Is your housing cost 25% or less of your take home pay on a 15 year loan?

[DawnM]

We bought our house PRE-Dave Ramsey (well, we do a similar program, but I know there are many DR followers here).

We DID refi to a 15 year loan in December.

Our mortgage is more than 25% of DH's take home (I am not currently working and we have chosen that lifestyle for now due to several factors so me going back to work right now is not an option.)

We had planned to sell the house but honestly, in the market right now, I don't think we can anyway, so this discussion is probably not even worth an argument, but.....

I feel our mortgage is too high and eats up too much of DH's take home. I feel we could live much better if we had a smaller house and smaller mortgage. We are also looking at 3 kids in college and it will come before we know it!

DH wants to just stay where we are. He has several reasons for this. 1. He feels his salary will increase and we will eventually be paying 25% or less of his take home towards the house. 2. We haven't found much we like when we look at downsizing. He won't give up owning a few acres, so we would be looking at moving even further from his job. 3. We live in a very nice area with the best schools around. We currently homeschool, but should the need arise, we would not worry about the local schools if we put them in public school. 4. It is a huge hassle to move. 5. He really likes this house, area, and our large piece of property.

I am not asking about taking sides at all. We aren't in a huge fight over this. I am just curious what you would do/advise or what you already have done.

The acreage is a non-negotiable for DH. He hates sub-divisions and won't consider living anywhere where we can see in our neighbor's windows from our house.

Dawn

 

[Gr8t Fan]

Our housing cost is more than 50% of our take home pay (DH is a SAHD), but we're on a self-imposed accelerated payment plan to pay it off before our oldest DD starts college. Sometimes things are tight, but it's a challenge to us to try to make our $$ stretch. We use every opportunity we come across to teach our kids about the choices we make -- go out to eat, or buy groceries for 3-4 days with the same amount $$, stay onsite at WDW or offsite for a longer period of time, etc.

We've been in our home for 15 years and I wish we'd opted for a 15 year when we bought. We thought the payments on a 15 year were too much and we were both working!!! Well, you live and you learn. We refinanced down to a 15 year and then a 10 year (Wells Fargo no cost refinance for existing customers) and we just want it gone now. We have until December, 2014 but it will be gone, God willing, by May, 2012.

We're comfortable knowing that our income to debt ratios are off because it's short-term and self-imposed. Also, we're fortunate to have an emergency fund available when we can't make our $$ stretch as much as we'd like.

 

[*pixie*dust*]

Don't get locked into the 25%. While DR has some great advice and plans, everyone is different. If you haven't found anything you really love and DH wants to stay put anyway, I dont think I would put DR's recommendations as the absolute law.

added:
Oh in my case, my housing cost is about 29% of my take home pay. I am comfortable with that.

 

[DawnM]

So, do you have to pay that amount each month or do you make additional amounts in payments.

We really aren't hurting, but we have had to budget carefully. We have 6 months of income saved and are still able to take frugal vacations, including Disney vacations.

I guess I like more wiggle room in the budget and feel a bit squeezed, but the noose isn't so tight that I can't keep at it.

Dawn

Our housing cost is more than 50% of our take home pay (DH is a SAHD), but we're on a self-imposed accelerated payment plan to pay it off before our oldest DD starts college. 20 payments to go! Sometimes things are tight, but it's a challenge to us to try to make our $$ stretch. We use every opportunity we come across to teach our kids about the choices we make -- go out to eat, or buy groceries for 3-4 days with the same amount $$, stay onsite at WDW or offsite for a longer period of time, etc.

We're comfortable knowing that our income to debt ratios are off because it's short-term and self-imposed. Also, we're fortunate to have an emergency fund available when we can't make our $$ stretch as much as we'd like.

 

[Liberty Belle]

Our mortgage is almost 40% of DH's take home pay right now. I was pink slipped in June and haven't found another job yet. It's been a bit of a struggle, but we're still making it to WDW without charging any part of the trip. Oh, and that's a 30 year mortgage, not 15, unfortunately.

If you have an emergency fund, are able to take vacations, and are able to save for college, I'd stay. Then again, I'm very low maintenance.

 

[JamesMom]

Before I begin, I think sometimes Dave Ramsey doesn't live in the real world.

If we followed his advice back when we bought our home we never would have gotten into a home. In 2003 we got a 30 yr note on our house. I was pregnant and, at the time, the only one employed (Hubby suffered from the post 9/11 IT recession). Our payment was 30% of our take home before paying 20% in childcare once our DS was born. We live a 'starter home' community where I had a 45 minute each way commute - we did not overbuy our home. We bought with the intention of living in it for the entire loan period and just big enough (no media room/rec room or granite countertops)to raise our family with a great school district & community ammenities.

Flash forward to present day. Hubby's career rebounded, in a big way, and now I am a stay at home mom to 2 boys. We are in the process of refincing to a 15 yr note (if paid on schedule = 22 years total of payments). The new payment is $100 more than the 30 yr and represents only 22% of our take home (after taxes, insurance, 401k deductions). But we also know that if 'life happens' again we can afford to stay where we are at and keep 6-9 months of emergency funds in the bank.

