House cost 2.5X annual salary or 42% month income? need help

[Grand Canyon]

House cost 2.5X annual salary or 42% month income?

In my younger days I was always told not to spend more than 2.5X my annual salary on a house. The last home I bought (1994) we were told we could spend up to 42% of our monthly income after deducting recurring credit payments (CC, car, ect..)

I will be moving soon to DFW area and I am trying to set a reasonable spending limit on a new house. We have no credit card debt but will probably always have a car payment of around $600/month. I have 3 kids, and my wife is a domestic goddess. We have been renting for the last 11 years (we live in a National Park) so I have kind of been out of the real world for awhile. I am going to use my VA loan so now down payment.
My new job will have a salary of $87k/year with some overtime pay. We have grown used to living on $100k+/year and I know my DW and Kids do not know what it means to live on a budget.

So here is my dilemma :
1. Buy a smaller house for around $150k on a 30year note and not change our free spending habits.
2. Buy the house of my dreams for around $230k on a 30/year note and put the family on a real budget
3. Buy the smaller house for around $150 on a 15 year note and put the family on a real budget.
4. Other?? Your ideas

Thank You

 

[donnajon]

How soon do you have to make a decision? Maybe you could live like you had the $230,000 house for the next few months (and with Christms coming up, it would be a real test) and put the money you would need for the extra house payment into savings. Then when you move, you have gotten used to living on a budget and have a little money saved to decorate the new house. If you find it too uncomfortable to live on this budget, then you know to go with the smaller house.

 

[Grand Canyon]

I have tried to limit the family to my basic salary for the last 12 week, i.e. we have to save the over time pay. It has been hard

 

[Planogirl]

It's going to depend on where you live and how much house you want. You can get a decent size house for 150K but how much size depends on the area.

I would decide where you'll be and what you really want. Are you pre-approved? The interest rate will make a difference too.

We bought a 150K house some years ago but there is only three of us so we didn't need that much room. It's a buyers market right now!

 

[The Mystery Machine]

You will be lucky to afford the electric bills in DFW. They are a killer.

 

[Tinijocaro]

You can get a decent size house for 150K but how much size depends on the area.

This is not true everywhere-it really depends where you are moving.

 

[WDWBarb]

I'd buy the less expensive house and get a great bargain in the current market. It will be worth much more when the market recovers.

 

[clarabelle]

I would go with less expensive.
You are going to want to be able to make repairs and upgrades to the house.
And you are going to want to travel.
I have my "dream house" and sometimes I fantasize now about a tiny house!

We can well afford the house -but it always needs something. Right now we need new carpet in the basement and some trees out -in addition to several rooms needing painting!

 

[Disney Doll]

I never wanted to be "house-poor"...ie- I never wanted to not be able to do the fun things I like (like going to WDW) because my house cost too much. I never wanted to be one of those people who lived in a McMansion with no furniture because the house cost so much I couldn't afford to furnish it. But, I was always never one for whom "stuff" or "status" was a big deal...never needed the most expensive car, the biggest house, the lastest "gadget". I grew up in a 5 room Cape Cod style home, my father was a cop, my mother was a SAHM, and I am a contributing member of society and not a serial killer. So, living with less is not a precursor to a bad life.

When we bought our house, we were pre-approved, mortgage-wise, to spend MUCH more on a house than we actually did. Basically, we decided to buy a house that either of us could afford alone if, God forbid, something happened to the other and we only had one income. Now that the real estate market has slowed, our house is still worth WAY more than we paid for it, so we're OK. Since DH is a realtor, that slowed market has also affected our income slightly, so having "less" house than we could have had is quite helpful in terms of budget.

The way I see it, you and DW have to be on board with whatever decision you make, and then the 2 of you together reign in the kids.

 

[BuzznBelle'smom]

I feel your pain! We moved last year, and had to go with a smaller, more expensive house. Including our taxes, our monthly payment is 3X what it used to be (we didn't pay monthly taxes at the old place, but have to here--yikes!).

