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Message
re: Mortgage Amount 2-2.5x Annual Income
Posted on 4/12/22 at 2:57 pm to OleVaught14
Posted on 4/12/22 at 2:57 pm to OleVaught14
I would never feel comfortable with a mortgage being 2-2.5X our annual income. I don't see how someone making (let's say) $100K can afford a $250K house.
My wife and I started out in 2000 with a mortgage that was about equal to our annual income, then moved up to one that was about 1.2X
And now we're in a much bigger one that we rolled the equity into and started out 6 years ago at less than 1.5X.
My wife and I started out in 2000 with a mortgage that was about equal to our annual income, then moved up to one that was about 1.2X
And now we're in a much bigger one that we rolled the equity into and started out 6 years ago at less than 1.5X.
4
Posted on 4/12/22 at 3:32 pm to REB BEER
quote:
I would never feel comfortable with a mortgage being 2-2.5X our annual income. I don't see how someone making (let's say) $100K can afford a $250K house.
I mean.. this is pretty extreme. Where do you think the median family (pulling ~$70k) should live?
2-2.5x income seems like a perfectly reasonable amount to live comfortably and allow yourself to save and build wealth.
Posted on 4/12/22 at 3:48 pm to REB BEER
quote:
I would never feel comfortable with a mortgage being 2-2.5X our annual income. I don't see how someone making (let's say) $100K can afford a $250K house.
My wife and I started out in 2000 with a mortgage that was about equal to our annual income, then moved up to one that was about 1.2X
This is all pretty ridiculous. In today's environment it's almost impossible to buy a house that's 1x-1.5x your annual income unless you make absolute bank or live in extremely undesirable places. Home prices arent $150k anymore for single family homes. Our townhouse we bought for $275k in 2017 and it's worth $424k now. For someone to even be at 1.5x income they would need to bring in $282k/yr which would put in top 3-4% of household incomes. The median home sale prices are over $400k now.
A 30 year mortgage on a $250k house (with just 5% down, @ 4.5% 30 year) is $1,232 a month plus tax/ins. How do you feel someone/a couple making $6.5k after tax cant afford that?
This post was edited on 4/12/22 at 3:54 pm
Posted on 4/12/22 at 4:39 pm to Paul Allen
My wife and I combine for 165k currently and just closed on a house for 325. Normally we are around the 200k mark but I just switched industries leading to a short term paycut. No kids. Are we doing it right?
Posted on 4/12/22 at 5:51 pm to thunderbird1100
quote:
A 30 year mortgage on a $250k house (with just 5% down, @ 4.5% 30 year) is $1,232 a month plus tax/ins. How do you feel someone/a couple making $6.5k after tax cant afford that?
Figure in property tax, homeowners insurance, medical ins., car ins., car loans, child care (if applicable), cell phones, cable, internet, etc and it gets tight in a hurry. $100k per year ain’t what it used to be.
This post was edited on 4/12/22 at 8:04 pm
Posted on 4/12/22 at 10:35 pm to down time
quote:I’m not sure if this proves an accurate representation for a couple of reasons. One I bet homeowners have a overall higher median household income than the overall population. And maybe more importantly, because home values and income increases at different rates, and owning a home is a hedge against inflation, a lot of homeowners have home value/income multiple but the monthly costs are much lower. So home buyers are probably buying homes at a lower multiple, although unfortunately the stock is so low, especially for starter homes, so that multiple is higher than ideal (lower interest rates helped, but that’s not as much of the case, even if they’re lower than a lot of historical rates).
Quick Google search shows median household income in USA is 70 and median home is 370.
Posted on 4/13/22 at 8:20 am to REB BEER
quote:
Figure in property tax, homeowners insurance, medical ins., car ins., car loans, child care (if applicable), cell phones, cable, internet, etc and it gets tight in a hurry. $100k per year ain’t what it used to be.
