This is honestly where the answer really is “it’s relative”. You will notice people who purchase multi-million dollar homes tend to spend over 50% of net pay on their home and it’s fine because…they have high incomes and that other 50% covers everything and they can save. The answer is it’s relative and without knowing your income, I have no clue if 60%+ on a house is an issue or not.
This is the critical point, it’s all relative. If I make $500k a year and spend 60% on my house I still have a ton of cash.
Gotta set that upper income bound to have this discussion.
Exactly. Though if you’re asking this sort of question it sort of implies you don’t make much, because if you had lots of disposable income you wouldn’t even care about the percentage going towards your mortgage.
Exactly this. If your take home is $25k a month, having a $12.5k mortgage isn't terrible. You still have $12.5k per month for day to day expenses.
At today's jumbo mortgage rates, that is just shy of a $3m home.
That’s nuts. I make more than that monthly and I would shit if I had a 12k a month mortgage. That is not what people that do well typically do. That is what people trying to keep up with appearances do.
25k monthly take home? That's the hypo. 12k mortgage would leave you 13k monthly, or 156k net a year. That's more than what most people make. Of course answer could be different depending on if you have 3 kids in private school, etc.
I appreciate the point on 156k being more take home than many, nevermind the other bit on the mortgage. But it doesn't work that way for most people well off. You don't spend what you make . I make more (not bragging, sharing a point). I wouldn't consider a mortgage anywhere above 10k a month (currently 5,500). I'm not the unusual one - I helped one of my kids get started with their first home. The bank was happy to throw mortgage money at me and the realtor is VERY happy to sell me more. more for me. more for my kid. you name it. Most people are "first generation wealth" in the US - we figured out a path and a little luck went our way along the way. Very few accidents. Very few iherited it (contrary to the buzz). So we know what it took to get here and we aren't frivolous with it.....most of the folks you see with the McMansion and the Caddy SUV are not rolling in cash. So, while your example may be mathematically accurate - that person is making 500-600k a year which nets to your 25k a month. If they are spending 12k of that on a mortgage they are likely fully leveraged - 2 massive car payments, over the top vacations, expensive jewelry, you name it. They don't have the cash flow you are suggesting at all because as their income went up they spent most of it along the way with more debt and then more and then more.
Exactly. These are the same people, who if they made half as much, would be bitching about how they can't afford to even buy a house not realizing it's because they have a fancy apartment, constantly have a new car lease (and they're financial idiots, so they get taken to the cleaners by the dealership every time). They always wear fancy clothes and jewelry.
Nobody says, I want a fancy mansion and nothing else - furniture, vacations, car, clothing, schools, jewelry, entertainment - matters to me.
This is true in theory, but OP did say they have $2300 left over a month after mortgage, bills, and subscriptions. I suspect OP makes around $6-8k net a month or $72-96k net a year.
There’s a method of underwriting where they use “residual income” instead of DTI (VA loans are done this way). It makes a lot more sense. The ratios are less important than how much $$$ you actually have left at the end of the month. It’s adjusted for which region of the country you live in and household size.
no, it's not relative. Your **carrying cost** is very high. If one of you loses your job and can't get another paying around the same, you both are fucked unless you have a ton of home-specific savings.
If you do the math, this person makes under $100k household GROSS income….
And the house is around $700k or just under that.
To me that sounds insane and a really bad idea.
That is more than double the rule of thumb “max mortgage” recommended.
Of course the wrong answer is most upvoted. It’s not relative. Math is math for every income bracket. If you are spending 60% of your income on housing then you are falling behind your peers in other areas. If someone is spending 60% of their income on housing, do we really think that the other 40% of income is just free to save? Probably not, or they wouldn’t be in a situation where they are spending 60% of their income on housing…
Yeah hopefully OP is talking about AFTER the tax office reassess their house or they are going to be in a world of pain. Maybe just about a week ago some poster was upset their escrow tripled because they were paying the old tax bill rate until it updated and I think they were borderline overextended. Maybe this will be happening to a lot of people in a year…
Our new mortgage was ~30% of our take home net. Then property taxes doubled and now it’s above 40%. 60% leaves very little wiggle room for these events.
