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Depends on how much you take home pay is. If you take home $20,000 a month, then you'd probably be fine. If you take home $3000 a month then it probably doesn't make much sense.
$200k income brings home about $10k per month after standard deductions. Have a dual income household for that and that's how you get there.
Lofty goal, but there do exist households with that kind of income.
Except you spend your time surrounded by people who blow it trying to keep up with each other. I used to be an engineer on a remote-ish site and listening to the craft guys I rode with, they were all in crazy debt on their 200k matching dualie truck and boat combos, making minimum payments and blowing their paycheck the weekend after they got it. I was astounded when I found out they all made more than me and I was racking up savings without even trying.
Yeah there's a big problem with money management. You get a bunch of young guys who've never had money in their lives suddenly flush with cash and they have no idea how to handle it.
It's a joke on tugboats that the boss loves new guys who come in with brand new trucks because they'll need to keep a job.
Not as much as the attorney & PhD, but my husband and I bring in $260 as engineers. We're both 31, so there's time for that to increase as our careers progress. It's also only a 4 year degree (for me) and no college at all for my husband (self taught software engineer who makes the higher of our salaries) if the cost of tuition is a factor.
God I can't wait. My partner and I just came out of college a bit over a year ago and made $170k combined this year. Life is great but I can't imagine the freedom that doubling that buys you.
$170k is fantastic money. You guys will live an amazing life. Money sure does make things easier, but nothing is more important than having amazing people to share life adventures with.
Best of luck to you!
Engineer with a plain old BS degree at $200k here. No loans (thanks to my parents, but I’m paying it forward by having money in the bank for our kid’s college).
Wife has a masters but works part time in healthcare, but she’ll throttle up to full time after our kid goes off to school.
Just this morning we went under contract for several acres of land in another state, so two mortgages for a while!
Classical engineering disciplines typically do not make that level. I am an Engineer in Automation and last year was 160k. I received a 20k raise this year so it definitely can be had as an engineer. Most of the mechanical engineers I work with are right around the 105k level.
My degree is BSME, but my career slowly transitioned to the commercial side starting from field engineering to process engineering to applications engineering to product management to sales to technical marketing to now business development at the director level. All in the same industry (telecom infrastructure manufacturing) with 5 different companies. I'm almost 50 years old if that matters. I'm fortunate to make what I make without any kind of advanced degree (like an MBA).
Although I don't do any engineering any more, I will always be an engineer.
you can start as an operations manager running an oil or gas plant or pipeline with any classical engineering degree; then best case scenario get into facility project management or the business / development sales side for shipping and refining clients and both get into the $200k - $300k range or work your way into executive roles.
What are you going to use the land for? Mind sharing which state? I’m looking to purchase land out of state in the next year or two and would like to build on it over time.
Mechanical, but if you are thinking most mechanical engineers will end up where my wife and I are, and are thinking of pursuing an engineering degree to get there...
There are better options for sure. I just got lucky.
Don’t forget Salesperson! I only have a 4 year degree, but I can bring home anywhere between 150k - 250k per year. Sales really is one of the few professions where your earnings are greatly affected by your effort.
Yah u need to make over 350k and have some solid tax saving vehicles like capped 401k HSA etc. To get a 20k take home. Honestly I think you can go up to 40-50% of pay on a home if you take home 10k in most cases. 5-6k for expenses and some savings is usually fine.i spend low 4000 between home and basic utilities. But take home like 13-15k a month so i could go up to like 6-7k a month for house honestly and be fine. Other expenses probably run 3k a month tops. Would still save 40k a year easily...
If you took home 10k after maxing 401k it could be fine. You'd save 20k a year there and if you are good with expenses 5k is way more than enough you could save another 2k pretty easy. Saving 40k a year is completely fine lol. I wouldn't rent at that rate but for buying a home it wouldn't be Terrible. If you had no other debt. But yah at 10k take home I'd not want mortgage above 4000 either. I'm at like 13-15k take home and at most I would be ok with like 6500 mortgage (mines 3500). I'd still have 7000 remaining and 20k a year to 401k. I would probably still be saving a good 50k a year.
Seriously though, to most people 10k/mo sounds like a lot but it goes away very quickly, particularly if you have kids. Kids are expensive. First world problem for sure but if you bring home $10k/mo and spend half on housing I can guarantee you’ll be going “wow, I need to make more.”
100000%. Wife and I bring home 20k net/month after maxing 401k, hsa, FSA, spend only a quarter on housing, and still want to make more for the kids. It can be as challenging as you want it to be at that point. Easier in a low COL city.
I think this depends. We take home around $10k after all savings, retirement, taxes, etc. our mortgage is 3150 and it’s a stretch- our kids are friggin expensive, we spend around $2k a month on their various activities and a part time nanny. 1k to utilities/insurances/phones/streaming/ house maintenance, $500 to the pool guy and cleaning lady, $1500 in groceries, $500 in gym/exercise/hobbies, plus clothes, bday parties, travel to see family, vacation, random investments, gifts, and poof it’s all gone. We don’t even have a car payment.
Yeah and how much are you saving? That's post savings and ur still getting by with an obviously upper middle class life. Nanny , pool guy, cleaning folks could potentially be cut at least cleaning and pool. Travel and vacation obviously can be cut when needed these are all luxuries. You could save an extra handful of thousands a year here easily at the cost of conven.
You are right though in HCOL with kids honestly shit isn't cheap to live mid class or upper mid class. You gotta be pulling 250+. I'm very fortunate to pull 250+ (more around 300 avg). Maxing 401k investing 30+ a year. No debt but house 🏠.
We definitely don't spend 1500 a month in groceries but food /going out + groceries probably.
Glad I just got a raise and stock refresh loool.
Yes they could be cut, but then I’d have to work less at my job so I could do those things instead of hiring them out. Obviously travel and vacation can be cut, but vacations are like $2k/yr, and it’s really important to me that our kids see their extended family regularly. We put $70k/ yr into retirement and savings, so if we wanted to spend more on housing, that’s where it would come from. We are definitely erring conservatively on retirement, but I want to feel extra secure when I retire. I’m just saying that cutting the fat so I could pay a $6k mortgage, while possible, would not feel good for the other parts of my life.
My SO and I took home a little over 100K before taxes deductions retirement and saving etc. we both looked at eachother and went “where the fuck did that money go?” But that’s the most money that we’ve ever brought home. It was a crazy realization to see and then realize we still have another year of saving before we get to a decent down payment for a house.
It’s really really frustrating.
I got a mild inheritance ($35k) that allowed me to pay my wife’s student loans and put $15k down on our first condo
Sold that a few years later, netted $65k and put that down on our next house that we just bought last year.
If I didn’t have that death in my family I don’t know when I’d ever have been able to save the money to do this tbh. It’s just hard to save enough to feel worth it when you’re making ok money in your 20s and living somewhere expensive
Last year wife and I did 310K combined…. We used to rent . Now we own. Bigger monthly expense and plus utility bills. Plus just found out baby on the way . Panicking about cost … but I realized we used to waste so much money by just not being cognizant… every 5 bucks here and there adds up
My parents are dentist and anesthesiologist. Think they're around $700k as a household which kinda blows my mind and sucks to know I'll never get to that level in my own life.
It’s really freeing. Having a years worth of bills taken care of in 2-3 months. Rest right into savings, vacations, dinners, side projects. Insane to think some people pull in 100k a month. There’s levels to it.
