How much house?

[badgergrl]

Curious what others would be comfortable 







Retirement:
  We are putting aside about 50-55k per year, depending on company ps.  This isn't as high as it could be because we were in school forever (see student loans above).

We want to get into our forever home now, while rates are good.

I am not going to post a full budget, blah, we have cable...  I already have a prepaid cell, we basically spend as we want now, but are willing to cut back for awhile so we can have the house we want and keep building up retirement.

We live in a state with higher re tax.  Example 300k house = 5k, 550 =10 k, etc

So, what say you?

I may dd later even though I mainly lurk, just because.

[CloudBee]

Is the $70-80k that is "cash on hand" earmarked for a home purchase, or is that your cash savings?

I want to know more about your cash and investments.

Also - your yearly income doesn't mean much to me without knowing what your take home pay is.

[badgergrl]

80k cash on hand is everything we have saved. E fund included. Jobs secure.

I don't really know what our take home is right now- I am guesstimating abper mo after maxing 401ks.

We dont have any investments (outside of our  beyond our retirement accounts.

[urbancowgirl]

I think you'll get more/better responses if you post a budget, even if it's just approximate monthly expenses.

[CloudBee]

I'm really having a hard time making an educated guess. What's the COL in your area? How stable are your jobs? How much do you typically save per month? Why do you want to move? Any reason you're not investing? What's the market value or your current home?

Sorry, I feel like I need more info and I'll annoy you every time I try to respond, because I'll just be asking for more insight... most of which would be in a rough budget. I don't "budget" but could throw together a rough idea of what we spend on X, Y, Z, what we save/invest, etc.

I think you need more info in your original post.

[Deleted]

Your yearly income doesn't help me that much.

How much do you take home each month?

[badgergrl]

Ok... Let me see what I can do to answer the questions.



I don't know about exact numbers because we both just took on huge pay increases in the last month or so.



I would say we are in MCOL.



We want to move so we can get into our forever home at 3% interest. We are in a home we bought when we made half what we made right now.



Our budget (what we spent last year) is based on making 150k combined per year. So we have about 100k more than we used to.

[badgergrl]

take home about 10-11 per month

[Deleted]

I probably wouldn't use much, if any, of the cash on hand to add to a down payment, because you would need a larger emergency fund to afford a larger mortgage in the event of a layoff.

A $450k mortgage at 3.5% is just over $2k/mo for principal and interest. Add in $1k/mo taxes and insurance and you're at $3k/mo. If you get $80-100k from the sale of your current house, that puts you at $530-550k.

This is assuming you are comfortable with a $3k/mo mortgage payment and the other things that come along with a bigger (I'm presuming) house, like higher utilities, possibly the need for a cleaning lady, a lawn service if there is a decent amount of property, etc.

You already have close to $2k/mo in other obligations - daycare, student loans, car loan - and the remaining $5k/mo for utilities, entertainment, savings, etc.

[nickyd2006]

What is your question, if you can be more specific that would be great. Like, do you want a brand new house with five bedrooms in a newer less established part of town with low taxes or a high tax area but a four bedroom older home that needs some work.... Posting a budget would help. 

[SJ]

Can you give us a ballpark of the types of houses you are talking about? What is the market price of your 'dream house'? $500K? $800K? $300k?

[Deleted]

How much do houses you like cost? Are you in an area with high taxes or high homeowner's insurance costs?

[Deleted]

Magic 8ball says yes! lol j/k

You can probably afford more house. It depends on what your "forever" house costs. I'm thinking something around $500K or less would be okay based on what you posted.

[badgergrl]

Maybe my question can't be answered. I don't have a budget because as of last month I made 100k less.

I don't want to buy a fixer upper or a less established area. I figure in a MCOL of living area with 260k income we could afford a decent house in a good school district.

[badgergrl]

I am thinking about 500-600k. with homeowners and taxes it would result in about a 3 per month payment.



Sorry if I asked a bad question...