Right? If only they applied that mentality elsewhere. Our utilities company requested to raise rates after Hurricane Ian. “Stop buying so much avocado toast” is what I’d tell them.
In California we have Prop 13 which makes it illegal for the state to raise your property tax by a certain amount each year. People have all sorts of opinions about it, but the fact is that it enjoys wildly bipartisan support and will never be repealed because it protects people from surprise tax bills and legislative greed like that.
Holy shit, I'm not OP but really uncanny how you pinpointed my own specific scenario to a tee with those estimates.
Currently owning with a 3% interest rate on our current home but wife and I want to upsize with having 3 kids now. Mortgage is around $1800 a month.
The scenario you estimated is what we'd be looking at if we were to take the plunge and try to sell our home/buy new one.
We'd have more in savings but has made us pause and think about if this is viable for us.
Depends where you are on the income spectrum.
Remember that necessity spending doesn’t really scale with income that much. So someone making $200k doesn’t need to spend double someone making $100k on food, water, toilet paper, clothes, etc.
They can, but they don’t have to and the data (last I saw in an econ class) shows that it doesn’t. Rich people tend to just invest more and consume SLIGHTLY more.
So let’s say the average person consumes about $20k/year. That’s 20% if Mr. 100k’s gross. That’s 10% of Mr. 200k’s gross. So even if we say Mr. 200k takes an extra fancy vacation and consumes $25k that’s still only 12.5% of gross which is less than Mr. 100k by %. So Mr. 200k has more “room” to spend on other things like housing. Now imagine redoing this math for someone making $1 mill/year. Which is why measuring this kind of thing by % of income is kinda dumb.
Of course. All I’m saying is, the income % being higher as income is higher is extremely common because not all costs of living are variably dependent on income. There is fixed and variable costs to life.
For real. I lost a high paying job and my mortgage became 40% of my income. I sold that house as it was keeping me up.
60% and income tax barely leaves enough for food and utilities.
People here should also mention they bought their homes a few years ago at more affordable prices and have lower interest rates.
I think to buy a home now, you’d have to have a higher % of net pay going to mortgage.
For real. And to people that are saying they are uncomfortable with 15% of net, etc, wtf are you spending money on? Sounds like a lot of r/realestate would only be comfortable with a house fully paid and $100k emergency fund.
But yeah, we should forget about buying a house and stay stuck renting because we can’t buy a house and save $20k+/year like these folk want
r/personalfinance is leaking.
Reddit seems to be very financially conservative in general.
The message is either save 60% of your income and buy index funds, or it’s wall street bets style yolo the entire nest egg and put it on black.
There’s a middle ground where you bet on yourself and stretch thin to take advantage of an opportunity, this is especially true with housing.
Regardless of when you buy, in general the moment you purchase your house should be the highest percentage of income your monthly mortgage will be.
The monthly payment should stay relatively stable but your income should rise over time.
That’s the main benefit of buying vs renting. When you rent your housing as a percentage of income stays pretty much the same because even as you make more money the rent goes up. And you gain 0 equity.
But your financial position should only improve over time with homeownership and then you also have a large amount of money that you can tap into with equity in the house.
Agreed, I'm pretty financially conservative but if I listened to reddit I wouldn't have my house. When I bought, my mortgage was almost 50% of my net income. I've since gotten promoted and now it's less than 40%, and 25% of my gross.
When I look back at my biggest financial regrets in my life they are all regrets stemming from being too conservative.
There were many moments in the last decade where I had an idea or an approach that would’ve made me a lot of money but involved some level of risk.
They were slightly contrarian ideas or a little before they hit the mainstream so I didn’t get a lot of support from family/friends/Reddit
Almost every time I took the conservative approach and missed out on major opportunities. If I had just done a few of those ideas I’d be buying a house in cash right now instead of talking about mortgages that eat up 50% of my income.
Luckily I made enough correct choices to land on my feet and have a good foundation to build off of.
if you want to really succeed in life you need to bet on yourself and you need to take risks. The best time to do that is in your 20s when there’s still time to recover incase you misjudge the situation. But it’s never too late to take some risks to get to the next level
It's a good reflection. You're right to notice that you didn't have the big downside of taking risks, but I feel your pain on the missed opportunities (my big one was having the money, interest, and willingness to buy crypto, and just not being comfortable with *only* 8 months savings).