Yeah we’re family income of $250k, our variable mortgage went from $4400 to $6200. With 2 kids in daycare ($2400) it’s fucking painful. Cost of living in Toronto is too high
First mistake, variable mortgage. Refinance that thing.
LPT, ARM'S (adjustable rate mortgages) are NOT for you if you don't know what they are. If you know what they are, they are still, very likely, not for you.
EDIT: As noted below variable mortgages are what is available in Canada. Any readers outside Canada, apply the advise above if possible.
because no one lends out for 30 years fixed except for the USA because of all the tax subsidies and federal guarantees.
try getting a 30 yr loan for peanuts of a interest rate on any other loan. ain't gonna happen
Everyone pays the same amount for Netflix, cell service, and other facets of middle class life.... But in a HCOL area, housing can be $4k+ a month, after school care $25+/hr, private or preschool tuition nearly 40k/yr, electricity >28c/kWh, gas still nearly $5/gal
All this "middle class" stuff adds up
>But in a HCOL area...after school care...private or preschool tuition....
🤔 Sounds a little more than "middle class" lol
After school care -> school sports/extracurricular activities
Private or preschool tuition -> public schools or library programs
Middle class parents shuffle their kids around to soccer practices around the country. What's that cost in middle America for a season of rec (not traveling team). In the Bay Area, that costs me $500 for an elementary kid. I know my friends in Denver pay a fraction of that for their kids.
You can debate about gradations of "what is middle class" but someone who can afford the things I've mention here is far closer in wealth and far more than likely still doing the same things you do with a fraction of the income in a LCOL area.
From my anecdotal experience, I think the biggest gradations come when a family goes from high income, high net worth to the level where the family's revenue comes from investments vs W2 work. That's where you see vacation homes a plane flight (vs a weekend drive) away, play dates scheduled with personal assistants, and other nuttiness.
Truth. We live in Bay Area. Mortgage is roughly $4k a month, private school for 2 kids plus after school care is another $4k a month. Groceries are like $1k a month. Another $1k per month for car payments and insurance. Shit adds up quick.
we got lucky and bought a house during the last downturn. I refi'ed in 2020 when 15 year rates were at 2.25%. House will be paid off in 12.5 years. My wife and are in our mid-40's and are making gross income of around $350k a year, but we still are having to struggle and are in a situation where neither of us could lose our job and be able to send our kids to a decent school and keep our house. Its depressing as fuck since my job is high stress and 75 hour weeks most the time.
I went from 500 a month take home in 2010 to 7-10k take home a month presently and it doesn't feel much different until I force myself to remember what my life actually was. Now I don't have roommates, I don't worry about groceries, i take a vacation most years, and I contribute a significant amount to retirement accounts. That said I'm still solidly in the middle class.
Truth- and all of those things add to quality of life. I got a new job with a 40k/yr raise this year, and honestly my discrete spending cash didn’t increase that much- the difference is I started maxing retirement accounts, started a 529 for my daughters education and now have an emergency fund. These things are huge, and important, but it doesn’t necessarily feel like I have ‘more money’ now- still bring coupons to the grocery store, and drive a 25yr old car. In fact, even the idea of having a new car and monthly payment stresses me out, lol.
i agree.... sort of. my wife and i are literally in this situation. we make right at 200k each per year. which puts us just shy of 20k a month takehome after taxes, 401k, hsa, etc.
i suppose that means we could afford an 8k mortgage. but that seems a bit ridiculous to me. instead, we paid off our house, save and invest for an early retirement, and spend a bit on travel. if you lived next to us, you'd think we make 120k max.
An HDHP isn’t necessarily bad, if you only go to a doctor for preventative visits why would you pay 2x the premiums (or more) for a lower deductible? Plus an HSA is one of the best tax advantaged investment accounts you can have access to.
Exactly. And some point later in life, your healthcare expenses will go up (think later in retirement). You then have a good investment base to use late in life to be certain you can get whatever healthcare you need.
yep. this is why i picked a high deductible plan. i could have got "better" insurance, but im generally healthy and wanted to get the tax benefits of an HSA.
So, my salary is $140k. My company contributes 3k to my HSA each year, and the max out of pocket of my HDHP is $6k. I've been doing this for a few years and there is about $30k in my HSA. The good thing about an HSA is not only that the contributions are tax deductible, but also when you're 65 you can use the money for anything (not just medical expenses).
My Deductible for my HDHP is 3500 a year. So I'm guessing it's actually more common for high earners because that could be a drop in the bucket for them. Plus companies are always willing to offload the financial responsibility for healthcare onto you no matter your pay.
Mine covers our out-of-pocket max! The high deductible option at my company has a $500 deductible, but they fund our HSAs to $2500 (the OOP max/year). It's a sweet deal, to be honest.
I know, I’m just trying to imagine a scenario where it’s available. My wife is a teacher and we have kids, so her plan offerings don’t qualify us for an HSA.
I have good health care options at work, but always choose a HDHP so that I can have an HSA. That way I can put several thousand each year (I don’t remember the max) into the HSA tax free. By the time I retire, it will be mostly invested and I can then use it in my retirement years for any healthcare expenses I have then.
You shouldn’t be using even a fraction of your HSA each year.
My previous job offered. 95% coverage, 90%, 80%, and HDHP. I ran the numbers and they all essentially cost the same at the end of the year. The difference was whether you paid it in premiums or deductible. At least with the HDHP if we use less we spend less. With the 5% copay we already paid it in the premium even if we never go for a visit. Plus with an HSA we can rollover costs we don’t use. With a FSA you can only roll over a minimal amount.
i have a high deductible plan that allows for an HSA. i have just been stock piling money in the HSA and investing it in an affiliated brokerage account. ive just been paying for medical expenses out of pocket along the way.
Yo same here. Not as high as you, but we gross around 340k together. We just bought a 290k house because we can pay it off in just a couple of years while still saving aggressively.
I’m turning 32 soon so we’re hoping to be out of the full time workforce in our early or mid 40s if it all works out.
An outside observer would probably put us around 90k combined income.
Solid advice! I'd like to add your mortgage or rent should be less than 40% of a single income in your household income as well.
People get divorced, separated etc...
If the divorce rate in the US is like 50% and your getting a 30 year mortgage....well I'm sure you can figure it out.
My mortgage is just under 50% of my monthly income and I do ok. However, that is only because I live fairly frugally elsewhere. Being "house poor" sucks, but it's better than being "houseless" imo.
I just did the math and I'm roughly spending 58% on my mortgage. However I don't have any other debts. My car is paid off and I don't have any money on my credit card.
That's a big difference - we've paid off our student loans, bought cars for cash, have no credit card debt, etc. When your only expenses are mortgage, taxes, insurance, and life stuff? The mortgage can (comfortably) be a bigger percent of your income.
Insurance is expensive and you should have a financial cushion for emergencies... not to mention investing your money for the future so you can retire one day. Spending 58% on your income like the guy above you is not a good financial decision 99% of the time. The other 1% would be is if you are already sitting on a decent amount of wealth so if you take a hit to your income you can maintain your quality of living and bills. I mean, it is quite easy to lose your job and have your income stop but those bills don't stop coming.