My vote would be for buying the nicest $150k house you can afford, on a 15-year mortgage. I say that because I'm guessing you're 40-ish, and I don't like the idea of having a mortgage when you retire. Also, I think it would be good for your family to be realistic about budgeting. Not that anyone has to live like a hermit or anything, but the sooner you all get used to the idea of not getting every want, the better--especially for the kids. The process of saving up for something important is a valuable life lesson.

You also might want to reconsider always having a $600 car payment--yikes! That's really steep. Is it somehow related to work?

Above all, make sure you and your spouse are on the same page. It's very important to present a "we're all in this together" attitude towards the relocation. When we moved, we'd been in our old town over 20 years, my kids knew nothing else. I think it helped whan I told them I was scared, too, but I believed this would be good for all of us.

 

[CaliforniaDreamin]

We have a small house, but it's comfortable. It's not a financial strain each month to pay the mortgage. I'm telling you, piece of mind is priceless. We would not have been able to do all the extras over the years if we had picked a bigger house.

My 2 cents is, Get the 150k house with a 30 year note and make just one exta payment during the year toward the principle only. This will cut the 30 years in almost half.

I guess the best way to think about it is imagine if you lost your job....could you still make the mortgage and utilities comfortably?

And I don't know who told you 42%, but I think that is extremely high. When we were house shopping we were told 28%. But then again, we have been in our house for 14 years, so maybe things have changed. I just want you to be able to enjoy your house and you won't if that mortgage is something you dread every month.

Putting your DW and 3 kids on a budget may sound easy, but it won't be. I have 2 teenage girls. They nickel and dime us to death. I spend way more on sports and school activites for them than I do for just about any other expense, including DH's truck payment. Good Luck!

 

[englishteacha]

I would buy a house that you'll be comfortable in, but that you can afford comfortably. Does that make sense? Dave Ramsey's guideline is that no more than 25% of your take home pay should be your housing cost. I think that's a good rule of thumb. Our home is tiny, but was very inexpensive. If something were to happen to either of our incomes, we could still stay here and be OK. We might have to give up the luxury of satellite TV and I'd definitely have to cook more, but we'd be fine.

 

[hoosll]

I am always in favor of modesty in housing ... the dream house can be achieved by being comfortable in any house because you can afford it ....

You don't say how old your children are ... do you plan for them to go to college? How do you plan to pay for it? If you plan to use the equity in your home, then I would vote for the 150k/15 year plan with strict budget ... this will grow equity at the fastest pace and if the budget is sold to the family on the promise of help paying for college then you can get family buy-in ....

If it's too late to build equity for college, I would go with the 150K/30 year plan. which will lower your monthly payments allowing more income to be used for savings for college expenses.

I would buy the least expensive home in the best school district that I could find.

 

[KirstenB]

I never wanted to be "house-poor"...ie- I never wanted to not be able to do the fun things I like (like going to WDW) because my house cost too much. I never wanted to be one of those people who lived in a McMansion with no furniture because the house cost so much I couldn't afford to furnish it. But, I was always never one for whom "stuff" or "status" was a big deal...never needed the most expensive car, the biggest house, the lastest "gadget". I grew up in a 5 room Cape Cod style home, my father was a cop, my mother was a SAHM, and I am a contributing member of society and not a serial killer. So, living with less is not a precursor to a bad life.

When we bought our house, we were pre-approved, mortgage-wise, to spend MUCH more on a house than we actually did. Basically, we decided to buy a house that either of us could afford alone if, God forbid, something happened to the other and we only had one income. Now that the real estate market has slowed, our house is still worth WAY more than we paid for it, so we're OK. Since DH is a realtor, that slowed market has also affected our income slightly, so having "less" house than we could have had is quite helpful in terms of budget.

The way I see it, you and DW have to be on board with whatever decision you make, and then the 2 of you together reign in the kids.