Everything depends on your individual situation/job but all of this shouldnt be costing you much more than $2k a month depending on the optional "child care"/"Car loan" areas. For example I'll do mine and my wifes together:
property tax - $376/mo
homeowners - $122/mo
medical ins - ~$200/mo including dental/vision
car ins - ~$300/mo (the expensive kind, and for 3 vehicles)
car loans - we havent had one in 2 years
child care - $0 for now
cell phone bill - $113/mo
youtube tv - $65/mo
internet - $75/mo
So for us all this is about $1,250/mo. Combine that with a $1,232 mortgage that's still only about $2,500 a month and if a couple is making $6,500 a month that's still not really living tight at all. Throw in $1k for child care if you want, still not killing a couple with $6,500/mo income.
Just think you went a little overboard acting like someone who makes $100k/yr cant afford a $250k house. I mean sure they probably couldnt if they are saddling themselves with say $2k/mo of other debt (or have like 5 kids), but, they should be getting themselves out of that debt before getting into home ownership too. the fact is home cost has increased dramatically since the days of what you were talking about might have been possible. Again, homes just arent really $100k-$200k any more.
I guess you are just assuming people are really bad with money which i get but it doesnt mean they cant "Afford it", in situations like that they are likely just making poor financial decisions to not be able live in a $250k house on $100k income.
This post was edited on 4/13/22 at 8:29 am
Posted on 4/13/22 at 8:23 am to OleVaught14
Rule of thumb: Get what you need. That's it.
Posted on 4/13/22 at 8:39 am to 21JumpStreet
quote:
Rule of thumb: Get what you need. That's it.
Most markets are either putting you at minimum at 3x or in the ghetto right now, even adhering to that logic. The American Dream is now just a pipe dream for most Americans to do without living paycheck to paycheck in this current market. This more than an advocado toast and iphones issue
Posted on 4/13/22 at 9:02 am to OleVaught14
quote:Holy shite. The principal of my mortgage is 1x our combined household income. It's plenty of house for us, in a great area. We did put a decent chunk of change into renovations, but no loans for that.
Over the last year it seems like more people are really stretching this to 3-4x annual income.
My wife and I both make a bit more than when we bought the house 2 years ago, but it was still <1.25x at that time.
This post was edited on 4/13/22 at 9:04 am
Posted on 4/13/22 at 9:08 am to Jor Jor The Dinosaur
quote:
Holy shite. The principal of my mortgage is 1x our combined household income. It's plenty of house for us, in a great area.
Ok… congrats on making like $300-$500k/year?
This is just not the norm for 95%+ of homeowners.
Posted on 4/13/22 at 9:34 am to PhiTiger1764
quote:
Holy shite. The principal of my mortgage is 1x our combined household income. It's plenty of house for us, in a great area.
Ok… congrats on making like $300-$500k/year?
This is just not the norm for 95%+ of homeowners.
Just for fun I looked up a mid size city in St. Cloud, MN. A mix of blue collar and professional workforce, fairly low crime, good school system and close enough to a major metro without being truly a part of it. Median household salary of 55k with an average of 67k. Average home price sold in 2020 (not 2021, mind you) was a hair under 200k. So if we only went with average HH income to home market average, the average family is spending 3X. But, looking at the census breakout for HH income by income levels, if we took the standard notion of maxing at 2.5X for mortgage, only 17% of folks living in St. Cloud would be at the HH income to buy just the standard house. As you can figure, metros are going to at the very least be similar but likely even worse. It's an untenable situation for buyers, and is probably a result of investors buying up lands, changes in behavior due to COVID, but also banks offering up way too much money and people willing to use it, bloating competition which then bloats the comps. Nice if you are a downsizing seller, horrific if you are a first-time homebuyer, and will likely result in longitudinal problems affecting both individuals and communities alike. If our money is tied to the houses (so in reality, the banks), the circulation effect is not explicit in our communities themselves, which the small businesses will feel as new homeowner will be forced to purchase items as cheap as can they can get (Walmart, McDonalds, etc). Home maintenance will be deferred or never done leading to deterioration faster and neighborhoods turning to shite much quicker. The banks need to limit the amount given out, regulations for zoning and permitting need to be reduced, and I do believe we need to think about who can buy residentials (ie Americans/Green Card/Visas only) and if we give tax write offs for non primary residential properties. At least in the interim. Also, mortgage rates being higher is probably not a bad idea, as it disincentives investors, which at this time with such a housing crunch, needs to be factored.