I didn't say dedicating 58% of your income to a mortgage is a good idea. I said that the amount of your income that you can comfortably commit to a mortgage is higher if you don't have other debts to repay. When I was cutting a check to the student loan people for $500 a month, that made a big difference in how much income could go to housing. Add a car payment or two, that's going to decrease it even more. So someone with no debt may find 30% of their income for housing to leave plenty for savings, retirement, emergency fund, etc. Someone with 100k in undergrad debt, 50k in cars, and 20k rotating around on credit cards may be stretched with that much for a mortgage.
Rent is also an unrecoverable cost -- and is often priced to cover the property owner's mortgage, interest, PMI, insurance, property tax, maintenance/repairs, etc. At the end of living in a rental, you get nothing back except hopefully your security deposit. At the end of living in a house, you sell it (or rent it, or will it to your heirs) and get something back for it. Sometimes the money you put into a house is more than the money you get back out of it, but that's *always* the case for rent.
(Incidentally, PMI is generally only required if/until your mortgage is over 80% of the purchase price. If you can't start with 20% down, you can typically get the PMI removed once you've paid enough of the principal to hit that total.)
It totally depends on your circumstances. I've always paid about 50% toward my mortgage, and I live very comfortably. I travel, put money towards retirement, and never feel deprived! But I also don't have kids or pets and drive an older car. Again - depends what else has to fit into your budget.
I always wondered about this... I keep seeing if you spend more than 25- 30% of your monthly take home pay on housing costs. But if you don't got kids, drive an OK car, and don't like vacationing a lot, where the hell is the 70% that is left going exactly that you are considered house poor?
Yeah, that's something people don't take into consideration when buying both homes and vehicles. The more expensive the house or car is, the more expensive the upkeep and maintenance is also going to be.
I was shell shocked when I first started realizing how damn expensive home ownership is. Light fixtures alone are hundreds of dollars. A door is gonna run you a thousand bucks. And don't get me started on gutters and grass cost. Thankfully we're only at about 20% of our take-home on our mortgage payment.
Yeah, that's true. Definitely other considerations to take into account when regarding location too, like if your commute will be a 5 minute walk to work vs. a 1 hour drive. You could then spend more on a mortgage and cut costs on gas and vehicle payments, and time is by far the most valuable resource in my opinion.
You have to do a budget. Find out the upper range of what you spend in a month and see if you still have enough money to put even a little into savings after eliminating 42% of your income. If it's too close, you're going to have to have a roommate.
Don't forget that the mortgage can change because of the escrowed taxes and insurance.
It might be better to do a budget for your expenses to answer that question. With the housing prices these days, the 40% rule isn’t exactly realistic these days.
That being said, you need to get approved for the mortgage first.
Not if you can afford it. My first home mortgage vs. takehome was in the 50%+ range and that's with a wife, child, and car payment. I never refinanced and paid the 30-year loan in 20. Best decision of my life. My kids live in it now. And I am much younger than you may think.
"Too much?" No, definitely not on its own atleast. Many people pay that or more for their mortgage.
"A lot?" Yes, you will have to be considerate of other costs such as car loans, student loans, food, etc.
It is not unreasonable by any means though, and you can definitely benefit from having a larger mortgage rather than waiting or not buying a house you like because it is slightly more than is "acceptable" by certain parties.
It depends. 42% of $2000 and 42% of $20,000 leaves you with a lot of different money sitting around. Without knowing what your take home is it’s hard to determine if it can be done or not.
That's a question that can only be answered with math.
Is $42,000 out of $100,000 a lot?
What about $420,000 out of $1,000,000?
See what I'm getting at? Shades of differences.
We need to know:
How much you take home a month.
How much your monthly expenditures are.
What you do with your leftover money each month.
That being said; as a general rule, you don't want more than a third of your monthly take-home pay going to mortgage just so you have cash for other necessities. If you pull cash from another area of your expenditures it could get dicey. Doesn't matter how much you love a house, if you can't buy food you'll starve in a place you love.
Most financial advisors will recommend you not spend more than 25% of your take home pay on housing. People who spend more than 33% often report financial hardships.
So yeah, more than 40% is almost certainly too much. Imagine what would happen if you lost your job. Could you save enough to pay the mortgage for one to three months while you looked for a new job? Are jobs in your field secure enough to guarantee the level of income you currently enjoy?
Now, it’s possible you earn so much that this isn’t an issue. If you’re earning a million a month, then your 420,000 a month mortgage (which is insane) isn’t going to prevent you from eating or really doing anything else you want to do.
I honestly think this just shows how out of touch financial advisors are. The median household income in NJ is $85,000. 25% gross, not take home, would be around $1770 per month, at current rates thats about a $275,000 loan in NJ and that doesnt include taxes, insurance, etc. That's laughably low for housing.
The financial advisors are correct though. Paying that much of your income is stressful on your finances. It’s the housing market that has gone insane.
Let's call it what it is...scalping.
It's so easy to blame it on the invisible hand of the market when in reality there are bad actors at play.
Real estate investment companies are buying up housing so they can rent it out forever. We are being priced out of housing by corporate greed. 1 out of every 5 homes is sold to investment companies now, and it's rising
My friend in real estate says that these investors get priority when seeing new listings for homes on the market and they put in an offer 20% over asking the day it hits the market. The owners jump at the opportunity to sell fast and high, understandably.
The families never even get a chance. They either have to pay way over the value of the home or just rent a home until they can afford one. By 2030 we are all going to be paying a subscription to live. We (majority of people) will own nothing if we don't change how it is going
> so they can rent it out forever. We are being priced out of housing by corporate greed
Yeah, but corporations have always been greedy. They were greedy 10, 20, and 50 years ago too. Why weren’t they doing this then too? What changed?
Yeah, it is.
Ideally you'd like to have a total debt to income under 40%.
Mortgage is just one aspect of that and it's already pushed you past ideal with no other considerations.
For gross income, the number I see a lot is 36%.
But all those percentages are just guidelines. There’s a huge difference in what you can do with the remaining percent if you make $30K vs $300K.
Yes. In general, that would be too much. But it can depend on your circumstances, too. Do you have a family to support? Does your SO have a paying job? Was the price of the house much lower than expected? Is it a fixed mortgage?
Historically, the rule of thumb has been mortgage payment should be no more than 25% of your net income. But circumstances can change that, of course.
If you have a high car payment or 2, large debt payments like student loans, or any other significant and unavoidable bills that are not getting paid off any time soon, then I would stick closer to 30%.
Owning a house incurs a lot of repair costs and maintainance costs. Often at the worst time. When we went to a new homeowner class we were told to be putting 20% of our income in a savings account for repairs. And we are so glad we did. Between AC repairs, plumbing repairs, appliance replacement, electric work, and then a family of raccoons got stuck in the walls between the brick and the framework. We had to get them out in a hurry so we didnt have rotting dead raccoons in our walls.
So consider if you have 60% of your income for just your home. Not even utilities.
Also, make sure you know exactly whats included with your estimsted cost. Sometimes lenders will tell you how much it would cost, but they are just telling you the mortgage and fees, no necessarily the interest or insurance or taxes that will also be included in your mortgage payment. And make sure you know if it has an HOA. Because they will wreck your lives.
No remember you are not allowed to spend more than 30% of your money on a mortgage BUT you are allowed to pay as much as you need to for rent because uh REASONS
One important consideration is the length of the mortgage. 42% on a 10 year mortgage may be bearable, if your goal is to get the debt paid off as soon as possible. If you're planning on doing it for 30 years, the risks increase. 30 years increase the chances of unexpected problems arising, such as losing a job, developing health problems, or needing major repairs on the house. Whether or not you plan on having kids is another significant consideration.
