DH and I are struggling to determine our budget for our next house. I'd like to keep our budget at or below 2 times our gross income, DH would like to move up to 2.5 times our gross income. We've run the numbers and the monthly mortgage cost would be affordable at either price range, but I feel the homes at the higher end are just too pricey and we might have trouble selling down the road (limited pool of buyers). DH argues that at the lower end of the range, we aren't going to be able to get the sort of house we want (in terms of layout/overall space) that we could get at the top end of the range. We are in a medium cost of living area.
If you bought at the top end of your price range, was it worth it? Do you have any regrets?
If you stayed at the lower end, are you happy with your purchase?
We based it on what our monthly budget could afford and not the total cost based on our incomes (2x gross woudln't have bought this house). I'm in a HCOL area that is typically a hot real estate market so resale wasn't really a concern. Plus, we knew we'd be here for a decade or more & it's hard to predict the future.
I'm happy with our choice of going with what we could afford. It wasn't the tippy-top of our budget, but it wasn't the rock bottom. We've done a few improvements & now it's the perfect house for us.
We stayed on the lower end of our price range (we bought about 60k lower than we were approved for) and I've been happy with it. We didn't want a giant house - it's not what we would be happy with. We like that it's manageable for two adults and eventually a child. I don't feel like we've had to cut back on our spending or think twice about eating out.
We also bought based on our monthly income and what we could afford rather than based our our gross income. Unless you plan on this being a shorter term home (less than 5 years or so), I would suggest doing the same. I think the gross income rule is a little bit arbitrary, especially since it doesn't take COL, interest rates, anticipated upward career mobility, etc.. into consideration.
Buying a house is a big decision and investment. I wanted to look at all of our options, so we looked at pretty much everything that fit our criteria that was up to about 10% over the max we wanted to spend per month. We ended up in a home that was a bit under the maximum we felt comfortable spending, but it has essentially everything we wanted in a house. There are a handful of updates we'd like to do eventually (we're actually having a wall removed this week), but it's by no means a fixer. We are very happy here, and plan to stay long term unless a job takes us back to our home state.
We did the monthly income method as well. We are very happy with the house we built; we went modular rather than site built due to some time constraints and building with 2 toddlers and we got exactly what we needed for the long term.
For this house, we stayed just a little over 1X earnings, but our mortgage is about 0.6X earnings. For our last house, we were initially at 2X earnings, but it went up and down while we lived there, and by the time we moved, it was 0.5X earnings. My first house was 3.5X earnings.
I say this to say that it really depends on where you are in your careers, what your goals are for the future (have kids, SAH or pay for daycare, save for other things, ect.), how long you plan to stay in the house, and what is the minimum you can spend to be happy with the house. We have always started with, "What is the minimum we can spend to get what we need?" then looked at what was available, and gone from there.
For this house, we stayed just a little over 1X earnings, but our mortgage is about 0.6X earnings. For our last house, we were initially at 2X earnings, but it went up and down while we lived there, and by the time we moved, it was 0.5X earnings. My first house was 3.5X earnings.
I say this to say that it really depends on where you are in your careers, what your goals are for the future (have kids, SAH or pay for daycare, save for other things, ect.), how long you plan to stay in the house, and what is the minimum you can spend to be happy with the house. We have always started with, "What is the minimum we can spend to get what we need?" then looked at what was available, and gone from there.
These are good points. This will be our 2nd home. When we bought our first home, early in our careers, we bought at the top of our budget, and it was stressful for a bit until our incomes increased. We have minimal debt (only what's left of my student loans) and are on track for retirement. Our only current goals are to increase saving for kids college funds and to buy a new car in the next 3 years. I don't think our incomes with increase significantly in the next few years unless we move to take other positions.
I don't know how long we'll be in the house. I think at least 5-7 years, but very well could be much longer than that!
We bought our house based on one income, but it was 3.5x my income. We also had a renter for the first 3 years to share the cost. Now DH has a solid job and my income has increased. We'll stay in this house forever. I have no desire for a "dream home" that's huge and fancy; I like my little bungalow in a modest neighbourhood. I'm not the kind of person to get joy out of my house.
We bought our first house at almost 3x income, which was a big risk that thankfully didn't backfire. We were at the start of our careers and our income increased quickly to make things more comfortable.
Our new house is again a bit of a stretch, but I think that just means we won't have tons of extra income for vacations and optional renovations. We had a bigger down payment this time so the mortgage is only about 2x our income. We're having to space out things like buying new furniture and doing necessary improvements.
