What is the "rule of thumb" for how much house you can afford?

[Tink&SquirtsMom]

Wow! I can't imagine making payments on a house 3 times our annual income.

Don't ever move out to California then.

So do you do if your annual income X3 is not even remotely near the cost of a house?

Theres alot that can still be done... just not conservatively. In CA most mortgage brokers will tell you those rules don't even apply out here. When we were shopping for our first home the area we were living in had a median home price of over $500,000. Under traditional rules we did not qualify, but were still able to find many lenders that would approve us. In the end we decided to move to another area altogether for different factors, so we were able to get a traditional or more conservative loan.

Going above the traditional limits set can be risky, so its important to have a reputable lender and to be sure you are well informed about what you are doing, but it can pay off. If you are in an area where home prices jump quite rapidly (for example our current home jumped 100k in the one year since it was built), it can pay off to get into the market now, because the amount of additional money you would have saved for a deposit or made by an annual raise might not be as much percentage wise as the housing costs have risen (hope that is clear). But again its important to be sure about what you are doing and know that the majority of your paycheck will go to your home.

 

[EsmeraldaX]

I feel like it is SUCH a waste of money to rent. We live in a low income area full of, quite frankly, scummy people who I don't like being around and would never want to raise kids around, if I ever had kids. But it's the only place in the area where we can pay our rent and still have $$$ left at the end of each paycheck.

 

[gymnasticsmom68]

Esmerelda, I swear I read a post from you a while ago saying that you had no intention of buying a house for about another 10 years. In the next 10 years you should be able to either a) get a better paying job or b) move somewhere where housing is cheaper. Also if you're married at the time you'll use his income too.

The whole 'I'll never be able to do anything' attitude has to go. Get a better job, or go back to school or something. You can't sit here whining because life isn't perfect for the rest of your life, or you'll end up a very sad person.

BTW I bought my first house when I was 23, sold it 3 years later and bought another one, and now I'm building a house. You just 'do it' you don't think it to death.

 

[DisKim]

Esmerelda - my mother is a mortgage underwriter. You would be suprised to see the loans that get approved. I'm sure that you will be able to find something. If you look for a while, you may just be able to find something you can afford. If you have any mortgage questions you'd like me to ask her, just pm me. Good luck.

 

[soccerchick]

EsmerldaX--

You need to talk to a good real estate agent and/or a mortgage loan officer. There are TONS of options for financing a home. Your credit score also is a huge factor. DH and I settled on our current house today and we "buy" our new house next Tuesday. We don't make a ton of money, but we are comfortable. I also work just part-time to spend time w/our kids. However, when we started looking, we didn't think we'd be able to afford anything near what we are buying. In fact, we were really hoping to make a lateral move to another town w/ the equity in this home. Our agent quickly showed us that a house there for the same price as ours was buying down. She showed us some options for financing and we move into our dream home next Friday. It CAN be done. Please don't despair. We live in Northern Va, one of the craziest housing markets around. If we can do it, you can too.

Get some good financial advice and start planning from there. You are probably much closer to being able to own a house than you think! Good luck!

 

[gometros]

Originally posted by EsmeraldaX
Well, I have been looking for other jobs. No luck. And I don't know ANYONE my age around here who makes over 40K a year, degree or no.

Age has nothing to do with it. I'm guessing you're in your twenties. I know people around your age who make very good salaries. I know people older who don't. If you want something bad enough, you either do something to improve your situation or move to an area that does have housing you can afford. Housing prices vary greatly depending on what area of the country you live in. As someone pointed out, California and New York Tri-State area have some of the highest house prices in the country.

 

[Toby'sFriend]

anyone who can save enough money to go to WDW on vacation, can save enough money to buy a house. It sounds really corny, but life is all about choices. Sometimes we have to pick up a part-time waitressing job on Saturday, sometimes we have to give up our Florida vacations for a weekend camping instead, and sometimes it takes a 5 or 6 years to save for what we want.

But if you don't get started, you will never get there.

 

[gymnasticsmom68]

Originally posted by Toby'sFriend
anyone who can save enough money to go to WDW on vacation, can save enough money to buy a house. It sounds really corny, but life is all about choices. Sometimes we have to pick up a part-time waitressing job on Saturday, sometimes we have to give up our Florida vacations for a weekend camping instead, and sometimes it takes a 5 or 6 years to save for what we want.