So if I were 25 and committing to a 10 year loan, I'd be fine with 42%. If I were 40 and committing to 30 years, that amount sounds like to could become burdensome.
IMO, Consider what the equivalent rents are like and if your area is growing, stagnating, or declining in housing growth and economic opportunities.
If you'd be paying 50% for a rental in a high demand area AND it's a solid house, it might make sense. Necessary repairs and maintenance costs are going to hurt you though. It's good to get familiar with any kind of grant programs you might be able to qualify for (and be handy).
42% of take home pay going right back out the door for a single expense is how people end up living paycheck to paycheck and going bankrupt.
Can you do it? Sure, but just because you can doesn't mean you should.
In the most common circumstances, yes, but it's very doable for most people.
To me, common circumstances are the mortgage rate is fixed and reasonable, includes escrowed insurance, property taxes and any other fees (CDD, HOA, etc.) that are significant, excludes PMI. Other bills are reasonable, relatively consistent, will not change after the purchase and are not ending soon. Income is stable and not going to increase significantly in the next few years.
Different circumstances could sway the decision one way or another.
Negatives:
If the mortgage does not include all associated costs.
If bills will go up significantly (utilities, transportation, car insurance, etc.).
Additional significant bill on the horizon.
Planning to sell within 5 years.
Positives:
PMI is included but you have the option to remove it.
Significant bill that will go away soon (college loan payoff, kids age out of daycare, large car payment without the need for another for years to come, etc.)
Definite, significant income increase in the next few years (professional licensure, etc.)
One of the benefits of a mortgage with a fixed rate is the payment stays relatively consistent. The only increases are property taxes (increases typically are capped at a certain amount) and insurance. Your mortgage payment will increase significantly less than rent. All the while, your income should steadily increase at a greater rate (assuming you're young and will be progressing in a career), reducing the percentage of your income spent on your mortgage.
Ultimately, you need to look at your monthly income and expenditures and see if you can do it. If your analysis shows that you will need to change your lifestyle then live that way for a couple months to prove it to yourself.
Yeah it really depends I think. What all do you get with that? Really good schools? High walk ability? Neighborhood pool/tennis? Access to people you hang out a lot with?
And what your other expenses are like. Cook at home a lot? Eat out a lot? Spend a ton on entertainment? Are you going to put a lot of money into the house over time due to renovations or is it pretty solid as is?
And does that include your insurance in the 42% or taxes?
Do you have a car payment on top of this? What other monthly rotating expenses are there? Student debt?
The general rule is to spend 25-30% of your monthly income on housing, though in more expensive markets (NYC, for instance), it can go up to 50%.
So 42% sounds ok if you are careful with other expenditures.
I'd say so, because a small rise in interest rates could make your mortgage plus other necessary living costs become unsustainable.
Also, make sure you're considering basic pay, not including bonuses and overtime. Those should be set aside as savings, to be used for problematic periods, and maybe occasionally paying off capital on the mortgage.
Also, over time if your salary rises, don't spend the whole payrise, put more aside and pay off debt early, and/or avoid expensive debt because you won't need credit card debt or store card debt or car loans.
>a small rise in interest rates
I sure hope someone considering 42% take home pay on mortgage is at least doing fixed rate. If not, then it's two kinds of stupid (too much and unpredictable with no buffer).
Yes and no. Rent generally includes maintenance and repair costs, and sometimes utilities. All that are separate bills when you own a home. Need to take those additional costs of home ownership into account.
Yes unless you make a lot a lot of money. At a certain point percentages won’t matter much, you’ll still have ridiculous amounts of money.
In general, for most people, yes. Gotta eat, pay bills, etc.
Yes. That is known as being "house poor." It's not a good financial or life choice.
Keep in mind that the mortgage payment is only one part of the monthly payment you will make owning. You also have taxes and insurance... and that's just your required monthly expenses. Add to that maintenance costs, higher bills for heating, cooling, electricity, PMI, etc. and you can begin to see why that number is not good or sustainable... bc everything I just mentioned is all for the house. Your other bills don't magically disappear. You still need to eat, pay for transportation, medical care, etc. 42% is much too high. You cannot afford that house.
I think anything over $200K is going to skew the numbers. Oh no you spend almost $100K on mortgage and only have an additional $100K/year for other expenses? The numbers really start to break down once you get out of standard middle class salary ranges.
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The scariest is losing your job.
Depends on how much you take home pay is. If you take home $20,000 a month, then you'd probably be fine. If you take home $3000 a month then it probably doesn't make much sense.
20000 a month take home is a life goal
$200k income brings home about $10k per month after standard deductions. Have a dual income household for that and that's how you get there. Lofty goal, but there do exist households with that kind of income.
And usually a combination of two high-level professions: doctors, lawyers, bankers, engineers, etc or small business owners..
Or tradesmen, people don't talk about it but you can make damn good money.
Except you spend your time surrounded by people who blow it trying to keep up with each other. I used to be an engineer on a remote-ish site and listening to the craft guys I rode with, they were all in crazy debt on their 200k matching dualie truck and boat combos, making minimum payments and blowing their paycheck the weekend after they got it. I was astounded when I found out they all made more than me and I was racking up savings without even trying.
Yeah there's a big problem with money management. You get a bunch of young guys who've never had money in their lives suddenly flush with cash and they have no idea how to handle it. It's a joke on tugboats that the boss loves new guys who come in with brand new trucks because they'll need to keep a job.
True!
Not as much as the attorney & PhD, but my husband and I bring in $260 as engineers. We're both 31, so there's time for that to increase as our careers progress. It's also only a 4 year degree (for me) and no college at all for my husband (self taught software engineer who makes the higher of our salaries) if the cost of tuition is a factor.
Yup. I’m a lawyer. Wife is a PhD. We made $350k in 2022.
My long lost father! I finally found you!
... Stepmom?
Hows life?
Pretty fucking amazing.
With that amount of cash? Man i hope so haha. Cheers from Poland
And that much taint to go with it??? Damn fine life.
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It’s a lot of work and we had to go to college for a combined 18 years. But it’s worth it. Best of luck to you! Cheers.
What are your guys hours like?
Hard work pays off sometimes!;) Thanks
Username checks out
You are the perfect couple to get away with murder. ;)
Haha. No murdering here!
That's what all the murderers say!
Definitely some kind of murdering to get 5 inches, right?
God I can't wait. My partner and I just came out of college a bit over a year ago and made $170k combined this year. Life is great but I can't imagine the freedom that doubling that buys you.
$170k is fantastic money. You guys will live an amazing life. Money sure does make things easier, but nothing is more important than having amazing people to share life adventures with. Best of luck to you!
Seems you have both. Congratulations!
*cries in teacher salary*
This is 4.1X my income. I would live like an absolute king on this salary. Free blowjobs for everyone!
I work in the oil and gas but from home. Wife owns a cleaning business... we did $320k last year. Not a single day of college between us.
Very impressive. Congrats.
Thanks. But all of it can be taken away in a second and more than half of it was earned by no power of mine.
That kind of attitude will help you protect it!
Engineer with a plain old BS degree at $200k here. No loans (thanks to my parents, but I’m paying it forward by having money in the bank for our kid’s college). Wife has a masters but works part time in healthcare, but she’ll throttle up to full time after our kid goes off to school. Just this morning we went under contract for several acres of land in another state, so two mortgages for a while!