This is us too. First house was a bit of a stretch but we love the area. Only regret is not buying bigger because we ran out of room after 8 years and our family grew from 2 people to 6 people. I hate moving so I am glad that we spent on the higher end of our budget this time for room and location.
We based it on us affording it on one income (either of ours) which is a good thing as I barely have one right now. I'm happy we did that and didn't go with the mortgage we were offered (about 2x what we currently have). Due to this choice, we were able to do a lot of work on the house, save a lot of money and so we're in a good place financially, even with me working only part-time.
We bought 10 years ago and did our calculations based off of monthly payment because the 2x vs. 2.5x your income rule depends on interest rate, meaning that with today's low rates you can use a higher multiplier for the same monthly rate compared to 10-15 years ago. The gross income multiplier also doesn't take insurance and property tax rate variations into account. Our house ended up being more than 3x our gross income, and while it was scary at first we never had any trouble paying and we now own more than half of our house and are on track to pay it off in 10 years (we've re-fied twice since the original purchase and now have a 15 year loan).
We bought when we were just getting into our careers so higher salaries since then have really helped make things comfortable. H even took a year "off" (starting his own business, but not really earning $) and we were fine on my salary by then.
We based it on us affording it on one income (either of ours) which is a good thing as I barely have one right now. I'm happy we did that and didn't go with the mortgage we were offered (about 2x what we currently have). Due to this choice, we were able to do a lot of work on the house, save a lot of money and so we're in a good place financially, even with me working only part-time.
Is this based on being able to pay all of the bills on one person's net pay, or solely the mortgage payment?
With interest rates so low, when we do the math, there really aren't significant differences in the mortgage payments (despite $100,000+ difference in the home prices). This is where DH gets me, "it'll only cost a few hundred dollars more a month to get that dream home"!
We bought 10 years ago and did our calculations based off of monthly payment because the 2x vs. 2.5x your income rule depends on interest rate, meaning that with today's low rates you can use a higher multiplier for the same monthly rate compared to 10-15 years ago. The gross income multiplier also doesn't take insurance and property tax rate variations into account. Our house ended up being more than 3x our gross income, and while it was scary at first we never had any trouble paying and we now own more than half of our house and are on track to pay it off in 10 years (we've re-fied twice since the original purchase and now have a 15 year loan).
We bought when we were just getting into our careers so higher salaries since then have really helped make things comfortable. H even took a year "off" (starting his own business, but not really earning $) and we were fine on my salary by then.
With interest rates so low, when we do the math, there really aren't significant differences in the mortgage payments (despite $100,000+ difference in the home prices). This is where DH gets me, "it'll only cost a few hundred dollars more a month to get that dream home"!
Have you already started looking at the homes? One cautionary tale is that you don't want budget creep to go on forever. We started with a large budget but then after spending some time looking and realizing what we couldn't get for that amount, we bumped it up by $100k and ended up buying at $105k above our previous max. Obviously we did make that work, but I would worry about what would have happened if we had started at the higher value initially.
With interest rates so low, when we do the math, there really aren't significant differences in the mortgage payments (despite $100,000+ difference in the home prices). This is where DH gets me, "it'll only cost a few hundred dollars more a month to get that dream home"!
Have you already started looking at the homes? One cautionary tale is that you don't want budget creep to go on forever. We started with a $400k budget but then after spending some time looking and realizing what we couldn't get for that amount, we bumped it to $500k and ended up buying at $505k. Obviously we did make that work, but I would worry about what would have happened if we had started at $500 and then wanted to bump to $600.
We are planning to do a semi-custom build. We saw our dream home at a showcase of homes recently (we are building with the same builder who built the home) and I think that seeing that house was really what spurred DH to want to move up our budget. The house had everything we wanted in it, but we didn't think we'd be able to afford it until after running numbers, when we realized it was actually closer to our budget than we had anticipated. It's definitely a slippery slope though. I want to start at the lower end of the budget, so it will give us wiggle room to increase if we have overages for something we really want, DH would rather see what we can get at the top end.
We bought based on our monthly income/budget rather than yearly. I wish we'd spent about $30-$40K more than we did, just for a better yard and and extra bedroom. We just have us and DD, though, so our house is perfect for us. We will probably move in a few years and rent it out. Our area is desperate for rental properties.
We also bought using the monthly payment as a guide not. We live in a HCOL area and we never would have bought a house if based it on our gross salary. Most people here would say that we bought too much house but it fits our needs and it would cost us the same if not more to rent something smaller then we own.
