year when she is done with school and the kids go to school. That should be no less than $25k/yr and depending on hours, tips, etc. up to 50k/yr.

Half of me says go for it because it will get us into a locked in mortgage *AND* force us into pretty frugal living which would continue even after my wife starts working again. The other half of me is scared shitless to have a debt that size and a monthly payment that large. Thoughts? Facepunches?

Typically the line to draw is around 25-28% of your GROSS income. That's generally the limit that a lending institution will lend. I personally would not go that high (prefer <20% gross) but it's not a crazy thing to do. What % of your GROSS is this?

[Guses]

ABSOLUTELY, houses only GO UP in value. YOU CANNOT possibly ever lose money on this half a $M house that is made of about $40K worth of materials !!!!

/s

[MrGreen]

If you considered nothing more than how quickly house prices have risen in the past few year would you say it feels like a bubble (unsustainable rise)? How badly would it injure you financially if it did turn out to be a bubble? Just some things to consider. Perhaps it does "feel" like a bubble because of foreign investment or whatever the logical reasons are for prices being driven up but any time I see something inflating at an unsustainable pace it makes me nervous.

[Dezrah]

If I were in your situation as you describe it, yes I would get the house. Reasonable commuting time has done more for my quality of life than I care to admit. It gives me the time to grocery shop and cook, work out, spend time with my husband, engage in my hobbies, clean house, all without completely exhausting myself every night. Sounds like you'd still be saving too. If I broke even or even lost money on the property it would be worth it to me to have those quality years.

Check out Sofi for a mortgage. They're running a system now where quality candidates can waive PMI with as little as 10% down.

[MMMarbleheader]

One of my bi-weekly pay checks a month goes to my mortgage/tax/ins..

But...

1) 401k is maxed out

2) can easily live off the other.

3) have no other debt

4) 20 year mortgage

5) When I have those beautiful 3 paycheck months, it is all savings.

6) I will likely get a 10%+ raise in the next year.

It is tight but it will only get easier. I too live in a high COL area and have a wife that stays at home.

[big_slacker]

I figured people would want to argue net vs. gross vs. take home and that's fine. From my POV I'm not touching the maxed 401k unless there is a serious emergency.

Gross base salary income is just over $12k so yes right around 25%

Total non house expenses is $2k (with a little pad built in)

I do have a yearly cash bonus and stock awards that vest yearly. Up to this point those have gone to the kid's pre-school and any additional to savings.

In theory all of this means I could still keep savings the same and have $800-$1k a month going into the general fund, some of which goes for kid and parent clothing, occasional eating out, road trips, camping and so on. Right now it's comfy and relatively easy to both save extra for FIRE and still do plenty of fun stuff. We'd still be fine but much less slop allowed.

In terms of staying long term, yes. Once the kids start school we do not want to move. In terms of job stability, I work for one of the top 10 tech companies and it's probably not going anywhere soon. Even if it does, my stability is my employability. (Is that a word?) I'd have no problem finding another job, but this place and two others are pretty much the top of the pay scale for the area in my field.

On Utah, CO, etc. Lifestyle wise I would love to live either place. I'm a mountain guy. Both of those do not have work on the same scale or pay as what I do now as a general rule. I haven't run a COL comparo, but it would be a tough sell getting my wife to move.

Of course we've talked to a real estate agent and finance folks. They'll do the deal if we come with the downpayment and closing costs. RE guy says the house will likely be bid up to 525-535 based on comps.

Bubble wise I don't think so. This is basically housing costs driven up by silicon valley refugees coming up, the high wages of the big tech companies and yes asian 'investors'. But if you look at the bay area which has similar wages but even higher COL the house prices there are even higher.

So that answers some questions. I'm leaning towards waiting at this point. Wifey leaning towards selling everything we own to get in the house, lol!

[ETBen]

Mine (mortgage, escrow, and condo fees) are half my "Net" (after maxed 401k, Dependent Care FSA). I would like it to be less. But I'm comfortable know everything else around me is in order. Also when looking at the housing market, I couldn't guarantee I would have stayed in a lower cost home or apartment as long as I would in this one. However that's all largely personal and subjective.