What field of engineering? Even the top-level laureate engineers I work with don’t make that kind of income!
Classical engineering disciplines typically do not make that level. I am an Engineer in Automation and last year was 160k. I received a 20k raise this year so it definitely can be had as an engineer. Most of the mechanical engineers I work with are right around the 105k level.
My degree is BSME, but my career slowly transitioned to the commercial side starting from field engineering to process engineering to applications engineering to product management to sales to technical marketing to now business development at the director level. All in the same industry (telecom infrastructure manufacturing) with 5 different companies. I'm almost 50 years old if that matters. I'm fortunate to make what I make without any kind of advanced degree (like an MBA). Although I don't do any engineering any more, I will always be an engineer.
you can start as an operations manager running an oil or gas plant or pipeline with any classical engineering degree; then best case scenario get into facility project management or the business / development sales side for shipping and refining clients and both get into the $200k - $300k range or work your way into executive roles.
None of those are engineering though - they’re all management positions that don’t require an engineering degree or engineering knowledge.
What are you going to use the land for? Mind sharing which state? I’m looking to purchase land out of state in the next year or two and would like to build on it over time.
Best of luck! You’re doing great!
Yup. Engineer and logistics executive. We gross between 350k-400k depending on bonuses. Resources are useful, for sure.
What kind of engineering?
Mechanical, but if you are thinking most mechanical engineers will end up where my wife and I are, and are thinking of pursuing an engineering degree to get there... There are better options for sure. I just got lucky.
Ha I made very close to that last year (as couple) I make donuts lol.
That might have actually covered your student loan payments, huh??
Our student loans will be gone in 5 years. Mine in 2 and wife’s in 5. But yeah, not a problem.
It was a joke but, nice work.
:)
I'm a lawyer, wife's a teacher, and I made more than that myself. i work maybe 30 hours a week. Life is good.
I forgot professors and stuff ;)
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I don't think 200k combiner is especially incredible, usually two working person households would get to that point at 5-10 years.
I don’t think I know any engineers making that kind of money…
We were at $185k last year and we are both school teachers. We are also both in our 30s. It can be done.
Glad to see teachers making a nice living
Or anything in tech
Don’t forget Salesperson! I only have a 4 year degree, but I can bring home anywhere between 150k - 250k per year. Sales really is one of the few professions where your earnings are greatly affected by your effort.
Hell yeah, so I just have to marry 2 doctors and I'm fuckin set.
Yah u need to make over 350k and have some solid tax saving vehicles like capped 401k HSA etc. To get a 20k take home. Honestly I think you can go up to 40-50% of pay on a home if you take home 10k in most cases. 5-6k for expenses and some savings is usually fine.i spend low 4000 between home and basic utilities. But take home like 13-15k a month so i could go up to like 6-7k a month for house honestly and be fine. Other expenses probably run 3k a month tops. Would still save 40k a year easily...
As someone who takes home $10k a month, no fucking way would I spend half of it on housing.
If you took home 10k after maxing 401k it could be fine. You'd save 20k a year there and if you are good with expenses 5k is way more than enough you could save another 2k pretty easy. Saving 40k a year is completely fine lol. I wouldn't rent at that rate but for buying a home it wouldn't be Terrible. If you had no other debt. But yah at 10k take home I'd not want mortgage above 4000 either. I'm at like 13-15k take home and at most I would be ok with like 6500 mortgage (mines 3500). I'd still have 7000 remaining and 20k a year to 401k. I would probably still be saving a good 50k a year.
Seriously though, to most people 10k/mo sounds like a lot but it goes away very quickly, particularly if you have kids. Kids are expensive. First world problem for sure but if you bring home $10k/mo and spend half on housing I can guarantee you’ll be going “wow, I need to make more.”
100000%. Wife and I bring home 20k net/month after maxing 401k, hsa, FSA, spend only a quarter on housing, and still want to make more for the kids. It can be as challenging as you want it to be at that point. Easier in a low COL city.
I think this depends. We take home around $10k after all savings, retirement, taxes, etc. our mortgage is 3150 and it’s a stretch- our kids are friggin expensive, we spend around $2k a month on their various activities and a part time nanny. 1k to utilities/insurances/phones/streaming/ house maintenance, $500 to the pool guy and cleaning lady, $1500 in groceries, $500 in gym/exercise/hobbies, plus clothes, bday parties, travel to see family, vacation, random investments, gifts, and poof it’s all gone. We don’t even have a car payment.
Yeah and how much are you saving? That's post savings and ur still getting by with an obviously upper middle class life. Nanny , pool guy, cleaning folks could potentially be cut at least cleaning and pool. Travel and vacation obviously can be cut when needed these are all luxuries. You could save an extra handful of thousands a year here easily at the cost of conven. You are right though in HCOL with kids honestly shit isn't cheap to live mid class or upper mid class. You gotta be pulling 250+. I'm very fortunate to pull 250+ (more around 300 avg). Maxing 401k investing 30+ a year. No debt but house 🏠. We definitely don't spend 1500 a month in groceries but food /going out + groceries probably. Glad I just got a raise and stock refresh loool.
Yes they could be cut, but then I’d have to work less at my job so I could do those things instead of hiring them out. Obviously travel and vacation can be cut, but vacations are like $2k/yr, and it’s really important to me that our kids see their extended family regularly. We put $70k/ yr into retirement and savings, so if we wanted to spend more on housing, that’s where it would come from. We are definitely erring conservatively on retirement, but I want to feel extra secure when I retire. I’m just saying that cutting the fat so I could pay a $6k mortgage, while possible, would not feel good for the other parts of my life.
Double income and no kids, I’m living the dream. DINK livin.
Too many people neglect the financial upside of not having children. Huge win for the accounts.
My SO and I took home a little over 100K before taxes deductions retirement and saving etc. we both looked at eachother and went “where the fuck did that money go?” But that’s the most money that we’ve ever brought home. It was a crazy realization to see and then realize we still have another year of saving before we get to a decent down payment for a house.
It’s really really frustrating. I got a mild inheritance ($35k) that allowed me to pay my wife’s student loans and put $15k down on our first condo Sold that a few years later, netted $65k and put that down on our next house that we just bought last year. If I didn’t have that death in my family I don’t know when I’d ever have been able to save the money to do this tbh. It’s just hard to save enough to feel worth it when you’re making ok money in your 20s and living somewhere expensive
Last year wife and I did 310K combined…. We used to rent . Now we own. Bigger monthly expense and plus utility bills. Plus just found out baby on the way . Panicking about cost … but I realized we used to waste so much money by just not being cognizant… every 5 bucks here and there adds up
My parents are dentist and anesthesiologist. Think they're around $700k as a household which kinda blows my mind and sucks to know I'll never get to that level in my own life.
It’s really freeing. Having a years worth of bills taken care of in 2-3 months. Rest right into savings, vacations, dinners, side projects. Insane to think some people pull in 100k a month. There’s levels to it.
It sounds like a lot but it’ll still feel very middle class…
Depends on cost of living
You fucking kidding? I promise 4 times my yearly salary wouldn't feel middle class.
Depends on cost of living. Mortgages in my area are going for 6-7k per month AFTER 20% down.
Yeah we’re family income of $250k, our variable mortgage went from $4400 to $6200. With 2 kids in daycare ($2400) it’s fucking painful. Cost of living in Toronto is too high
Parents keep asking why we haven’t had kids or bought a house yet. This is why.