But if you don't get started, you will never get there.

Good point. There doesn't seem to be any trouble saving for vacation.

 

[mbb]

our "conservative financial institution" would give us a lot more mortgage than we were willing to pay for

Here's our "rule of thumb":

Mortgage payment TOTAL had to be less than one weeks salary for DH. (That's based on the paycheque he received waaaaaay back when he became a pharmacist, and I'm a SAHM)

Works for us...we bought our "vacation property" last year.
Life is good

Lovin' our DVC!

 

[Tink&SquirtsMom]

Good point. There doesn't seem to be any trouble saving for vacation.

Well assuming each vacation she takes is costs about 2k, she'd need to be vacationing about 30,000 times a year to save the 60,000k required as a traditional 20% down on a $300,000 home, just by cutting out vacations. I know for us saving that kind of money was just not possible. And here the housing market jumped so fast that in the time it would take us to save 10k the homes would have jumped 50k. It may be hard to imagine depending where you are from but there are certain areas where just saving and living frugally still do not equal a house. And I don't think questioning her job or salary is helpful either. Its really not a great economy and I know many 20 somethings that would be thrilled to make 30k. Heck, they would be thrilled to find anything. So many people are out of work here that people are looking beneath their positions and that leaves young professionals just starting out with very few opportunities....

That said there are still things that can be done. EsmereldaX- just follow the advice of people here and seek out a mortgage broker. When we were first looking we had no clue what we qualified for or what to expect. I knew our income, and I knew the housing market was well afford what we should have qualified for. I was terrified we'd be laughed out of the office. We met with one who told us what we needed to work on, and helped us design a plan of action. We gave ourselves a deadline of 1 year to buy a home, and put the plan to work. 363 days after we started we closed on our first house.

 

[Bob Slydell]

Originally posted by Tink&SquirtsMom
Well assuming each vacation she takes is costs about 2k, she'd need to be vacationing about 30,000 times a year to save the 60,000k required as a traditional 20% down on a $300,000 home, just by cutting out vacations.

Ummm, 60,000 divided by 2,000 is 30, not 30,000.

 

[Tink&SquirtsMom]

Um... yeah thats what I meant. Also meant to say above rather then afford in this line.

And I knew the housing market was well afford what we should have qualified for.

Thanks for catching my slip up.

 

[Toby'sFriend]

most of people I know buying their first homes use FHA/VA financing which requires around a 3% down payment -- sometimes even less. It is harder to find houses accepting this type of loan now, but they are still out there.

3% on a $300k house is $9,000. If you could save $2,000 a year for 6 years you would have $12,000. Add in a part-time weekend job and cut back on vacations --- it is doable.

 

[Lynn CC]

Ther's a Home Buying Worksheet on Smartmoney.com
That is a great website to help you figure things out!

 

[Lisa F]

Also there's nothing that says you have to buy a single family home. For a couple who has no kids and no plans to have them, a condo would be ideal and more affordable on a lower salary.

If your credit is good enough you can get good rates on piggyback loans, too... we have an 80% conventional mortgage and 15% second mortgage with a combined lower payment than a 95% mortgage with PMI, plus the interest on the second mortgage is tax deductable. We "only" had to come to the table with 5% down plus closing costs without any hassle from VA/FHA.

If your salary is that low there are likely first time homebuyer incentives that you qualify for. You need to do your research but help is out there if you look for it.

If buying a home is a priority, you will do what you need to do to make it happen. If not, there's nothing wrong with that... there is no law that says everyone has to own property, but realize that the sooner you stop feeling like a victim with no hope and start working hard toward your goals, the sooner you will make them.

 

[Abracadabra]

Originally posted by Toby'sFriend
anyone who can save enough money to go to WDW on vacation, can save enough money to buy a house. It sounds really corny, but life is all about choices. Sometimes we have to pick up a part-time waitressing job on Saturday, sometimes we have to give up our Florida vacations for a weekend camping instead, and sometimes it takes a 5 or 6 years to save for what we want.

But if you don't get started, you will never get there.