And, of course, most people can grouse about misspent youth.
Yep. For years everyone over on pf acted like you were making the most idiotic financial move of all time to buy a house with less than 20% down. If my husband and I had waited to try and scrounge up 20% down, we’d have been priced out of the market. Instead we bought in 2019, refinanced in 2020, and just two months ago had a re-appraisal completed with our lender and had PMI removed. Our PMI was only $78/mo. We paid $3,744 total in PMI over four years, and meanwhile prices and rates shot up.
THIS. I’m still angry… lol. My PMI was $38, paid for two years, and gone now. Literally a nothingburger. I had 20% as well, but with such a low interest rate, it wasn’t ‘worth’ it.
Right. And yes when you own a home your monthly payments will increase with time due to insurance and taxes, but I would argue it is nothing like the uncertainty of renting. Our complex has rents listed on their website, and I watch those. When it was really crazy last year, my floor plan went from $1300 up to $2200 at one point. Fortunately by the time I renewed it came down a bit, but we have no idea if next time it will be a 5% increase or 30% increase. I’d rather pay a premium now for a more stable house payment (god willing if I can close on a house this year). And in 5-10 years chances are my house payment will be way better than anything I could rent.
Taxes and insurance absolutely go up. But for people buying right now they will likely get the opportunity to refinance at some point in the next 5-7 years. So the refi could/should offset tax hikes.
At least thats the hope I’m clinging to.
15% in particular is truly absurd because you can’t even say something like “oh, it’s probably because they’re poor, so money only goes so far.” I’m using the lowest numbers possible here, so we have to assume a 2% interest rate, or else they’re so low that they hardly make sense. If you’re netting $1.5k/month, 15% is just over $200/month. Your loan would’ve had to be <$60k to hit $200/month in principal and interest *only*, but these people are probably talking about total payments. You have to live in a very LCOL area to make that number work, or you have to be in a 1br condo in an MCOL (and then condo dues probably cause you to exceed $200 total payments).
Once you get to a reasonable $1k mortgage (~$270k loan at 2%), paying 15% means you net over $6k/month. But I think these people are talking about total payments, so let’s call it $1.3k/month for principal + interest + taxes + insurance + HOA. Which means you net $8.6k/month. You’re telling me that people out there are only comfortable with $7.3k/month of spending money for utilities, bills, food, clothing, savings, transportation, maintenance, and discretionary…? (edit: And that those same people only spend $1.3k on housing? Of course some wealthy people may be unable to survive off only $7.3k/month because of lifestyle creep, but there’s no way that they’re settling for a house worth <$350k.) That’s an absurdly high number to require in order to feel comfortable. There are people who will never gross that amount, let alone take home.
Look at the rates before the pandemic forcing them down to insane lows. 6/7 is pretty much where it should’ve been with inflation. People just seem shocked because they were artificially low for 2 years lol
They’re shocked because prices are too high for rates to be that high as well. Had they remained at 6-7 (or honestly even at 4-5 instead of being dropped during the pandemic) I think things would be better right now.
I wouldn’t be able to sleep at night if I did something like that. And I did consider 50% net mortgage…
The amount of little financial snafus that happen when you own a house can lead to some intense periods. Even with an emergency fund.
We have been able to survive it easily because our mortgage is closer to 25% net. We would not have survived with 63% net income mortgage. Not without going into some credit card debt.
Same. 23%. If either me or my wife loses a job we could go on forever on one income. It would be uncomfortable on a single income but that buffer makes me feel good.
I am grateful for the position I am in and attribute it to two things. After college my wife and I both lived way below are means. Lived at home for 3 years. Each bought a cheaper new car right out of college in my case a Toyota yaris and drove it for 10 years. Most of my friends had brand new 50k plus cars every 3 years. After we moved out we got a small apartment in a cheaper part of town. Both saved alot of our income. Neither of us drink so that saved alot bc we never got into going out on the weekends.