The benefit? We got to LIVE in our home instead of paying rent and slaving to save up a big enough down payment for the initial 15 yr note.

I think DR guidlelines are good to teach one common sense and then use that common sense as it applies to your specific situations.

 

[Gr8t Fan]

We don't HAVE to pay the additional amount each month but we do, short of a natural disaster . We have always paid about $225 more each month. When I ran the numbers recently, I saw that by sending in an additional $600 (on top of the $225) we could pay it down in 24 months. Suddenly that seemed like such a concrete goal - it was no longer a date in the far future, but actually very attainable. So we sat the kids down and told them that the vacation we took this past August would be our last big trip for awhile (because it was already paid in full). We will still visit Orlando next summer, but stay offsite and try to keep costs down. The following summer we'll be debt free and I told them I might consider splurging for a deluxe Disney resort, but they resisted saying it would be too much, and after pricing them out, I'm resisting too. Even the MOD FW Cabins (we're a family of 6) are about $1,800 more than two rooms at a Value.

And we approach everyday life this way too -- we try to keep costs down no matter what we're doing. Eating out vs. eating at home, going to the movies vs. renting from Redbox, buying "stuff" vs. doing things together, recreational shopping vs. thrift store shopping (for things that we need), etc.

I realize that the way we do things probably wouldn't work for most people, but we're all "generally" on board with the plan, so it works for us. And without specifically saying how much $$ we make, it's less than $50K per year. My sister is constantly amazed at how much we do with the $$ we have, when she and her DH both work, have no kids and try to account for where their $$ has gone at the end of the year.

 

[neatokimmo]

I think acreage is a wonderful thing to have and worth paying extra for.

My situation now is weird, I have a small house I live in and a larger house I am selling. I had no loan on the little one and a big loan on the big one until I refinanced and even them out at 3.25% for 15 yrs. Together they are 45% of my take home pay (take home for me is after daycare costs too).

When the big one sells (if I don't pay off the little one), my percentage will be 14.4%. I might stick the equity from the big one into an investment account.

When you say you are over 25%, is it a lot over? If it were even up to 35%, I would take that hit just for the land.

We bought our house PRE-Dave Ramsey (well, we do a similar program, but I know there are many DR followers here).

We DID refi to a 15 year loan in December.

Our mortgage is more than 25% of DH's take home (I am not currently working and we have chosen that lifestyle for now due to several factors so me going back to work right now is not an option.)

We had planned to sell the house but honestly, in the market right now, I don't think we can anyway, so this discussion is probably not even worth an argument, but.....

I feel our mortgage is too high and eats up too much of DH's take home. I feel we could live much better if we had a smaller house and smaller mortgage. We are also looking at 3 kids in college and it will come before we know it!

DH wants to just stay where we are. He has several reasons for this. 1. He feels his salary will increase and we will eventually be paying 25% or less of his take home towards the house. 2. We haven't found much we like when we look at downsizing. He won't give up owning a few acres, so we would be looking at moving even further from his job. 3. We live in a very nice area with the best schools around. We currently homeschool, but should the need arise, we would not worry about the local schools if we put them in public school. 4. It is a huge hassle to move. 5. He really likes this house, area, and our large piece of property.

I am not asking about taking sides at all. We aren't in a huge fight over this. I am just curious what you would do/advise or what you already have done.

The acreage is a non-negotiable for DH. He hates sub-divisions and won't consider living anywhere where we can see in our neighbor's windows from our house.

Dawn

 

[ICF]

Who cares if DR says you shouldnt have a payment more than 25% (at least based on your post I'm guessing that's what he must say)???

If you can afford the payment, and are happy where you are at, why move??

Downsize once the kids are gone, I'd stay where you are at right now unless your mortgage is giving you financial problems.

 

[tlbwriter]

We are below 25%, but we live in an area where housing costs are low.

 

[rszdtrvl]

It is close. Probably a bit less than that when you account DH's holiday pay over the course of a year.

We just refinanced and went from a 30 year to a 15 year fixed a couple months ago. We will make our second mortgage payment tomorrow.

Our mortgage went from $670 to $720. But we lost 8 years from our mortgage by going to a 15 year, and we can still afford the extra $50/month payment, so we did good!

Our house was only $82,000 (3 bedroom, 1 bath, HUGE fenced backyard), and I think we got a great deal. We love our house, and it was all that we wanted in a home.

 

[bettymae1121]

I think that unless you live in a REALLY cheap COL area and make a very high wage, it's pretty tough to have a 15 year note and still have your mortgage be only 25% of your take home pay.

We have a very cheap (for our area) home and we make VERY good money, but our 30 year mortgage payment (including taxes/insurance) is 27% of our take home. To buy the same home and have a 15 year note be only 25% of our income, we'd have to make something like $130k a year, or live in a house worth only $100k or so (which in this area you'd be living next to a crack dealer).

