Home price comfortability

[cherry1111]

I’m curious what different people personally would be comfortable buying at different income levels. I think I am very conservative in what I feel comfortable spending compared to what I see people buying in my area, but prices have soared in the last 2 years and our incomes have not increased anywhere near the same rate so I think I need to get over it if we want to upgrade. So out of curiosity, assuming a 20% downpayment for ease.

What home price would you be comfortable buying with a gross income of:

$75,000
$150,000
$225,000
$300,000
$500,000

[flygirl]

75-250k
150-450k
225-600k
300-750k
500-1M

I trend conservative and even more as the salary goes up I guess, but the amount above would be the mortgage at each income. That’s just what I would want in my market. I don’t know how it would change if the market were like LA or Seattle.

[Susie]

This varies so much with other factors, like student loan burden, whether you have kids, what the kids' needs are, other liabilities, etc. etc.

That being said, we set our home budget at $500k last year when we were shopping.  We came in under budget, but spent a little more than the delta on upgrades within the first 1 to 1.5 year.  Our gross is variable, probably around $300k.

[simpsongal]

I think the answer depends on a lot of factors - including COL, job security, other expenses, etc. Given the reality of housing costs, I don't think most of the old guidance makes sense/is practicable for families. More power to you if you can stick to the old % guidelines, but it's a pipe dream for a lot of people. I think some people also buy a house with no intention of living there long term or paying off the mortgage. E.g., 45+ yr olds w/30 yr mortgages who intend to sell and retire somewhere else once their kids graduate high school.

I also think the higher the income, the greater the % you can probably put towards housing. If you're paying 40% of $100K take home to housing, that doesn't leave tons of cushion for other things. But 40% of $300K? There's a lot more to play with depending on your other fixed expenses. Then there's earning potential, the impact of expenses that will go away like daycare, student loans, etc.

When we bought our housing was probably over 40% of our take home, maybe 50% w/utilities. Now it's closer to 20% b/c of refinancing, income increases, etc - though property taxes have nearly doubled in 10 yrs. I'm thankful we took a calculated risk b/c we secured a low interest mortgage in a potential forever home.

ETA: We bought our house for $620K, I think we made like $200K at the time? Maybe less....we were approved for more. Also the PMI was a killer, it added like $600+ to our payment.
ETA2: Y'all would probably die at how much we've spent improving our house too (probably $250-300K and counting....).

[brooklyn]

Also, you never know what other income streams people around you have. Judging our household income, we would not have been able to buy our current house, but my parents gifted us 60% of the purchase price, so we have a very manageable mortgage.

[plutosmoon]

I thought the standard was around 3-4xs your annual income, did I imagine that? I'm house hunting and my max budget is 260-270k home price with 20% down, my gross income is a lot lower than 100k. They only debt I have is a car loan with a $375 payment. My mortgage payment will probably be around 40% of my take home pay, my rent is about that, as were my previous houses mortgages, it's manageable, and my projected budget even includes double car payments starting in the next few months. I mean, I'm not maxing out my 403b or HSA yet, my budget is very tight and some of you would probably wonder how I live on it, but I do usually save money each month even with the high housing.

[noodleoo]

Sept 15, 2022 12:27:38 GMT -5 plutosmoon said:

I thought the standard was around 3-4xs your annual income, did I imagine that? 

This is what I've heard too.  However, given how insane home prices are in my area, I don't think people to stick to it anymore.  Or maybe they have a lot of appreciation to transfer over or big down payments from who knows where.  Home prices around here are insane.  

We want to upgrade our house too, but even though our house has almost doubled in value from when we bought it, any house we would want is still way over budget.  Home prices have gone up about 25% in the last 2 years.  It is fucking depressing.

[mccallister84]

For me it’s all about the mortgage payment. The house price that we would have been comfortable with last year is much higher than it is this year becuase the interest rates are much higher.

[Susie]

Sept 15, 2022 12:54:09 GMT -5 mccallister84 said:

For me it’s all about the mortgage payment. The house price that we would have been comfortable with last year is much higher than it is this year becuase the interest rates are much higher.

It really is insane.  We bought last year at 2.75%, and earlier I was talking to H about how it's a good thing we like the house/neighborhood because now we absolutely can't justify a discretionary move.  I was playing with WaPo's mortgage payment calculator tool, and the mortgage payment was basically the same (assuming in both cases 30 year fixed and 20% down) for a $450k house at 2.75% as a $305-310k house at 6%.  That's an enormous change in home affordability.  

www.washingtonpost.com/business/interactive/2022/mortgage-interest-rates/?itid=hp-top-table-main-t-2 

[cherry1111]

Y’all I know it depends on a lot of factors other than income. I was just wondering personally where you fall!

[flygirl]

Op asked what you’d feel comfortable so that’s how I answered. Of coarse it depends upon your other debt, interest rates, how long you want to live there, etc.