I'm at 25% of my Gross.

[sol]

I was going to suggest that taking out a mortgage amount equal to half of your annual income was something I actually considered prudent.  Say, buying a $75k house with $150k of income, for example.

But it sounds like you meant to say that the annual payments would be half your income?  That's so facepunch worthy my knuckles hurt.

[big_owl]

I think when we first built our house and got our mortgage it was around 60% of income on a 30yr....back in 2004, ah yes the housing boom.  Did we make it work?  Yes.  Would I do it again?  Hell no.  One bad month or job loss away from disaster.

With income gains it's now down to like 15% of our income even on a more aggresive 20yr fixed and life is much more relaxed. 

[GuitarStv]

ABSOLUTELY, houses only GO UP in value. YOU CANNOT possibly ever lose money on this half a $M house that is made of about $40K worth of materials !!!!

How does the price of materials have any bearing on the value of a house?

[dude]

I live in a HCOL area, but one that offers high salaries due to local big tech businesses. I'm currently within biking distance of work, easy bus ride into the downtown city area if I ever switch jobs and have to do that madness, *AND* very close driving to the mountains which is my hobby/passion. Ride my bike to the store, to work, good schools, friendly people and so on. Great area, love living here. *BUT*, houses are expensive. They don't get significantly cheaper unless you move out far enough where there will be a 30min-1 hour (1 way) car commute which just sucks and I won't do.

A house popped up a couple blocks from where we're currently renting at a BARGAIN price of only $500k+. While I can throw together a downpayment (10%), the mortgage/taxes/pmi/insurance on it would be around $3100-$3200 all in which is nearly half my net income (after taxes, 401k, healthcare and savings). Currently we rent for $2200 which is an INSANE deal that won't last forever.

I'm not opposed to riding out the low rent as long as it lasts and continue to save, but houses in the area are currently appreciating fairly quickly and I don't know that my savings will win that race. My wife has gotten more frugal and I told her she'd need to be frugal at my level or near it for this to work. She will be starting work again next year when she is done with school and the kids go to school. That should be no less than $25k/yr and depending on hours, tips, etc. up to 50k/yr.

Half of me says go for it because it will get us into a locked in mortgage *AND* force us into pretty frugal living which would continue even after my wife starts working again. The other half of me is scared shitless to have a debt that size and a monthly payment that large. Thoughts? Facepunches?

It depends. What are your career prospects (i.e., what's your future income stream look like)?  How old are you?  I have several friends who spent "more than they could afford" for places that were ideally located, quality homes on the theory that their income would catch up -- and it did.  Indeed, the same could be said for me.  If you are in San Fran or Austin or Boston or some other such tech hub where the economy is humming along and growth is frenetic, it could be worth taking the risk.  Nothing ventured, nothing gained.

[Bertram]

First, if this house is really bargain priced and you live in a hot area, there are probably multiple offers so the discussion my be moot.  However, the real problem here is you are thinking about spending $500k with no knowledge of anything other than the possibility the property is a "bargain."

The reasonable way to approach home ownership is to sit down with a decent lender, find out what loans you would qualify for, what options there are for down payment, and so forth.  Once you know how much you can borrow on what terms, then you and your spouse can discuss if it's the right strategy to own a home where you live now and how much of a sacrifice of other spending and saving you are willing to make to do so.  If it makes sense to buy, get a pre-approval before you start shopping. 

At that point, interview, qualify, and select someone that will represent you as a buyer.  Then, and only then, go house shopping.

This advice is gold, this man knows what he is talking about. If you enter into the thoughts with making a bargain, limited time offer, buy now, etc. there is a high likelihood you could overlook something, or bend this or that personal line to "make it work out". That's not a sensible way to go about decisions of this magnitude. The "DEAL!DEAL!DEAL!" that's hanging above it all is short circuiting your safety mechanisms. It's never where you want to be as a buyer...

[ETBen]

ABSOLUTELY, houses only GO UP in value. YOU CANNOT possibly ever lose money on this half a $M house that is made of about $40K worth of materials !!!!

How does the price of materials have any bearing on the value of a house?