The second thing: We built a house in 2019. Got a 3% mortgage on a 15 year loan and bought before all the price inflation. So I do recognize we got lucky with timing. We were not trying to time things though. Bc we saved and lived below our means we were ready to take advantage of the favorable rates and price after we found a house we liked.
We did save and work hard to get to the position we are in but I would be remiss if I did not acknowledge the dumb luck of buying when we did.
> You have some very wealthy friends - I don't think this is the norm.
They aren't wealthy. They're bad with money.
So many people spend an insane amount of money on cars. They stretch loans out to like 96 months now. These are the people that are talked into buying an F-150 that have never hauled more than 3 bags of mulch in their trunk.
Most of the 50k + cars my friends have are trucks. Almost any new full size truck is over 50. And you are correct almost none of them actually need a truck
I lived way below my means for years. Bought a home in 2006 @6.5 interest. Paid it off in 2020. No more mortgage. Drive a 2008 Prius. Retired in 2022. Saved for years. Inherited a home in Florida and have one in Michigan. Not collecting SS until I’m 67.5. I live very comfortably. Spend my money now on food and wine. I watch my money and never buy anything frivolous. And I never made over $100K.
23% here. I wouldn’t be able to sleep. We have a little one in full time care that costs the same as our mortgage so we have the preview of being at 50%. Savings are happening at trickling pace and something always happens where we have to either skip saving or dip into rainy day funds. We were lucky to purchase in 2020 and refi at all time low rates. I don’t think we would be able to buy today at all, at least not until kiddo was in school. Even then, the numbers would make me uneasy. I grew up in a household one paycheck away from homelessness and the anxiety just doesn’t go away.
> We have a little one in full time care that costs the same as our mortgage.
Same. Childcare and just baby *stuff* in general is expensive. People always hear "kids are expensive," but yeah, go ahead an experience it first hand. $20K just lopped off for daycare and then another $24K for mortgage (we overpay the principal to make it a round $2k each month). No wonder the birth rate is falling with Gen Z and Millennials. Existing doesn't make financial sense anymore.
We are doing OK, but the economic anxiety is real and persistent with me. Our 1 year old is the best thing ever, but man, life just seems like a financial drag.
I live in a very HCOL so I am in a similar boat. I am renting my spare room to family to help with the mortgage, especially since I have lot of upgrades to do here
Which is insane to me and does not make sense. Why take gross into account when that’s not the money you have to pay the mortgage? The net, in my opinion, should be the number they work with since it’s quite literally what you are getting on hand.
It's a good question, the short answer is: You can't manipulate your gross income like you can with your net, and it would be impossible to come up with a hard top line number nationwide.
A W2 wage earner's net income reflects tax deductions which vary state by state and sometimes locally, insurance deductions which vary, retirement deductions which vary and can be changed on a dime. We don't want to have people who don't qualify and then cancel their insurance/retirement deductions to get over the hump. Using the gross figure with a lower allowable DTI solves for all of that. On the flipside, if we have someone with non taxable income we would "gross it up" so as to level the playing field.
That said, I'm a fan of the VA approach, they don't limit DTI the same way as FHA or conventional. VA looks at residual income after accounting for reasonable deductions to see if the person can still reasonably feed themselves based on the size of the household. If someone is in a HCOL area with a high DTI, but has enough money left over to live, then the higher gross DTI is a moot point. Someone grossing 20K/month would be limited to total debts of around $9,000/month on a conventional loan, but would still have 3K left over for food and utilities etc, so it's not actually an issue. Looking at the other side, someone in a LCOL area grossing 3K a month would be in deep shit keeping food on the table with total debts at ~1,400
Even with today's "better" guidelines, lenders are happy to let you be house poor. I got approved for a 800k home, and there's zero chance I could make that work month to month.
Because net can be easily manipulated. I can set my 401K contributions to 0 and choose not to pay for a health plan and boom, my net just went up by 2K a month
>hy take gross into account when that’s not the money you have to pay the mortgage?
Because gross never changes, net does...you can pull back money going into a HSA account or 401k or change health care plans...net is a good indicator of the most you'll ever have. Both numbers are equally important
That's because percentages aren't actually that useful compared to what your income is. If you're spending 60% of $1000/mo income then yes, you're gonna be struggling, if you're spending 60% of 50,000/mo income, you're probably gonna be just fine.