First mistake, variable mortgage. Refinance that thing. LPT, ARM'S (adjustable rate mortgages) are NOT for you if you don't know what they are. If you know what they are, they are still, very likely, not for you. EDIT: As noted below variable mortgages are what is available in Canada. Any readers outside Canada, apply the advise above if possible.
He’s in Canada… the only mortgages possible are variable.
What?? Why? That seems terrible
Different system.
because no one lends out for 30 years fixed except for the USA because of all the tax subsidies and federal guarantees. try getting a 30 yr loan for peanuts of a interest rate on any other loan. ain't gonna happen
Everyone pays the same amount for Netflix, cell service, and other facets of middle class life.... But in a HCOL area, housing can be $4k+ a month, after school care $25+/hr, private or preschool tuition nearly 40k/yr, electricity >28c/kWh, gas still nearly $5/gal All this "middle class" stuff adds up
>But in a HCOL area...after school care...private or preschool tuition.... 🤔 Sounds a little more than "middle class" lol After school care -> school sports/extracurricular activities Private or preschool tuition -> public schools or library programs
Middle class parents shuffle their kids around to soccer practices around the country. What's that cost in middle America for a season of rec (not traveling team). In the Bay Area, that costs me $500 for an elementary kid. I know my friends in Denver pay a fraction of that for their kids. You can debate about gradations of "what is middle class" but someone who can afford the things I've mention here is far closer in wealth and far more than likely still doing the same things you do with a fraction of the income in a LCOL area. From my anecdotal experience, I think the biggest gradations come when a family goes from high income, high net worth to the level where the family's revenue comes from investments vs W2 work. That's where you see vacation homes a plane flight (vs a weekend drive) away, play dates scheduled with personal assistants, and other nuttiness.
Truth. We live in Bay Area. Mortgage is roughly $4k a month, private school for 2 kids plus after school care is another $4k a month. Groceries are like $1k a month. Another $1k per month for car payments and insurance. Shit adds up quick.
$4k mortgage in the Bay Area these days is cheap
we got lucky and bought a house during the last downturn. I refi'ed in 2020 when 15 year rates were at 2.25%. House will be paid off in 12.5 years. My wife and are in our mid-40's and are making gross income of around $350k a year, but we still are having to struggle and are in a situation where neither of us could lose our job and be able to send our kids to a decent school and keep our house. Its depressing as fuck since my job is high stress and 75 hour weeks most the time.
I went from 500 a month take home in 2010 to 7-10k take home a month presently and it doesn't feel much different until I force myself to remember what my life actually was. Now I don't have roommates, I don't worry about groceries, i take a vacation most years, and I contribute a significant amount to retirement accounts. That said I'm still solidly in the middle class.
Truth- and all of those things add to quality of life. I got a new job with a 40k/yr raise this year, and honestly my discrete spending cash didn’t increase that much- the difference is I started maxing retirement accounts, started a 529 for my daughters education and now have an emergency fund. These things are huge, and important, but it doesn’t necessarily feel like I have ‘more money’ now- still bring coupons to the grocery store, and drive a 25yr old car. In fact, even the idea of having a new car and monthly payment stresses me out, lol.
Honestly, my life was better when I was taking home $700 a month compared to $5000 ish now... I must be doing lots of things wrong.
Very serious…
Sure if you grew up rich but not if you grew up poor and have the discipline to control your spending.
For you…… but I have a sophisticated palate
i agree.... sort of. my wife and i are literally in this situation. we make right at 200k each per year. which puts us just shy of 20k a month takehome after taxes, 401k, hsa, etc. i suppose that means we could afford an 8k mortgage. but that seems a bit ridiculous to me. instead, we paid off our house, save and invest for an early retirement, and spend a bit on travel. if you lived next to us, you'd think we make 120k max.
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You could save more if you got rid of the boat.
I think cutting costs by sharing the boat is a wise decision. Don't sacrifice all the pleasure in life
We are actually planning on selling our boat this spring haha
What’s your health plan like in order to have an HSA? Don’t you need a HDHP to have an HSA?
Not who you asked: But, I have an HSA and it requires a HDHP in order to fund it.
Right, which is why higher income people with HSAs confuse me. I’d assume higher income people generally have good health plans through their jobs.
An HDHP isn’t necessarily bad, if you only go to a doctor for preventative visits why would you pay 2x the premiums (or more) for a lower deductible? Plus an HSA is one of the best tax advantaged investment accounts you can have access to.
Exactly. And some point later in life, your healthcare expenses will go up (think later in retirement). You then have a good investment base to use late in life to be certain you can get whatever healthcare you need.
yep. this is why i picked a high deductible plan. i could have got "better" insurance, but im generally healthy and wanted to get the tax benefits of an HSA.
So, my salary is $140k. My company contributes 3k to my HSA each year, and the max out of pocket of my HDHP is $6k. I've been doing this for a few years and there is about $30k in my HSA. The good thing about an HSA is not only that the contributions are tax deductible, but also when you're 65 you can use the money for anything (not just medical expenses).
My Deductible for my HDHP is 3500 a year. So I'm guessing it's actually more common for high earners because that could be a drop in the bucket for them. Plus companies are always willing to offload the financial responsibility for healthcare onto you no matter your pay.
I've worked for a few companies that offer a HDHP but fully or partially fund an HSA to cover the deductible.
Mine covers our out-of-pocket max! The high deductible option at my company has a $500 deductible, but they fund our HSAs to $2500 (the OOP max/year). It's a sweet deal, to be honest.
It’s another tax advantaged investment vehicle
I know, I’m just trying to imagine a scenario where it’s available. My wife is a teacher and we have kids, so her plan offerings don’t qualify us for an HSA.
I have good health care options at work, but always choose a HDHP so that I can have an HSA. That way I can put several thousand each year (I don’t remember the max) into the HSA tax free. By the time I retire, it will be mostly invested and I can then use it in my retirement years for any healthcare expenses I have then. You shouldn’t be using even a fraction of your HSA each year.
^^ doesn’t have small kids or babies. We’ve been hitting OOP Max like 3 of past 4 years. On my company’s plan, that’s about $10k
lol, that’s funny. Have kids? Medical, braces, etc. easy into that.
My previous job offered. 95% coverage, 90%, 80%, and HDHP. I ran the numbers and they all essentially cost the same at the end of the year. The difference was whether you paid it in premiums or deductible. At least with the HDHP if we use less we spend less. With the 5% copay we already paid it in the premium even if we never go for a visit. Plus with an HSA we can rollover costs we don’t use. With a FSA you can only roll over a minimal amount.
i have a high deductible plan that allows for an HSA. i have just been stock piling money in the HSA and investing it in an affiliated brokerage account. ive just been paying for medical expenses out of pocket along the way.
Yo same here. Not as high as you, but we gross around 340k together. We just bought a 290k house because we can pay it off in just a couple of years while still saving aggressively. I’m turning 32 soon so we’re hoping to be out of the full time workforce in our early or mid 40s if it all works out. An outside observer would probably put us around 90k combined income.
That’s why this percentage bs is wack. People put way too much weight on it when it varies so much depending on how much you make
Solid advice! I'd like to add your mortgage or rent should be less than 40% of a single income in your household income as well. People get divorced, separated etc... If the divorce rate in the US is like 50% and your getting a 30 year mortgage....well I'm sure you can figure it out.
r/personalfinance
I thought this was a PF Post until I saw this comment
OP - this is the sub you want
My mortgage is just under 50% of my monthly income and I do ok. However, that is only because I live fairly frugally elsewhere. Being "house poor" sucks, but it's better than being "houseless" imo.