I think it was a joke about how people assign emotional and projected monetary value to what is essentially a bunch of lumber and supplies, and then encourage others to buy homes as a savings and investment.

[Seppia]

Did I miss the absolutely critical piece of information of how long the mortgage is?
 

[Metric Mouse]

First, if this house is really bargain priced and you live in a hot area, there are probably multiple offers so the discussion my be moot.  However, the real problem here is you are thinking about spending $500k with no knowledge of anything other than the possibility the property is a "bargain."

The reasonable way to approach home ownership is to sit down with a decent lender, find out what loans you would qualify for, what options there are for down payment, and so forth.  Once you know how much you can borrow on what terms, then you and your spouse can discuss if it's the right strategy to own a home where you live now and how much of a sacrifice of other spending and saving you are willing to make to do so.  If it makes sense to buy, get a pre-approval before you start shopping. 

At that point, interview, qualify, and select someone that will represent you as a buyer.  Then, and only then, go house shopping.

This advice is gold, this man knows what he is talking about. If you enter into the thoughts with making a bargain, limited time offer, buy now, etc. there is a high likelihood you could overlook something, or bend this or that personal line to "make it work out". That's not a sensible way to go about decisions of this magnitude. The "DEAL!DEAL!DEAL!" that's hanging above it all is short circuiting your safety mechanisms. It's never where you want to be as a buyer...

Best two pieces of advise in the entire thread, by far.

[Guses]

ABSOLUTELY, houses only GO UP in value. YOU CANNOT possibly ever lose money on this half a $M house that is made of about $40K worth of materials !!!!

How does the price of materials have any bearing on the value of a house?

It's not a direct relationship but a house with better/more materials is generally more expensive. When the price of the house decouples from it's underlying value is when you should really start to worry.

Either that or hope you wont be the one that will end holding the bag when the bottom falls out.

[Another Reader]

The underlying value of a house has very little to do with the cost of materials.  The most important factor is the value of the land.  A lot that is worth $1,000,000 in Manhattan might not be worth $1,000 in Detroit.  After the land value, the cost of permitting and the cost of labor vary the most with location. Materials do vary by location, but not as much as the other elements.

[GuitarStv]

ABSOLUTELY, houses only GO UP in value. YOU CANNOT possibly ever lose money on this half a $M house that is made of about $40K worth of materials !!!!

How does the price of materials have any bearing on the value of a house?

It's not a direct relationship but a house with better/more materials is generally more expensive. When the price of the house decouples from it's underlying value is when you should really start to worry.

Either that or hope you wont be the one that will end holding the bag when the bottom falls out.

So, in your mind the price of houses in every big city in the world is about to collapse?  That is a really odd way to look at things.

To me the price of a home is a combination of the value of the land, the value of the original building materials, the quality of the craftsmanship, and the upkeep that has been done on the home over the years.  I'd wager that the majority of homes in North America are valued well above the cost of building materials . . . and that percentage gets even higher if you look at the UK.

[2Birds1Stone]

Never, for reference my SO and I rent for roughly 10% of our net income and this is INCLUDING all utilities/maintenance/lawn care/Wifi.

I would be willing to go to 20% of net all inclusive for housing.

[mpg350]

Nope.

[Sunshine Saver]

Ouch!  As a fellow HCOL resident, I sympathize.  I made a mistake like that once, 50% of my gross went to housing...  You'll make your own decision, but I'll share my rollercoaster lessons learned during the last HCOL "hot" real estate market:

In 2004, I bought a 1100 sqft HCOL condo for $350k, paid nothing down (although I had about 10% saved) because financing was easy to come by in those days and I had great credit.  When I look back at the stats, I shudder:  $65k annual income, monthly housing payments of: $1700 mortgage, $400 taxes to escrow account, $300 HOA fees, and $360 interest-only HELOC that slowly increased to over $500 in the subsequent 2 years (thanks to a variable interest rate typical of HELOC).  Because I was in my early 20s, it was easy to live cheap; work offered a lot of perks & I had a roommate who paid $700 rent.  From the start, I was dilligent enough to work on paying off the HELOC, but it took a PAINFUL 8 years to accomplish, most of the traction happening in years 6-8.