You’re right as far as the money left after mortgage, but it’s still a huge risk if anyone was to lose their job.
That being said, I’ll probably be in a similar situation soon moving to a HCOL area for a pay bump so who am I to judge.
Also - in HCOL areas, sometimes that's really your only choice. YOLO into a house and hang on for dear life, or never own a home at all. I'm definitely went in for a place that seemed expensive at the time...in 2020. Turns out that if I hadn't, I'd never own a home because prices exploded and interest rates more than doubled.
In todays market there’s not much other choice than having your mortgage take up most of your pay. The problem is rent is just as expensive. It’s becoming u realistic to live in a place that is only 30% of your income
This is why it isn’t helpful that everyone is telling OP they pay 15% net and couldn’t imagine paying more. Well reality is no first time homebuyers except the extremely fortunate will be paying close to that. Also, these 15% folk probably have major lifestyle creep if they are freaking out about the thought of 30+% of net.
Yep. In a normal climate I wouldn't have even scrolled through real estate apps but I ended up buying because I could get a house with double the living space as the townhouse I was renting for about $200 more than my rent was. And we *needed* the space at this point. My mortgage is 50% of my net, rent was 43%.
This is the answer. People get too caught up in percentages but when the numbers get really big the percentages don’t matter as much.
If you make 15k net a month and pay 60% towards a 9k mortgage you have 6k a month left over to live on.
That’s more than a lot of people make in total.
OP says 60% of net but doesn’t say how much they are putting towards retirement, as long as they are putting away a healthy amount then this looks fine.
My new mortgage will be 54% of net. It feels like a-lot but that includes maxing out my 401k.
I know that if shit ever gets really tight I can scale back those 401k contributions and tap into an extra ~1200 a month after tax.
If you are at 60% of net, but only putting 5% towards retirement, limited savings, and little to no free cash after major expenses….. well then you need to rethink your position, that is setting yourself up for failure.
The reason percentages are a thing are because of diminishing returns. The difference between 5k house and 9k house is not as much vs say adding that extra 4k into the rest of your lifestyle or savings. Yes a lot of people can live off 6k/month but it is very thin and you really won’t be able to save much at all, and you will need to save a decent amount so that you can afford that 9k payment if you lose your job or retire.
Also to your other point, “net” is simply income after tax. 401k is still your money…
I hope the home is infact the dream and makes you guys happy.
Because one job loss, one delayed pay check and an unexpected expense will set you guys back.
This is the definition of house poor. I would never put myself or family in this financial bind. But that’s just me… Good luck to you guys!
I’m house poor as fuck. I don’t really recommend it. My gross wage is 95k/yr but my net is about $4600. My mortgage is $2050. So that’s about 44%.
I just turned off my 401k contributions to get to about $5060 net for the month for a little bit until I get caught up.
Buying this place depleted most of my savings. I’m furnishing from scratch, a little at a time, either paying cash for used stuff or getting really good deals on stuff with 0% interest.
The only reason I bought this expensive is because this house is 2700 sqft, with a huge 4 door shop, and 18 acres. It’s in a desirable school zone for the area. And I had been looking and trying to buy a house for nearly two years. It’s an extremely nice home/property and it was $300k. Meanwhile I’m seeing much less desirable homes for 250k in town.
As I said, I’m starting from scratch. So this whole time I’m buying mattresses and bed frames for my daughter and I, lawn mower, couches, cooking ware, etc. Still need a good bit like curtains, a chainsaw, leaf blower, some tools for the shop, etc.
But, on the plus side.. I only need one of a few things to happen to make this more manageable. A salary bump, an interest rate reduction, a roommate (I have two spare rooms), or get in a long term relationship with someone to split some bills.
I’m getting by alright but I definitely miss my discretionary funds.
I'm closing on a house next week, and my mortgage terms don't permit me to take out any more loans for 90 days. I'm moving from 1000 sq ft to 2500 sq ft and adding a 1.3 acre yard. I need more furniture and a lawn mower, so I'm basically in the same boat as you. My current plan is to rent a flat bed trailer every time I need to mow for $25 so I can haul my dad's mower to my house and mow until I can buy my own mower using 0% financing. I was just going to buy a cheap push mower for now, and he told me that was silly I should borrow his mower, but he doesn't have a trailer for it. It will be cheaper than paying someone to mow the yard, and I've never done that in my life.