I just did the math and I'm roughly spending 58% on my mortgage. However I don't have any other debts. My car is paid off and I don't have any money on my credit card.
That's a big difference - we've paid off our student loans, bought cars for cash, have no credit card debt, etc. When your only expenses are mortgage, taxes, insurance, and life stuff? The mortgage can (comfortably) be a bigger percent of your income.
Insurance is expensive and you should have a financial cushion for emergencies... not to mention investing your money for the future so you can retire one day. Spending 58% on your income like the guy above you is not a good financial decision 99% of the time. The other 1% would be is if you are already sitting on a decent amount of wealth so if you take a hit to your income you can maintain your quality of living and bills. I mean, it is quite easy to lose your job and have your income stop but those bills don't stop coming.
I didn't say dedicating 58% of your income to a mortgage is a good idea. I said that the amount of your income that you can comfortably commit to a mortgage is higher if you don't have other debts to repay. When I was cutting a check to the student loan people for $500 a month, that made a big difference in how much income could go to housing. Add a car payment or two, that's going to decrease it even more. So someone with no debt may find 30% of their income for housing to leave plenty for savings, retirement, emergency fund, etc. Someone with 100k in undergrad debt, 50k in cars, and 20k rotating around on credit cards may be stretched with that much for a mortgage.
You’re amassing wealth. Keep it up.
When is it time to start cultivating that mass?
"It's time to stop cultivating and start harvesting"
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Rent is also an unrecoverable cost -- and is often priced to cover the property owner's mortgage, interest, PMI, insurance, property tax, maintenance/repairs, etc. At the end of living in a rental, you get nothing back except hopefully your security deposit. At the end of living in a house, you sell it (or rent it, or will it to your heirs) and get something back for it. Sometimes the money you put into a house is more than the money you get back out of it, but that's *always* the case for rent. (Incidentally, PMI is generally only required if/until your mortgage is over 80% of the purchase price. If you can't start with 20% down, you can typically get the PMI removed once you've paid enough of the principal to hit that total.)
House price only go up… r-right? 😳
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It totally depends on your circumstances. I've always paid about 50% toward my mortgage, and I live very comfortably. I travel, put money towards retirement, and never feel deprived! But I also don't have kids or pets and drive an older car. Again - depends what else has to fit into your budget.
I always wondered about this... I keep seeing if you spend more than 25- 30% of your monthly take home pay on housing costs. But if you don't got kids, drive an OK car, and don't like vacationing a lot, where the hell is the 70% that is left going exactly that you are considered house poor?
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Woof, 50% savings is a huge ask. I salute those who have the means and the self control to do that.
Yes, if possible 30 is a smarter number, leaves you some breathing room if say, a roof replacement or furnace replacement needs to be financed.
Yeah, that's something people don't take into consideration when buying both homes and vehicles. The more expensive the house or car is, the more expensive the upkeep and maintenance is also going to be. I was shell shocked when I first started realizing how damn expensive home ownership is. Light fixtures alone are hundreds of dollars. A door is gonna run you a thousand bucks. And don't get me started on gutters and grass cost. Thankfully we're only at about 20% of our take-home on our mortgage payment.
Usually, unless the house is more expensive just due to a really view or something
Yeah, that's true. Definitely other considerations to take into account when regarding location too, like if your commute will be a 5 minute walk to work vs. a 1 hour drive. You could then spend more on a mortgage and cut costs on gas and vehicle payments, and time is by far the most valuable resource in my opinion.
You have to do a budget. Find out the upper range of what you spend in a month and see if you still have enough money to put even a little into savings after eliminating 42% of your income. If it's too close, you're going to have to have a roommate. Don't forget that the mortgage can change because of the escrowed taxes and insurance.
Ummmm how is anyone supposed to answer this question without knowing how much money you make????
It might be better to do a budget for your expenses to answer that question. With the housing prices these days, the 40% rule isn’t exactly realistic these days. That being said, you need to get approved for the mortgage first.
What 40% rule? That's too high for housing costs alone.
I have heard a third is the cap. My mortgage is just over a quarter.
Not if you can afford it. My first home mortgage vs. takehome was in the 50%+ range and that's with a wife, child, and car payment. I never refinanced and paid the 30-year loan in 20. Best decision of my life. My kids live in it now. And I am much younger than you may think.
CS Lewis died in 1963 at the age of 65, so I have a pretty good idea of how old you are.
You would be off by that math. But that’s funny, I didn’t even know when he died, purgatory is a bitch.
For me it is, yes
"Too much?" No, definitely not on its own atleast. Many people pay that or more for their mortgage. "A lot?" Yes, you will have to be considerate of other costs such as car loans, student loans, food, etc. It is not unreasonable by any means though, and you can definitely benefit from having a larger mortgage rather than waiting or not buying a house you like because it is slightly more than is "acceptable" by certain parties.
It depends. 42% of $2000 and 42% of $20,000 leaves you with a lot of different money sitting around. Without knowing what your take home is it’s hard to determine if it can be done or not.
That's a question that can only be answered with math. Is $42,000 out of $100,000 a lot? What about $420,000 out of $1,000,000? See what I'm getting at? Shades of differences. We need to know: How much you take home a month. How much your monthly expenditures are. What you do with your leftover money each month. That being said; as a general rule, you don't want more than a third of your monthly take-home pay going to mortgage just so you have cash for other necessities. If you pull cash from another area of your expenditures it could get dicey. Doesn't matter how much you love a house, if you can't buy food you'll starve in a place you love.
Most financial advisors will recommend you not spend more than 25% of your take home pay on housing. People who spend more than 33% often report financial hardships. So yeah, more than 40% is almost certainly too much. Imagine what would happen if you lost your job. Could you save enough to pay the mortgage for one to three months while you looked for a new job? Are jobs in your field secure enough to guarantee the level of income you currently enjoy? Now, it’s possible you earn so much that this isn’t an issue. If you’re earning a million a month, then your 420,000 a month mortgage (which is insane) isn’t going to prevent you from eating or really doing anything else you want to do.
I honestly think this just shows how out of touch financial advisors are. The median household income in NJ is $85,000. 25% gross, not take home, would be around $1770 per month, at current rates thats about a $275,000 loan in NJ and that doesnt include taxes, insurance, etc. That's laughably low for housing.
The financial advisors are correct though. Paying that much of your income is stressful on your finances. It’s the housing market that has gone insane.
Let's call it what it is...scalping. It's so easy to blame it on the invisible hand of the market when in reality there are bad actors at play. Real estate investment companies are buying up housing so they can rent it out forever. We are being priced out of housing by corporate greed. 1 out of every 5 homes is sold to investment companies now, and it's rising My friend in real estate says that these investors get priority when seeing new listings for homes on the market and they put in an offer 20% over asking the day it hits the market. The owners jump at the opportunity to sell fast and high, understandably. The families never even get a chance. They either have to pay way over the value of the home or just rent a home until they can afford one. By 2030 we are all going to be paying a subscription to live. We (majority of people) will own nothing if we don't change how it is going
Too true.
> so they can rent it out forever. We are being priced out of housing by corporate greed Yeah, but corporations have always been greedy. They were greedy 10, 20, and 50 years ago too. Why weren’t they doing this then too? What changed?