Housing prices continued to rise - I gained $150k in equity in 18 months.  Fast forward thru the housing decline 2006-2010, and the value declined 20% from my purchase price (oh by the way my income decreased during the recession too).  While I never went "underwater", there were times that I would have walked away with close to $0 after transaction costs to sell... and I kept roommates for 7 years to offset HCOL costs.  Of course, my income increased substantially and the housing market began to recover about 5 years ago.

^
this story is exactly why the last housing crisis occurred.  I never missed a payment, but most people in my place would have.

[ender]

We're at about 30% or so after doing all that (after tax, tithe, and 401k) and that still feels high. I can't imagine going almost double that too.

[fuzzy math]

I would wait to find the right property that has a separate additional dwelling unit that would make it affordable and profitable to buy.

I live in the portland metro area and just bought a home where my mortgage + other costs equals what rent would be. I wish we had been able to get an ADU, but we were buying on the low low end of the market and getting outbid. :-/ so obviously take my advice with a grain of salt

[Jim2001]

+1 for getting approved by a lender so you know where you stand.  While there are guidelines on the percentage of your income that should go to housing, you'll have assess that yourself.  Take a look at a couple of years worth of spending habits to see what your monthly budget can really handle and what can be trimmed.  I regularly download all my banking transactions and keep a spreadsheet so I'm confident with the numbers of "I can live on" versus what "I like to live on".

Keep us posted.

[undercover]

Am I reading the same post that most of the replies here have read?

I think many people here are skimming over the fact that you're counting 1/2 your net income as (1/2)(Gross - Taxes - Savings - 401K - Insurance). So that's not really 1/2 your income. That's more like 1/3 after tax and probably like 1/4 of gross. if you don't include all of the subtractions you already made. Already I can guarantee you can afford it.

So the real question is, can you comfortably live off of $3,150 a month? After your housing is already paid of, I don't see how on earth you couldn't live off that amount and still probably have plenty of savings.

[Jeremy E.]

I was going to suggest that taking out a mortgage amount equal to half of your annual income was something I actually considered prudent.  Say, buying a $75k house with $150k of income, for example.

But it sounds like you meant to say that the annual payments would be half your income?  That's so facepunch worthy my knuckles hurt.

These were my thoughts exactly

[nessness]

Given your updated information, yes, I think you can afford it. It sounds like you'll still have more than $1000/month leftover AFTER subtracting "savings." But if the house is that much of a "bargain", they may have intentionally priced it low to start a bidding war and it will go for way more than list.

[ender]

Am I reading the same post that most of the replies here have read?

I think many people here are skimming over the fact that you're counting 1/2 your net income as (1/2)(Gross - Taxes - Savings - 401K - Insurance). So that's not really 1/2 your income. That's more like 1/3 after tax and probably like 1/4 of gross. if you don't include all of the subtractions you already made. Already I can guarantee you can afford it.

So the real question is, can you comfortably live off of $3,150 a month? After your housing is already paid of, I don't see how on earth you couldn't live off that amount and still probably have plenty of savings.

To be fair, when you make a post and basically hide all the relevant information... don't be surprised if people assume things.

the mortgage/taxes/pmi/insurance on it would be around $3100-$3200 all in which is nearly half my net income (after taxes, 401k, healthcare and savings).

It's not clear from the OP that the OP makes $12k a month.  When you obfuscate the important information it's not surprising you get fairly meaningless responses.

[undercover]

To be fair, when you make a post and basically hide all the relevant information... don't be surprised if people assume things.

In the OP, unedited:

While I can throw together a downpayment (10%), the mortgage/taxes/pmi/insurance on it would be around $3100-$3200 all in which is nearly half my net income (after taxes, 401k, healthcare and savings).

How could that information possibly get misconstrued? You could even make a rough guess of his income from that information alone. His gross income doesn't even matter in this situation. The fact that he'll still have ~$3,100 left over after housing, 401k, savings, and health insurance clearly means he can afford it. It was evident from the start that his definition of half his income wasn't what most's would've been.