This is us too. Frankly, I love not being on a budget. I'm frugal by nature, our house cost less than we could afford, and we have money whenever life comes at us fast!!

The only piece of advice I'd add is, buy a house with enough land to where you can add onto the house if you need/want to. We've done a couple of additions, and I'm really glad we could.

 

[Grand Canyon]

A quick poll favors keeping the house cost low.
I have been house poor many years ago and don’t relish the thought of going back to that.
I am 45 the kids are 4,10, and 13.
We do spend a lot on kid’s sports. Most games are away game that requires driving 200 miles or more round trip.
My new job will be in Denton TX
We are looking at homes in the Denton area (Corinth, Denton, Providence, ect)
I would like keep my drive as short as possible.
I need good schools, nice neighborhood, a low maintenance house (less than 10 years old), that is close to work.
I know I want it all.
I do think this will be the last house we buy so I also want to like it.
I grew up in Plano TX and was raised very house conscious.
I thank you all for the support. Got to go to work

 

[DMickey28]

We are just about to close on our first house and kind of went about getting to the price point backwards but everyone thought it was smart.

We decided how much we could afford on a monthly basis for mortgage, taxes and insurance. We added in a monthly amount for savings for homeowner expenses, then we figure out based on a current finance rate average what we could afford.

We are closing on our first house in 11 days. We were approved for more than 3x's what we ended up buying. Our house is 1.42x DH's yearly income. We got a great bargain but we worked on getting to that point from a monthly basis.

This was also in an EXCELLENT town, top two school districts in the state, top 1500 in the country. Very quiet but with all the amenities you could want within 10 miles. The taxes are high which caused the price of the house we were comfortable with to go down but it was worth the trade off for the entire thing. We are on a small street on a cul-de-sac with an acre of landscaped land. It's perfect for us.

Good Luck.

 

[The Mystery Machine]

We are closing on our first house in 11 days. We were approved for more than 3x's what we ended up buying. Our house is 1.42x DH's yearly income. We got a great bargain but we worked on getting to that point from a monthly basis.

So you only have 11 more days until you guys can be together again? Hurray! Hang in there.

 

[kymom99]

I have lived 19 years in a modest house with a low payment. Last month we were ready to put in a bid on a house, still in our budget, but in a better area. We weren't looking, but it came on the market and we didn't want to miss the opportunity. Then the bottom fell out of everything and my husband lost his job. We could have afforded the new house, but we were not ready to sell our current house. We would have had 2 house paymenys and we would have been in deep trouble! Luckily we had not gotten so far along in the process that we couldn't turn back.

So, I say buy the less expensive house and relax in the knowledge that you can easily afford to pay for it and enjoy life too!

 

[Grand Canyon]

We are just about to close on our first house and kind of went about getting to the price point backwards but everyone thought it was smart.

We decided how much we could afford on a monthly basis for mortgage, taxes and insurance. We added in a monthly amount for savings for homeowner expenses, then we figure out based on a current finance rate average what we could afford.

We are closing on our first house in 11 days. We were approved for more than 3x's what we ended up buying. Our house is 1.42x DH's yearly income. We got a great bargain but we worked on getting to that point from a monthly basis.

This was also in an EXCELLENT town, top two school districts in the state, top 1500 in the country. Very quiet but with all the amenities you could want within 10 miles. The taxes are high which caused the price of the house we were comfortable with to go down but it was worth the trade off for the entire thing. We are on a small street on a cul-de-sac with an acre of landscaped land. It's perfect for us.

Good Luck.

Wow congratulations, sound great!
I keep looking for that dream home

 

[Grand Canyon]

So, I say buy the less expensive house and relax in the knowledge that you can easily afford to pay for it and enjoy life too!

I think you are right
I spend way to much time at work already. A big house payment would just keep me at work more. There has to be more to life than work?
Thank for the advice.
Good night