[gt7301b]

This depends a lot on the factors that pps have mentioned. I'm sure you could afford a much more expensive house, but I'm not comfortable with a mortgage payment (including taxes and interest) of more than $3K a month.

[Deleted]

Just because you've recently gotten a raise doesn't mean you don't have a budget. If you had a budget before, that's still valid, you just don't have a budget that's necessarily suited to your current income.

If anything, you shouldn't go nuts now that you are making more, because your higher-income job will be harder to replace, should something happen.

And the problem with a nice house in a decent school district is that we don't know precisely what that costs in your area. Have you done the research to figure out what it will cost? That's a place to start. If what you want costs more than you can afford, then you start sacrificing.

In my area, for what you want, that's easily $500k with taxes of $12k/year. In the best districts (like the town where I work), it's closer to $1MM, with taxes of $30k/year.

[Deleted]

I think you need to

1.) increase your awareness of your own finances.
2.) nail down a solid budget.

No matter how much money you make, those jobs can be gone in an instant. Unemployment wouldn't be enough to cover a massive mortgage or even compare to your current income. You need to nail down your current budget, see how much you have leftover every month, and then go from there. Not knowing how much you bring home or how much you spend every month and then adding a new mortgage that is massively more than your current mortgage could be a recipe for disaster. This is why people want a breakdown of your finances. If you pay $1k/month now, and you are looking at a $3k mortgage, and you barely have $1500 left over every month....that's a problem. The amount of mortgage you can afford when you net that much per month is really dependent on what kind of lifestyle you wish to have.

[badgergrl]

I have a very thorough budget. I track every cent that goes in and out of our house on mint. Its just based on 150 k take home not 260 take home, so its not very helpful. I am not sure how to manufacture a budget off a take home we haven't lived with.

[awkwardpenguin]

Jan 25, 2013 16:06:45 GMT -5 badgergrl said:

Maybe my question can't be answered. I don't have a budget because as of last month I made 100k less.

I don't want to buy a fixer upper or a less established area. I figure in a MCOL of living area with 260k income we could afford a decent house in a good school district.

But shouldn't your current budget still apply despite the income changes?  The answer really should be how much more a month you are willing to pay now that your income has increased.  What percent of the increase will go to taxes, retirement savings, and other goals?  How much can be used for house?  Do you anticipate your expenses changing in a big way in the future?  Public or private school for your kiddo?  Having another kid at some point?  Will property taxes rise faster than inflation?

My school of thought is no more than 25-30% of take home pay on housing.

[badgergrl]

So I guess the answer is we spend about 5 k per month including all spending (including our current 2 k mortgage).  I believe we will have about 5 k more per month left over. 

Our jobs are very stable- so not worried about losing them.

[CloudBee]

I'm always nervous when someone gets a huge bump in pay and wants to upgrade with larger home or much fancier car.

I agree with papier. I think you need to become more aware with what goes in/out, hwere your extra money goes, etc.

I also feel you need to "pay yourself" monthly, just as you would a bill. Grow your net-worth by investing or saving more cash before purchasing a new home. It will help you to understand how much you actually have to work with.

Considering you're going to be buying "more" house (if it happens), expenses are going to be higher. Insurance, utilities, taxes, larger roof to replace one day, and overall just more things that could go wrong.

I would spend a good 6+ months watching your money closely, getting into the habit of saving/investing so it becomes second nature, watch where your excess cash goes each month, and then sit down with a mortgage broker. And remember - you always want to aim well below what you're qualified/approved for when it comes to a mortgage.

Income can decrease overnight just as it can increase with a raise or bonus. You want to live within your means.

[Deleted]

Jan 25, 2013 16:25:14 GMT -5 badgergrl said:

I have a very thorough budget. I track every cent that goes in and out of our house on mint. Its just based on 150 k take home not 260 take home, so its not very helpful. I am not sure how to manufacture a budget off a take home we haven't lived with.