[ender]

How could that information possibly get misconstrued? You could even make a rough guess of his income from that information alone. His gross income doesn't even matter in this situation. The fact that he'll still have ~$3,100 left over after housing, 401k, savings, and health insurance clearly means he can afford it. It was evident from the start that his definition of half his income wasn't what most's would've been.

How much is OP putting into 401k?  How much is OP saving? How much does OP's healthcare cost? We don't know. We can assume, but we don't know.

Let's pretend that the OP is putting $500/month into 401k and $500/month into savings. That means the OP makes... about $8k a month, give or take. Would that be a different situation than making $12k/month?

Or what if OP was saving $10k a month total between 401k/savings and is instead making well over $200k - would that make any difference?

[undercover]

I guess my point is that if he is meeting his 401k and savings goals, paying his housing, and still has $3100 to play with, it doesn't really matter what % of his income it is since $3100 is an extraordinary amount of wiggle regardless of where in the US you're living if you're housing is taken care of.

[iwasjustwondering]

I guess my point is that if he is meeting his 401k and savings goals, paying his housing, and still has $3100 to play with, it doesn't really matter what % of his income it is since $3100 is an extraordinary amount of wiggle regardless of where in the US you're living if you're housing is taken care of.

Yes, I agree.  Also, if he's going to end up paying rent of nearly $3,000 anyway (his $2200 deal is supposed to be both unusually good and about to end), then he'd be a fool not to buy.  Even if the price of the house drops after several years, he'll still likely have some equity.  If he rents, he'll have exactly none. 

It's easy to say he should buy a $75K house, but if you live in a HCOL area, that would get you something in a very violent neighborhood, or unsafe in other ways, like polluted drinking water or factories nearby.  No, thanks.  I lived in Allston, MA for a year out of grad school.  The rent was cheap, but we couldn't keep up with the cockroaches, you had to step around syringes in the parking lot, and every few days, the water turned brown.  We didn't drink it, but we showered with it.  Our skin itched for a year.  It was less fun than it sounds.   

[Zamboni]

My motto, when house shopping, was "if I don't buy this house, there will always be another house I can buy." You might want to keep this in mind and not rush into something just because it seems like a good deal. Usually "good deals" have hidden strings (major maintenance issues, as just an example.)

[LeRainDrop]

Would I take a mortgage that is half of my net income?  Absolutely.  I would take a mortgage that is double my net income, maybe even higher.

Would I take a mortgage whose monthly payment (principal, interest, taxes, insurance) is half of my monthly net income?  Absolutely not.  My personal limit would probably be no more than 30% of my net income.

[Bee21]

No. I did that once (when I was young and stupid and it seemed like a very good idea at that time as the mortgage on a studio would be just a bit more than what I spent for a room in a house with 2 roommates and I had 20% deposit), and it was a disaster of epic proportions. Because shit happens. Things you can't control happen. It happened to me and it can happen to you. I even planned for the worst case scenario, but what happened was actually about twice as bad as my worst case scenario. Let' s just say that as a result I started y  life from scratch in a faraway continent.

There is a young chick sitting next to me in the office, who just put an offer on a 820k house she admits she can't afford. Because it is close to the city and it is sooooo nice. She hopes they can make it work, because her husband is an accountant and he'll find a way. Well, I am crossing my fingers. I don't know how much the husband makes, but I know her pay (same as mine), and she definitely can't afford it. It is frustrating to see a financial trainwreck getting steam next to me without saying anything, but I can't say her anything. I just wish somebody from her family or friends told her not to do it. All I could do is I showed her the repayment calculator from the bank and told her an anecdote of how my neighbours paid about 50k in selling and moving costs when they sold their 550k house. Because she thinks that if it doesn't work out they can just sell it without losing much money.

[Cyaphas]

Don't do it. Not now, not ever. Being house poor is still poor. Being poor while you're still working sucks. Everyday you're going to wake up poor. Everyday you go to work you're going to be going to work for a bank note. Don't do this.