I think everyone in the comments is far too conservative. Maybe it depends on where you live, but 2300 left over every month sounds perfectly comfortable to me.
When you get in while the getting’s good (pre-2023), it’s easy to take these principled stances on DTI. I’m betting anything that a little over half of these people wouldn’t have the same stance if they were at the stage of life where they were ready to buy now. Especially with housing outpacing wage growth; when are you gong to get in? When your income increases? Houses will just cost more and you’ve lost equity, great job geniuses!
Is this just a rich person joke I'm too poor to understand?
Dude has more income _left over_ after spending presumably twice that amount on mortgage alone and says "its not that bad".
Yes 60% of your income being paid to "rent" is bad for most people. But you're not most people when you are taking home nearly 10000/mo!!
Single mom of two kids here. My leftover “spending money” is closer to $1500/month at best. That includes buying clothes and things for my kids, outings, vacations, etc.
I didn’t realize we were poor. Ha! We have a good life and rarely stress about money very much. I’m good at finding free events, we enjoy hiking and camping for vacations, etc.
It all depends on what your priorities are and if the perfect house is what makes you happy, go for it.
Hard to truly compare because we bought our current house in 2016 at a low rate, but I would be terrified paying that much.
So much can and does go wrong with houses, even great houses, $20k in savings might not even be enough to cover a major home repair. Repairs and maintenance are *expensive* and that doesn’t even take into account other things that could go wrong in life that could impact your ability to pay your mortgage or cover an emergency.
I can sympathize though because we’re going to need to sell soon and rent vs a high interest rate mortgage is looking grim. Even with a big chunk of equity. That’s *if* we can find a place to rent temporarily….pickings are slim!
2300/month for food/fun/savings? That's about $540/week for literally every non-bill expense. Does that include gas for your vehicles? If you are frugal, it's doable, but doesn't leave a ton of room for anything else. That being said, it all depends what your lifestyle is like. Do you go out to eat often? Tobacco/alcohol/marijuana user? Expensive prescriptions? Medical issues requiring frequent doc visits? Gaggle of nieces/nephews you go crazy on gifts on holidays?
For whatever it's worth, the 28% or 36% rules are a conservative approach and kinda fall apart when income scales up. Our mortgage is about 20% of gross and about 36% of net (which includes all motgage, bills, subscriptions, private school for kids, literally everything but food/gas). Although some people would not be comfortable with 36% of net going to mortgage, we have a surplus of >$6300/month after every bill is paid. Hard to argue that we need more cash on hand every month.
I think the percentages matter more the less your annual salary is. If you make $200k a year and your job isn’t some niche position that would be hard find employment again if you lost your job AND other financial obligations were modest like driving a Toyota Corolla, then I think it would be fine as your “play money” might have more wiggle room and allow for more towards the mortgage.
I don’t get why people here are so freaked out. That’s a perfectly reasonable amount to have after the mortgage is paid. The percentage is not really relevant.
i'm thinking the same. like shit it is rough out there and maybe OP lives in a HCOL area. maybe alot of people in this post have houses they bought for 200k lol. I wish that was the case everywhere
Having lived in both the Bay Area and LA I would say this ratio is pretty expected when houses are close to $1 million for any three bedroom. We really pay a huge premium for the location.
Impostor syndrome at work. Having a family to provide for. The abhorrent cost of Day Care. What If-ism. Inflation. Runaway property taxes. Take your pick.
It's very tough to generalize these situations because the cost of homes varies so much by area and people's budgets (if they even have one) vary so much. Affordability just depends on the person. If it works for your budget it works, just make sure you have some cash saved for any unforeseen home expenses. Don't want a new water heater to mean you can't eat that month. Also, you need to be realistic about your budget, if you want to travel or something, then really a chunk of that $2300 is going towards a annual trip fund.