Regardless, housing market is unrealistic for many if they want to continue their climb of growth of wealth and self-reliance.
This post was edited on 4/13/22 at 1:22 pm
Posted on 4/13/22 at 9:45 am to REB BEER
quote:
I would never feel comfortable with a mortgage being 2-2.5X our annual income.
Me either, I wouldn't be able to sleep at night.
HOWEVER, I do acknowledge that this rule of thumb does not/cannot apply to lower incomes.
There is obviously an exponential increase in the difference with higher incomes.
For my wife and I, using the "new" standard (3-4x) would mean could buy a $3-4 million dollar house. There is absolutely no way on God's green earth I would ever do anything close to that.
Posted on 4/13/22 at 9:48 am to GEAUXT
quote:
For my wife and I, using the "new" standard (3-4x) would mean could buy a $3-4 million dollar house. There is absolutely no way on God's green earth I would ever do anything close to that.
Subtle brag, doc
Posted on 4/13/22 at 10:13 am to OleVaught14
quote:I think if you have gone 6 years on two 59000 dollar vehicles, have two maxed out credit cards, private school, and country club dues, it just wont matter.
Curious as to what people are seeing with the rule of thumb.
If you are debt free and can veggies out of a garden, you probably can go way out.
Personal financial habits play way more into it.
Posted on 4/13/22 at 10:19 am to Jor Jor The Dinosaur
quote:
The principal of my mortgage is 1x our combined household income.
So you either bring home 400k+ (not the norm), or you live in a 140k shack (also not the norm).
Posted on 4/13/22 at 11:21 am to OleVaught14
When my wife and I bought our first home in 2014, it was at around 2x our combined incomes. Fast forward to now and we have 2 kids and my wife is stay at home mom. I refinanced down to sub-3 back in 2020, but my mortgage is now about 2.4x my single income. We've budgeted and have been pretty frugal with our spending. I'm still able to put 15% into retirement each year and put my kids in private school. It all depends on how good you are with living within your means.
We could easily sell our house for almost double our mortgage balance right now, but I have zero desire to be upside down on a new home in the next 10 years if we bought in this market.
We could easily sell our house for almost double our mortgage balance right now, but I have zero desire to be upside down on a new home in the next 10 years if we bought in this market.
Posted on 4/13/22 at 11:29 am to down time
quote:
Quick Google search shows median household income in USA is 70 and median home is 370.
Home values in shitty markets have increased 30% over the last 5 years so that logic is flawed.
No more than 36% of monthly take home should be your mortgage payment. Again if your take home is 50k/mo you can probably feel ok about stretching that mortgage payment a little. The opposite is true if your take home is 5k/mo.
Lifestyle matters. Know thy self is best rule of real estate.
Posted on 4/13/22 at 11:36 am to OT_Marvel
We stretched a bit on recent home, I felt comfortable doing so because it’s public education K-12. The $2,800/mo childcare will go away, the kids activities and after school care will not add up to that monthly, our incomes will continue to rise.
First two homes we bought we were between 2-2.5 ratio. New one a little over 3.
First two homes we bought we were between 2-2.5 ratio. New one a little over 3.
Posted on 4/13/22 at 11:40 am to thegreatboudini
quote:
So you either bring home 400k+ (not the norm), or you live in a 140k shack (also not the norm).
yeah I am trying to imagine someone making $300K in Philadelphia living in a $300K crack den 
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