[chpmnk1015]

depends so much on rates, dp, other debts for us.
WE were stretched.. i'd say w the house we bought now initially, 20% down, 575K Purchase price, i think we were maybe at 100K. rate then was like 4%

Edited to add- we had no other debt except a car payment, had savings after DP, and it was our 3rd house at a good price in a town we wanted to be in.  Knowing salaries would increase, we are very thrifty, dh does construction, etc.  We have since refinanced to a good rate, etc.

[jewel]

I think 5-6 times your annual income is pretty common around here. Housing prices are outrageous and incomes don’t generally fall into the old “3 times your income” possibility.

We are lucky that we purchased at the bottom of the market and our house at that time was about 3x. We have a 10 yr mortgage on our current house, but if we had financed for 30 years, we could fairly easily afford around 5 times annual income.

ETA - the higher the income, the more comfortable I would be with stretching %. If you’re bringing home $30k per month, spending 50% on housing costs is much easier than if you’re spending 50% of $5k per month.

[aprilsails]

We’ve always based our affordability on being able to afford all necessities on the highest income earner’s salary. So that includes mortgage payment, utilities, taxes, food, household items. We’ve also always benefited from fairly low interest rates, so our affordability was higher.

Right now, based on current interest rates, we would be willing to go to at most 3x salary for the mortgage amount. Which is not particularly high in my market. But we’ve never bought anywhere close to the top of our approval range. For example, the last house in 2019 we were approved for $975k, bought $700k, had a mortgage of $450k, and had a combined income at the time of $175k. First house in 2011 we had a combined income of $110k and bought a $350,000 house with a mortgage of $305k.

[konapoppy]

This is hard. Where I live, I simply can’t imagine buying any home for a 75k annual gross salary.

I also think after owning a home for 8 years, my assessment is just off. What I might have been willing to buy in 2014 dollars may be totally different than in 2022 dollars with the market. Homes here have appreciated so much in such a short time.

Basically I am not helpful lol

[Velar Fricative]

Based on our own varying income levels and having owned two homes in my lifetime, I'm comfortable with:

$75,000 HHI - up to a $250,000 home depending on co-op or condo status and monthly fees
$150,000 HHI - up to a $450,000 home
$225,000 HHI - up to a $650,000 home
$300,000 HHI - up to a $850,000 home
$500,000 HHI - we are never making that much so fuck that lol

[cherry1111]

I guess I just need to get used to the idea of potentially spending more than I ever thought we would. 2 years ago we planned to spend $450k before things went insane.

We fall in the $225k income range and will have a $300k+ downpayment with the sale of our current home and I never in my life thought I’d spend anywhere near $650k on a home. Eek.

[midwestmama]

I just threw out some numbers, but with current interest rates, the actual "up to" might be lower than what I put because we'd be looking at the mortgage payment. I'm in an MCOL area.

The two times DH and I bought a house we were first around $75,000 and then around $150,000. Now we are around $225,000 (not including annual bonus since it's not guaranteed), so anything above that is just a guess at what we'd be comfortable with. (And knowing DH, he wouldn't want to spend as high as what I indicated, but house prices are still crazy.) The last time we bought a house was in 2011, when the housing market was low.

$75,000 - up to $200,000 (the house we actually bought was about $150,000 and $0 down)
$150,000 - up to $350,000 (the house we actually bought was about $240,000 and we only put 5% down)
$225,000 - up to $600,000
$300,000 - up to $750,000
$500,000 - up to $1M?

[k3am]

Our housing market has been crazy the entire time we've lived here. I think we're the most expensive place in the country, and our houses are very, very crappy relative to the prices.

That being said, I wouldn't base a house price based on salary, I'd base the monthly payment based on free cash flows. Before we bought our current house, we spent several months "paying the new mortgage" - ie: paying the difference between our expected housing costs and our existing mortgage into a separate account and making sure that we could live off the remaining cash flow without feeling like it would impact our financial lifestyle- we were still able to make the payments, contribute to savings, pay for daycare, etc, and have enough to keep up on the "extras" in life that we enjoy, so we were okay with spending more on the house.

[wildrice]

Without doing a lot of math, I don't really know. I will say that our current housing payment is about 25% of our monthly take home pay, and that feels very comfortable for us. We probably could afford to go a little higher, but I like having the flexibility in our budget and think I'd feel more stressed about money in general if we went much higher. Much lower than 25% is honestly not realistic in our town.



Eta: our house is in the ballpark of about 1.75x our annual income. My H also has around 100k in student loans, though, and we are behind on retirement so those two things eat up a lot of our budget. Plus we have spent a small fortune on updating and fixing stuff in this house, which also should be a consideration when buying (we have been here 2.5 years and I bet we have spent at least 25k so far!). So yeah, there are a million factors that go into affordability!

[wildrice]

Sept 16, 2022 10:14:19 GMT -5 cherry1111 said:

I guess I just need to get used to the idea of potentially spending more than I ever thought we would. 2 years ago we planned to spend $450k before things went insane.