There are a lot of other good reasons listed above, but the psychological toll of doing this everyday will wear on you. It did me. You're also running your numbers with the economy of today and hoping for a good economy of tomorrow. As I and a few others on here found out, the economy of tomorrow can be devastating. You don't have to plan for the worst, but I suggest you try to atleast plan for semi-not great.

[LeRainDrop]

Half of me says go for it because it will get us into a locked in mortgage *AND* force us into pretty frugal living which would continue even after my wife starts working again. The other half of me is scared shitless to have a debt that size and a monthly payment that large. Thoughts? Facepunches?

This sounds like living with a noose around your neck just hoping you don't kick the bucket.

[badger1988]

I was going to suggest that taking out a mortgage amount equal to half of your annual income was something I actually considered prudent.  Say, buying a $75k house with $150k of income, for example.

But it sounds like you meant to say that the annual payments would be half your income?  That's so facepunch worthy my knuckles hurt.

These were my thoughts exactly

That makes three of us. At first I was wondering why this question was even being asked. I thought maybe it would be some guy making 800k per year and was trying to justify taking out a 400k mortgage. Turns out we're talking about a mortgage that is more like 15x income (assuming 30 year mortgage).

[brant08]

Depends on what % of your net income is going over to 401k and savings.

Our monthly net income (after fully maxing 401ks and our dependent FSA) is $15k.  We have major childcare expenses (3500/mo).  Our mortgage plus Taxes and insurance is $3550 (house was $680k).  But we put $5k/mo or more into savings.  So if you look at "after savings" we are close to the 50% mark, but we could always put less into savings of things got tight.  And we could continue to make our mortgage of one of us lost our job (and we have a well into the six figure savings account/emergency fund).

I think one concern would be what happens if you lose your job.  For how long could you make payments?

[Guses]

So, in your mind the price of houses in every big city in the world is about to collapse?  That is a really odd way to look at things.

To me the price of a home is a combination of the value of the land, the value of the original building materials, the quality of the craftsmanship, and the upkeep that has been done on the home over the years.  I'd wager that the majority of homes in North America are valued well above the cost of building materials . . . and that percentage gets even higher if you look at the UK.

I don't know about collapsing, but sideways or slightly down is definitely a long term possibility. Look at Toronto in 1989.

I am just saying, if you are going to leverage yourself 20 times to buy a million dollar home, make sure that you don't need "house appreciation" to stay afloat... Not a comment on OP, I know that's not what he is planning.

[big_slacker]

If you are in the greater Seattle area that house will probably go for well over 500k.  Average time on the market is currently only 8 days, and most houses have mutliple offers with no contingencies, escalation clauses, and often all cash/quick closing.  It is insane.  Curbed has some good examples (like the house on Phinney Ridge that listed for $900-something and sold in 5 days for $1.3 million a few weeks ago...) Given this is going to be such a big portion of your income, I would wait until your wife actually has a job and you know what your longer-term income/expenses are going to be. 

I do sympathizze -- having to rent for a year while we wait for our apartment in Beijing to sell.  And then we are going to be one of those parties driving the prices up (plan to pay all cash....)

Yep, eastside. Bellevue/Redmond.

We decided to hold off due to all of the above. Market is crazy, even people going way out (Carnation, etc.) are doing the multi offers above asking with escalation clauses, quick closing, etc. I'll continue to just stick my $$ in the market, race the appreciation and wait it out.

[honeybbq]

If you are in the greater Seattle area that house will probably go for well over 500k.  Average time on the market is currently only 8 days, and most houses have mutliple offers with no contingencies, escalation clauses, and often all cash/quick closing.  It is insane.  Curbed has some good examples (like the house on Phinney Ridge that listed for $900-something and sold in 5 days for $1.3 million a few weeks ago...) Given this is going to be such a big portion of your income, I would wait until your wife actually has a job and you know what your longer-term income/expenses are going to be. 

I do sympathizze -- having to rent for a year while we wait for our apartment in Beijing to sell.  And then we are going to be one of those parties driving the prices up (plan to pay all cash....)

Hah, do you have a link to the house? I live on Phinney Ridge. Yes, have a face punch worthy expensive house, but... what can you do in Seattle? Live under I-5?