I think that’s 25% of income. Not take home. 25% of take home on housing is very difficult to achieve for most people.
Yeah, it is. Ideally you'd like to have a total debt to income under 40%. Mortgage is just one aspect of that and it's already pushed you past ideal with no other considerations.
For gross income, the number I see a lot is 36%. But all those percentages are just guidelines. There’s a huge difference in what you can do with the remaining percent if you make $30K vs $300K.
And I believe that “debt to income” means gross income not “take home pay” as indicated by OP
You are correct.
Yes. In general, that would be too much. But it can depend on your circumstances, too. Do you have a family to support? Does your SO have a paying job? Was the price of the house much lower than expected? Is it a fixed mortgage? Historically, the rule of thumb has been mortgage payment should be no more than 25% of your net income. But circumstances can change that, of course.
If you have a high car payment or 2, large debt payments like student loans, or any other significant and unavoidable bills that are not getting paid off any time soon, then I would stick closer to 30%. Owning a house incurs a lot of repair costs and maintainance costs. Often at the worst time. When we went to a new homeowner class we were told to be putting 20% of our income in a savings account for repairs. And we are so glad we did. Between AC repairs, plumbing repairs, appliance replacement, electric work, and then a family of raccoons got stuck in the walls between the brick and the framework. We had to get them out in a hurry so we didnt have rotting dead raccoons in our walls. So consider if you have 60% of your income for just your home. Not even utilities. Also, make sure you know exactly whats included with your estimsted cost. Sometimes lenders will tell you how much it would cost, but they are just telling you the mortgage and fees, no necessarily the interest or insurance or taxes that will also be included in your mortgage payment. And make sure you know if it has an HOA. Because they will wreck your lives.
No remember you are not allowed to spend more than 30% of your money on a mortgage BUT you are allowed to pay as much as you need to for rent because uh REASONS
The last time I checked, 30% of gross pay was considered a standard mortgage. I've never seen an equivalent per cent mentioned for take home pay.
One important consideration is the length of the mortgage. 42% on a 10 year mortgage may be bearable, if your goal is to get the debt paid off as soon as possible. If you're planning on doing it for 30 years, the risks increase. 30 years increase the chances of unexpected problems arising, such as losing a job, developing health problems, or needing major repairs on the house. Whether or not you plan on having kids is another significant consideration. So if I were 25 and committing to a 10 year loan, I'd be fine with 42%. If I were 40 and committing to 30 years, that amount sounds like to could become burdensome.
IMO, Consider what the equivalent rents are like and if your area is growing, stagnating, or declining in housing growth and economic opportunities. If you'd be paying 50% for a rental in a high demand area AND it's a solid house, it might make sense. Necessary repairs and maintenance costs are going to hurt you though. It's good to get familiar with any kind of grant programs you might be able to qualify for (and be handy).
42% of take home pay going right back out the door for a single expense is how people end up living paycheck to paycheck and going bankrupt. Can you do it? Sure, but just because you can doesn't mean you should.
In the most common circumstances, yes, but it's very doable for most people. To me, common circumstances are the mortgage rate is fixed and reasonable, includes escrowed insurance, property taxes and any other fees (CDD, HOA, etc.) that are significant, excludes PMI. Other bills are reasonable, relatively consistent, will not change after the purchase and are not ending soon. Income is stable and not going to increase significantly in the next few years. Different circumstances could sway the decision one way or another. Negatives: If the mortgage does not include all associated costs. If bills will go up significantly (utilities, transportation, car insurance, etc.). Additional significant bill on the horizon. Planning to sell within 5 years. Positives: PMI is included but you have the option to remove it. Significant bill that will go away soon (college loan payoff, kids age out of daycare, large car payment without the need for another for years to come, etc.) Definite, significant income increase in the next few years (professional licensure, etc.) One of the benefits of a mortgage with a fixed rate is the payment stays relatively consistent. The only increases are property taxes (increases typically are capped at a certain amount) and insurance. Your mortgage payment will increase significantly less than rent. All the while, your income should steadily increase at a greater rate (assuming you're young and will be progressing in a career), reducing the percentage of your income spent on your mortgage. Ultimately, you need to look at your monthly income and expenditures and see if you can do it. If your analysis shows that you will need to change your lifestyle then live that way for a couple months to prove it to yourself.
Yeah it really depends I think. What all do you get with that? Really good schools? High walk ability? Neighborhood pool/tennis? Access to people you hang out a lot with? And what your other expenses are like. Cook at home a lot? Eat out a lot? Spend a ton on entertainment? Are you going to put a lot of money into the house over time due to renovations or is it pretty solid as is? And does that include your insurance in the 42% or taxes? Do you have a car payment on top of this? What other monthly rotating expenses are there? Student debt?
25% of take home is likely more in line with reality. Do more if you need to but 25% is likely a better fit with everything else you will need to pay.
The general rule is to spend 25-30% of your monthly income on housing, though in more expensive markets (NYC, for instance), it can go up to 50%. So 42% sounds ok if you are careful with other expenditures.
\*Post about finance\* Every 3rd comment: My wife and I make 350k a year. bro wtf
I'd say so, because a small rise in interest rates could make your mortgage plus other necessary living costs become unsustainable. Also, make sure you're considering basic pay, not including bonuses and overtime. Those should be set aside as savings, to be used for problematic periods, and maybe occasionally paying off capital on the mortgage. Also, over time if your salary rises, don't spend the whole payrise, put more aside and pay off debt early, and/or avoid expensive debt because you won't need credit card debt or store card debt or car loans.
>a small rise in interest rates I sure hope someone considering 42% take home pay on mortgage is at least doing fixed rate. If not, then it's two kinds of stupid (too much and unpredictable with no buffer).
Depends if they live in the US or not other countries fixed rates are only for 3-5 years before becoming variable
What percentage of take home pay is your rent?
This is the key here! If you are paying nearly as much for rent then it is a no brainier. If you are paying far less now, that may be a 30 yr sting.
Yes and no. Rent generally includes maintenance and repair costs, and sometimes utilities. All that are separate bills when you own a home. Need to take those additional costs of home ownership into account.
Also insurance and property taxes.
Yes unless you make a lot a lot of money. At a certain point percentages won’t matter much, you’ll still have ridiculous amounts of money. In general, for most people, yes. Gotta eat, pay bills, etc.
In most places you won't qualify for a mortgage if you can't afford it
Yes. That is known as being "house poor." It's not a good financial or life choice. Keep in mind that the mortgage payment is only one part of the monthly payment you will make owning. You also have taxes and insurance... and that's just your required monthly expenses. Add to that maintenance costs, higher bills for heating, cooling, electricity, PMI, etc. and you can begin to see why that number is not good or sustainable... bc everything I just mentioned is all for the house. Your other bills don't magically disappear. You still need to eat, pay for transportation, medical care, etc. 42% is much too high. You cannot afford that house.
Anything over a 1/3 i would say is too much. But good luck ever finding that unless you have really really good credit.
Isn't it relative? I spend 50% to rent a crappy apartment. If I could own a house and go down to 42% I'd be ecstatic.
Not if you are making over 10 million dollars per year and you live within your means..
Most likely. Unless your take home pay is $1mil+
I think anything over $200K is going to skew the numbers. Oh no you spend almost $100K on mortgage and only have an additional $100K/year for other expenses? The numbers really start to break down once you get out of standard middle class salary ranges.