We fall in the $225k income range and will have a $300k+ downpayment with the sale of our current home and I never in my life thought I’d spend anywhere near $650k on a home. Eek.

So you'd have a mortgage for around 350k or you are talking about a 950k home?

I would definitely feel comfortable taking out a 350k mortgage with your current income.

[goldengirlz]

We’ve personally been comfortable only borrowing up to 2-2.5x gross income — but I also know that’s a fairly privileged thing to say.

I REALLY want to upgrade our house but H is pretty firm on the max number he wants to spend — and I do agree with him that it’s crazy to over-leverage ourselves. We enjoy “fluff” too much, particularly travel. So we’re staying put for now.

plutosmoon, the 3-4x number is what I’ve heard as the rule of thumb for what banks will lend, not necessarily a target for affordability.

[scm1011]

This really just relies on too many factors. Last summer we bought a >$1M home on a $225k HHI which would make MM clutch their pearls, but we had a substantial DP and no student loans and it’s totally comfortable. Also, HCOL.

[krystee]

We bought at 3x our annual income for our first house and just over 2x our annual income for the second. We have car loans, a student loan and daycare bills, so I feel extremely lucky we were able to make that work.

Property taxes make a giant difference too. I live in an extremely high tax area, so my property taxes alone are nearly $12K on a $450,000 house.

[purplepenguin7]

We bought recently at just under 3x our income and it’s not great. I would say 2-2.5x would be more ideal. Our property taxes are very high, plus we also have 2 car payments and daycare.

Similar to you we had been planning on buying in 2020 at a $500-550k. Things went crazy before we ready to put on offers and then it all went downhill from there. .

[niq]

At current interest rates, I would try keep the _mortgage_ under 2.5x.

When you get to stupid high incomes (above $300K or so), I think it's okay to spend more on housing if that's what you want out of life, as opposed to fancy cars or travel or private school.

[cherry1111]

Sept 16, 2022 14:35:09 GMT -5 wildrice said:

Sept 16, 2022 10:14:19 GMT -5 cherry1111 said:

I guess I just need to get used to the idea of potentially spending more than I ever thought we would. 2 years ago we planned to spend $450k before things went insane.

We fall in the $225k income range and will have a $300k+ downpayment with the sale of our current home and I never in my life thought I’d spend anywhere near $650k on a home. Eek.

So you'd have a mortgage for around 350k or you are talking about a 950k home?

I would definitely feel comfortable taking out a 350k mortgage with your current income.

$350k mortgage. I think it’s a huge mental thing for me. It’s a lot of money and these $650k houses were selling for $375k not that long ago.

[atarianna]

I explicitly remember when our HHI was $60-75k and we were preapproved for $350k. I was floored and would never have been comfortable with with that. Now with no other debt it wouldn’t be as crazy to me, but at the time it was insanity.

Now I would say with a HHI of $75k, I would be good with $175-200 to be comfortable and not stressed about finances.

[jewel]

Sept 16, 2022 22:29:40 GMT -5 cherry1111 said:

Sept 16, 2022 14:35:09 GMT -5 wildrice said:

So you'd have a mortgage for around 350k or you are talking about a 950k home?

I would definitely feel comfortable taking out a 350k mortgage with your current income.

$350k mortgage. I think it’s a huge mental thing for me. It’s a lot of money and these $650k houses were selling for $375k not that long ago.

How will your new payment compare to your current? Does it feel like your budget will actually be stressed? Or is it more of just sticker shock?

We had a similar sale/purchase a few years ago. We put around 45% down on $600k, with a 10 year mortgage on the remainder. Our income is just barely over half of yours, and I still feel quite comfortable. But we don’t have daycare, student loans, or any other significant bills. So, the monthly mortgage payment, taxes/insurance rates, and all of your other bills/spending can make a huge difference in what you feel comfortable with.

[cherry1111]

Sept 17, 2022 0:44:18 GMT -5 jewel said:

Sept 16, 2022 22:29:40 GMT -5 cherry1111 said:

$350k mortgage. I think it’s a huge mental thing for me. It’s a lot of money and these $650k houses were selling for $375k not that long ago.

How will your new payment compare to your current? Does it feel like your budget will actually be stressed? Or is it more of just sticker shock?

We had a similar sale/purchase a few years ago. We put around 45% down on $600k, with a 10 year mortgage on the remainder. Our income is just barely over half of yours, and I still feel quite comfortable. But we don’t have daycare, student loans, or any other significant bills. So, the monthly mortgage payment, taxes/insurance rates, and all of your other bills/spending can make a huge difference in what you feel comfortable with.

I think it would increase by about $2k. Currently our payment is under $2k all in. We bought our current home for $150k when we made $70k. We refinanced to a 15 year mortgage about 8 years ago. On paper it should all work but mentally a mortgage payment that size is scary to me. Property taxes are on the higher side here because no state income tax.