Edit: I just figured it out, our house cost 5x our gross income at the time of purchase. :/ (it's now about 2.5x)
LOLOLZ at spending 2x gross on our house (sorry, I'm jaded b/c home prices in my area are crazy). We are right at 3.8x gross but we choose this as our 30 year house and we hope our son will stay in the school system from K right until graduation. In a nice suburb south of Boston. We were also able to put 38% down which helps with the monthly mortgage payment.
We spent something like 1.75x our gross on our house, though that's not how we calculated what to buy. We bought based on what we could stretch to afford on one of our incomes (we make similar amounts), even though at the time we were planning to both continue working. Because we bought on the low end, we were able to put about $40k of improvements into the house (it's almost 50 years old, it needed some love). It was and is very important to us to not be "house poor" - because we didn't buy something twice as expensive, we don't have to worry about losing the house if at some point one of us ends up not working for a while (either through unemployment or by choice).
Of course, we moved to this MCOL area specifically so that we could afford a house without spending 2x as much - we moved away from VHCOL where a house twice as expensive would have been half the size with a tiny yard if any.
Also, regarding budget creep - I always find it useful to think both in terms of percentage of take-home pay spent and also of what else you might spend that money on. So if it's "only" an extra $300/month for a slightly nicer house, what would you do with that money in the cheaper house? Would you hire house cleaners, or join an expensive gym, or go out to eat more, etc? What would you be giving up by spending that money on your mortgage? It helped us a lot to make a few hypothetical budgets to see where all of our money would be going in different scenarios. For some people, maybe it's worth it to spend an extra few hundred $ each month to have a fantastic kitchen and dining area because they cook and entertain a lot. For others, the kitchen hardly matters because they go out to eat all the time.
We bought at the lower end/below our theoretical budget and I'm very, very happy. Looking at calculators, we could "afford" twice our PITI payment, but we have other financial priorities and I love being able to have the breathing room. We could also survive on my husband's salary somewhat indefinitely, with careful budgeting, if worse came to worse. We were also able to get the mortgage only with his income, which was helpful, because I'm a contractor, which makes proving income more difficult.
However, we don't yet have kids, so while I have a rough idea of what a budget with childcare and other expenses would be like, I don't know for certain. I think you do have kids, so if you have that budget in place and a few hundred more would only impact savings a bit and not threaten other financial goals, then sure.
Post by steamboat185 on Oct 8, 2015 11:24:06 GMT -5
We bought about 6 years ago and at roughly 2x gross salary although like others we used our monthly cash flow as another main test. It has been fine and I'm happy with our choice. We purchased a fixer upper so had our payment increased we probably would have purchased something that needed less work.
At this point in our careers I wouldn't want to go too much higher just because I don't think we will see the same growth in our incomes that we have had over the last 6 years.
We based it on us affording it on one income (either of ours) which is a good thing as I barely have one right now. I'm happy we did that and didn't go with the mortgage we were offered (about 2x what we currently have). Due to this choice, we were able to do a lot of work on the house, save a lot of money and so we're in a good place financially, even with me working only part-time.
Is this based on being able to pay all of the bills on one person's net pay, or solely the mortgage payment?
To be able to pay pretty much all the major bills. We bought 7 years ago and now my H's salary is almost twice what it use to be, so we're in good shape at this point even w/o me working. Even if his salary was close to the original, we could still do okay though not go out to eat as much or take nice vacations.
We bought a fixer-upper and put about £40,000 into the house already and we're currently putting another £40,000 into it. We're in London, so housing is expensive, but bought in a less expensive area than we could have (if we had taken out the higher mortgage).
We also bought based on our monthly income. We had a baby on the way and we knew we'd have daycare expenses. We are happy with our purchase in that we bought what we could afford in a neighborhood we love, but it's nothing that our dream house would be. We own a townhouse with about 1,200 square feet. We'd prefer a single family home with closer to 2,000 square feet. But we are in a HCOL area and have one kid in daycare and one in before/after school care, so we are happy with our house for what we could afford.
Post by fortnightlily on Oct 8, 2015 11:44:27 GMT -5
I guess I don't really understand the question, since neither your nor your DH's concerns seem to center around affordability at all. Is there something else you want to do with the money you'd be saving by going with the lower end of the budget? Otherwise it's just what is going to meet your needs better for the timeframe you want to be in the house.
Post by dr.girlfriend on Oct 8, 2015 11:50:44 GMT -5
We stayed at the lower end (bought based on my income alone) and have been happy with that decision. Our incomes have doubled, but we also had flexibility to go the other way (at one point DH left a job he hated to take a job he loved at 2/3 the salary). We've had no financial concerns with kid costs, and can afford renovations and vacations. We may add on a master bedroom/bath which would "cure" everything we currently dislike about the house (bedroom next to DS, small shared bath, and basement laundry)
I guess I don't really understand the question, since neither your nor your DH's concerns seem to center around affordability at all. Is there something else you want to do with the money you'd be saving by going with the lower end of the budget? Otherwise it's just what is going to meet your needs better for the timeframe you want to be in the house.