While the 25% rule is a good general guide to making sure you aren't overspending on a house, at the end of the day you need to look at your current income, potential income, overall job security, current and future expenses, other savings/spending goals, number of children you have/plan on, retirement goals, etc. What is affordable to one family is out of reach for another, even if they have the same income. One needs to look at the total picture and see what works best for them on an individual basis.

As it is, we are happy with our cheap mortgage, and with no car debt and a plan to be CC debt free in about 18 months or so, we're not worried about having a 30 year loan. If we ever move to a new place, I want to look at a 15 year loan rather than a new 30, but as things are we're pretty happy.

 

[eliza61]

Who cares if DR says you shouldnt have a payment more than 25% (at least based on your post I'm guessing that's what he must say)???

If you can afford the payment, and are happy where you are at, why move??

Downsize once the kids are gone, I'd stay where you are at right now unless your mortgage is giving you financial problems.

I live in high COA area (philly) now. I use to live in Manhattan, I was lucky my mortgage was only 33% of my take home.

Personally Dawn,
You've got a lot of pluses that I would find hard to give up.
You & Dh love the area +++
You haven't found much you like. +++ Have you ever woken up day after day in a house you hate? I have, not fun. especially when you know you maybe potentially spending 10 years there.
You're not struggling to pay the mortgage are you? +++
Public schools are good++++ I know people who routinely shell out 10K to keep their kids in catholic or private school simply because the schools in the area are crap.

Basically don't discount all those "non monetary" things.

 

[indimom]

Ours is 20%. We are on a 15yr mortgage, with 13yrs remaining. We'd like to have the mortgage eliminated before our second child reaches college age (8 years), but I doubt we'll manage it unless there is a serious turnaround in the economy. DH hasn't had a raise in 3 years and hasn't had the opportunity for regular overtime for longer than that. My work has been slow as well for the last year.

Unless you are worried about the security of your hubby's job or you see bigger expenses looming on the horizon and don't know how to budget for them (new car, new roof, medical expenses), I would stick with where you are.
Moving is an expense in itself - don't forget that. It costs a lot to move, get a new loan, deal with selling (especially with the housing market the way it is right now).
And having a good school system as a back-up option if you had to get a job is pretty important also.
It sounds like you aren't hurting and if you're worried you could chuck a little more into the emergency fund just for security or skip a vacation one year or make cuts elsewhere, but you don't sound like you are in trouble to me.

 

[crisi]

Rules of thumb are useful, but not absolute. Everyone is different.

To answer your question, we just took out a mortgage on a paid for home to buy some 'investment' property - but its less than 25% of our take home.

To comment, if you are comfortable, I'd stay. It sounds like you can deal and have a place that would be hard to replace - close in enough for a reasonable commute with land - which is what you want. I'd ask yourself some additional questions. i.e. you are being a SAHM and homeschooling, but if it were a choice between that and the house you are currently in, would you move or work? If the answer is move, I'd consider moving now or near term rather than when you are under pressure to do so.

 

[tinkerbelletreasure]

IA with everyone else...now if you have sizable credit card debt and struggling to make ends meet, that is a different story, but I think financially responsibly people can spend a little more of the income on housing when they don't have all the other financial drains.

 

[savannahcat]

Ours is about 22% with a 20 year loan., but we routinely pay extra toward the principle which drives it above 25%.

When I return to work in 2012, I plan to put half of my earnings toward paying off that mortgage. We want it to be long gone before DD7 graduates from HS.

 

[scrapquitler]

We bought a house that cost a lot less than what we could 'afford'. Our 15 year mortgage is about 20% of DH's take home pay. We are only about 4 years from having it paid off. We've had the conversation about selling and buying something else, but honestly, in our area, even a smaller house than ours would cost more now than what we paid.

 

[Purseval]

We had planned to sell the house but honestly, in the market right now, I don't think we can anyway, so this discussion is probably not even worth an argument, but.....

Unless you think you can absorb a loss and still make your next purchase acceptable and affordable you've answered your own question right there.

 

[DawnM]

Thanks all for reading and responding.

I believe our housing is currently 40% of DH's take home income. If DH starts getting raises at the same rate he used to it could potentially drop 3-5% per year. But we aren't holding our breath.

We are in good financial shape. We do not owe on any cars, cc, or student loans. We only have our house loan and we do have 6 months' emergency fund saved up.

Overall we are in the best financial shape we have ever been in, and I think that is why I am somewhat panicked over the entire thing......I would love to have a full 12 months' in our emergency fund, a sinking fund for a car should we need it, and college funds set up or a mortgage fully paid for by the time we need to pay for college (and I can go back to work at that point if needed as well.)

Anyway, thanks for listening, I sometimes need to step back from the panic I can bring on myself when it isn't warranted, so your advice is much appreciated.

Dawn