Your budget isn't very thorough if it doesn't account for over $100k of your income.  You need to sit on your new income for a few months before you go jumping into buying a house based off the income bump that you received last month.

It's really, really hard to tell someone how much house they can afford when we have no idea how you spend your money every month.

[badgergrl]

I know every cent we spend. We spend #363 dollars last month on groceries. $4 renting movies at redbox, $13 on fast food, blah blah blah... I use mint. we charge everything. I can see where everything goes. After our monthly spending, based off our new income we income.

We will have another child, but our first child will be in school by then so I don't anticipate having too large of a change there.

I believe out total mortgage payement will  based off the projections I have made from our current home to our forver home.

We already have a housekeeper, lawn care, etc, and those costs won't change much for the new house.

We will be going from an older home to a new home, so home upkeep will be less, and despite change in size I anticipate heating a cooling costs will be similar due to a better insulated home.

Besides tracking everything in Mint, how would I better know my finances? I mean if you really want to know how much I spend on cable, I can tell you, but I am not sure that $100 makes a difference in the grand scheme of things.

[badgergrl]

I am sorry- I must not be being Clear- our budget doesn't include the new income because we HAVENT GOTTEN A CHECK WITH THAT INCOME YET. ITS a new bump for both of us. I don't know exactly how much we will get since we are both back to paying SS after it phasing out last year etc.

[hocus]

I think you need to work backward.

Start with your take home. Take out fixed and required costs (daycare, gas, carpayments, student loans, a monthly estimate for annual bills like car insurance, food, utilities etc). Take out what you want to save and what you want to spend. Then take off another $500 on top of that for wiggle and what is left over is what you feel comfortable spending on a housing per month. If  it might be close to $4000 per month but if you do spend a lot OR have high "fixed" costs then it will be closer to $2500 or so. The final cost of the house will vary with local tax rates and the mortgage rates but this will get you closer to where you want to be. There are other rules of thumb (e.g. 2 to 3 times your salary) but I find that it is far more effective to build it up this way then to use those rules of thumb.
 
Once you get that budget on paper I'd post and see what folks think. They may tell that it will feel too tight or that you're forgetting some key budget item.

Be sure to run the budget with any large expected costs baked in (e.g. more kids in daycare, a new car payment, lots of travel etc).

[Deleted]

The important part is to use this pay increase as an opportunity to build wealth, not just buy more stuff like a larger house. You can invest some $$ outside of retirement, put $$ into a 529 for your child, things like that.

I agree with PP who said to just sit on this for a bit. Keep living with your current expenses, hoard the extra cash for a down payment, keep it separate from your emergency fund (which you should probably keep around $50-60k), and consider talking to a RE agent about listing your current place in a few months.

[coconutchips]

I'm not sure I have an opinion but if you want the super low interest rates in a mcol area you'll need to keep your loan under 417k most likely anyway. The jumbo loans are not quite that low.

[boiler717]

You guys have a similar income / debt / retirement picture as us, but you guys have more cash on hand. We also don't have kids.

We ended up getting a mortgage for $417k to avoid jumbo and put about $60k down. We wanted to stay around $2500 (we take home around $12000 a month). That got us a great house, we aren't strapped financially for it, and we still have the extra disposable income monthly.

Edit: I agree you are going to be more limited by not getting a jumbo mortgage than anything else. I would probably plan on doing a mortgage for $417 and putting whatever you make from your current house as your DP, plus maybe whatever you can sock away in the next few months on your new salary. I think your estimate of aroun $500-600k is right on assuming that you are going to get $100k out of your current house.

[Deleted]

Jan 25, 2013 16:55:43 GMT -5 coconutchips said:

I'm not sure I have an opinion but if you want the super low interest rates in a mcol area you'll need to keep your loan under 417k most likely anyway. The jumbo loans are not quite that low.

not necessarily. I don't think you said what you do, but from your post, I wonder if either if you is a physician? Many banks have different rates/programs for physicians since their income tends to be very stable. We recently refinanced a jumbo loan at 3.125 so it can be done.