This is good enough to be repeated!

Getting what you want in life is never easy, unless you are fortunate enough to win a lottery or inheirit a fortune -- neither of which has happened to me. Homeownership is usually the stuff of hard work and hard saving. I wouldn't say it's necessarily fun, but it is, in the end, very rewarding.

 

[Tink&SquirtsMom]

3% on a $300k house is $9,000. If you could save $2,000 a year for 6 years you would have $12,000. Add in a part-time weekend job and cut back on vacations --- it is doable.

But in 6 years the home prices could have doubled. If we had bought a house in our neighborhood 2 years earlier (its only 1 year old now, so not this house, but something similiar here) we could have paid 1/3 of the cost, or for the price we paid now gotten something 3x the size. Theres no way anything we saved in that time would have covered that jump. I know so many of my friends who have been priced out of this market while they were working towards their first home.

I don't mean to sound negative or like it can't be done. I just get defensive because I know how hard it is to buy in a tough market. When you live in an area where the median home price is over $500,000 and the average salary is $100,000 traditional methods don't help. And its gets old hearing people who have no comprehension of what it means to have to spend a huge chunk of your monthly salary on rent for a one bedroom apartment in a bad neighborhood (that would be $2500 for rent... this was a few years ago during the boom) tell you that you just need to save more or work a little harder... so if I get defensive or anything its just from personal experience.

edited to add: I do not disagree with anything said here. It does take hard work, and many sacrifices, and definitely a positive attitude... and with all that it can be done. And at least for us it was so, so, so worth it. I don't know what i'm trying to do (maybe I should think about that before I post, eh), I just felt the need to show the other side where people make good salaries, do save every penny, sacrifice extras like vacations and still struggle to purchase a home under the traditional "rule of thumb."

 

[robsmom]

Originally posted by mbb
our "conservative financial institution" would give us a lot more mortgage than we were willing to pay for

Here's our "rule of thumb":

Mortgage payment TOTAL had to be less than one weeks salary for DH. (That's based on the paycheque he received waaaaaay back when he became a pharmacist, and I'm a SAHM)

Works for us...we bought our "vacation property" last year.
Life is good

Lovin' our DVC!


I totally agree. OP - I see people over and over again who end up "house poor" when they borrow up to the max aloud. If you can be happy with a house that keeps you a bit below those %'s you will have some extra cash flow. But, as someone said, it is about choices, if you have to be house poor for a few years and skip everything else to get the house you really want - the go for it! Just know that you might end up sitting on the floor for a while or wearing extra layers to keep the heat low in the winter!!

Esmaralda - save, save, save. it can be done. the more you save the less you are borrowing so you can get a more expensive house and qualify. If you can put down 50% on that 300,000 house first you can qualify. There are two ways to finance a house, the money you have saved and money you borrow. I realize that saving $150,000 seems near impossible to you but just put one foot in front of the other and keep moving towards your goal!

 

[robsmom]

Originally posted by Tink&SquirtsMom

I don't mean to sound negative or like it can't be done. I just get defensive because I know how hard it is to buy in a tough market. When you live in an area where the median home price is over $500,000 and the average salary is $100,000 traditional methods don't help.

I think that there is no doubt that there are markets in which the housing market is out of control. I think too, however, that there are job markets in which the average salary is no where near $100,000! It is all relative. The real great markets are the houses are $200,000 and the jobs are $100,000 (do those exist)The worse are the houses are $500,000 and the jobs are less than $50,000 (sounds like Esmerald has one of these areas!!)

 

[Lisa F]

Tink&SquirtsMom I hearya! If you asked me 6 years ago if I thought I would EVER buy a house without putting the full 20% down, I would've said no way. We are not "that type" of a person. Well, first Enron took out a major portion of our nest egg (my husband worked for them). Then prices went through the roof. We were lucky to be able to scrape together the $25k or so we needed for closing costs, prepaids and a 5% down payment to buy a $300k house, but I am SO glad that we did. There is not much turnover around here but 3 weeks after our house closed another house that is 300 sq ft less than ours on half the property with no garage went for $15k more than ours. Good for us I guess but still, it's insane. I'm so glad to not have to worry about it anymore.