I think I'm mostly concerned with the overall cost of the house rather then the mortgage payments. The lower end of our budget will buy us a house that is in the upper end of the home prices for the subdivisions we'd build in. The upper end of our budget is at the top or even slightly above the cost of homes in the subdivisions we are looking to build in, I feel this might be a riskier investment because the home might be harder to sell in the future. We are limited to these two subdivisions so that we can stay near the school our dds go to. These are desirable subdivisions (brand new school) to live in but I don't how this might change in the future.
The money we'd save with the lower payment would go towards furnishing the house, landscaping, vacations and adding to the emergency fund (to cover more expenses with a new home). We are mostly on track with our other savings goals.
I guess I don't really understand the question, since neither your nor your DH's concerns seem to center around affordability at all. Is there something else you want to do with the money you'd be saving by going with the lower end of the budget? Otherwise it's just what is going to meet your needs better for the timeframe you want to be in the house.
I think I'm mostly concerned with the overall cost of the house rather then the mortgage payments. The lower end of our budget will buy us a house that is in the upper end of the home prices for the subdivisions we'd build in. The upper end of our budget is at the top or even slightly above the cost of homes in the subdivisions we are looking to build in, I feel this might be a riskier investment because the home might be harder to sell in the future. We are limited to these two subdivisions so that we can stay near the school our dds go to. These are desirable subdivisions (brand new school) to live in but I don't how this might change in the future.
The money we'd save with the lower payment would go towards furnishing the house, landscaping, vacations and adding to the emergency fund (to cover more expenses with a new home). We are mostly on track with our other savings goals.
The core of your concern seems more about buying at the top of one's *market*, though, not at the top of one's budget per-se. If you see yourself trying to sell in such a short amount of time that resale is really a concern, then yeah, buying at the top of the market is probably not a good idea. But if the more expensive house is going to meet your needs better such that you'd stay in it significantly longer, then the resale price argument grows less important.
Our house (bought in March) is a little under 3x our HHI, but we live in a HCOL (Los Angeles.) I also used the monthly numbers rather than annually, and we ended up raising our budget but almost $100K during the process. I am glad we did and LOVE our house, but the mortgage payment every month makes me cringe. Not because I can't afford it, but just because it's so much more than I have paid to live anywhere.
We have a couple houses in our neighborhood that are overpriced IMO (200K more than the houses around it) and while they are really nice, they have sat on the market since people who have that budget want a nicer neighborhood. I don't know if that would be true for you, but that would be a consideration for me. HGTV has taught me to buy the worst house in the best neighborhood rather than the other way around.
We created a budget and looked around and adjusted a bit based on the market. In our original budget, we could only find homes that were really far from the city or that needed extensive updates. We upped the budget a bit and were able to find the perfect house. We did have a MAX based on monthly mortgage. For example, if we were paying $1700 in rent at the time, I wanted our mortgage to be no more than $2000.
I think I'm mostly concerned with the overall cost of the house rather then the mortgage payments. The lower end of our budget will buy us a house that is in the upper end of the home prices for the subdivisions we'd build in. The upper end of our budget is at the top or even slightly above the cost of homes in the subdivisions we are looking to build in, I feel this might be a riskier investment because the home might be harder to sell in the future. We are limited to these two subdivisions so that we can stay near the school our dds go to. These are desirable subdivisions (brand new school) to live in but I don't how this might change in the future.
The money we'd save with the lower payment would go towards furnishing the house, landscaping, vacations and adding to the emergency fund (to cover more expenses with a new home). We are mostly on track with our other savings goals.
The core of your concern seems more about buying at the top of one's *market*, though, not at the top of one's budget per-se. If you see yourself trying to sell in such a short amount of time that resale is really a concern, then yeah, buying at the top of the market is probably not a good idea. But if the more expensive house is going to meet your needs better such that you'd stay in it significantly longer, then the resale price argument grows less important.
Yes, I think you are right. I do think that buying a more expensive home has me concerned about resale--I'm not sure how long we'll be in this home. When we bought our first home, I thought we'd be in it for 20 years and then someday upgrade to a home with nicer finishes...but DH got a job offer he couldn't refuse and we had 2 months to relocate out of state. We sold for less than we bought it for (we bought before the bubble burst) and I'm anxious this is going to happen again.