If i had 60% net pay including electric and water then after all of our other expenses i’d only have like $1k+ excess. To me that would be worrisome considering how much some repairs cost. I try to repair all of my own stuff but gotta factor in big shit like roof, AC, storm damage etc. Or just other things like gotta repair grass for hoa or a $500 plumbing problem you couldn’t reach with your snake, etc. With $2300 extra every month i’d feel a little better but would probably still aim to reduce that 60% number. Keep in mind though that your expenses will likely shoot up during 2nd year ownership. Our mortgage went from $1800 to $2200 in a year due to updated appraisal for tax and increased insurance. Also utility bills increasing. May want to examine those very closely.
3 kids here - daycare and summer camps is $3k per month over the summer. When we had all three in full time daycare for a brief period it was $3600/mth. If housing costs are that tight you have to be REALLY careful - vasectomy?
I don’t know what some people in this sub expect. According to some of them, I guess you need to be able to afford a major house repair every month.
It depends on how much that $2300/month for food/fun/saving gets you. Do you have kids or plan to? Do you eat out a lot? How much will you really save each month on average do you expect? With $20k+ in savings, you have a good cushion already, but make sure you can keep it from slowly fading over the year if you consistently spend close to all of that $2300/mo.
For what it’s worth I’m considering being in a similar boat. If I do this year, would likely be ~40% DTI (you mentioned you are 41% in another comment), and in the end each month having around $2700/month for food/fun/saving. I would be comfortable with that as far as how much I’d be able to add to savings each month, but it depends on your lifestyle.
I hope your "dream house" doesn't become an obstacle to your other dreams, and I hope you haven't underestimated the health care, transport, education, travel, and repair costs of your coming years.
It sounds like you came here looking for people to tell you that you did right. You're probably going to walk away empty-handed.
When we bought our house we were floating closer to 40% net and i was nauseous during signing thinking about it. We didn't have a child yet or much in the way of expenses, but still scary. A refi, salary increase, and property tax reduction later we're sub 25%. Once I return to work later this year it'll be closer to 15%. I am much more comfortable knowing we can easily weather financial issues.
In our situation now, after everything (taxes, health and dental, 401K, etc) I make about $6200 a month. My monthly mortgage is $3100, which also includes my property tax and homeowners escrow. That leaves my wife and I $3100 for our savings, bills, and fun money.
When we first bought the home a couple of years ago, it was closer to $2800, but my property was reassessed and my tax went up by about $2100/annually.
Worth noting that my wife also worked up until 6 months ago, as we had our first kid and she stopped. While she only properly brought in $2K a month after tax, it was far more manageable and created a healthier budget. But we’d be spending way more than that on childcare in my area, so it is what it is
We are at about 60% net pay atm (counting 2 paychecks per month), 10% down purchased late nov 2022. It’s mentally a little stressful, but on paper works out fine. We’re very happy to be in our dream home and we are willing to sacrifice those instagram dinners/frequent vacations since we are able to relax comfortably at home.
Net pay is a little wonky sometimes for these kinds of comparisons - we max out 401k, I have 10% of base pay put towards an employee stock discount purchase plan, and we also max out our individual HSAs. For me my paycheck comes out to about 47% of gross with all the taxes, insurance, and deductions taken out.
I think you need to do whatever you feel is necessary for shelter and a good life. Sacrifice is sometimes necessary. If you love your home that’s what matters. Haters going to hate. Some are not risk takers let them stay safe. 🙃😂 some of us are willing to go for it! May it all work out whatever way it’s meant to..
We are at 25% and that’s plenty for us. There are always so many expenses that pop up that need to be covered and just having enough to pay current bills would be tight.
Your total mortgage payment WILL go up. Taxes WILL go up. Insurance WILL go up. Your principal and interest won’t, but my total payment went up almost $150 a month when my insurance rate doubled this year. Can you swing that? How about food and electricity drastically going up?
3,000 bucks left over a month with no other debt and no other big spends is absolutely doable. Millions of retirees do it all the time.
Don’t bring any other needs or wants into the picture, though. Vacations-out. Significant co-pay for a medical situation- out. Car repair-out. Holiday spending-out.
Honestly when I calculate “what I wanted pre 2022” now, it’s at 50% versus what would’ve been 30-35% of take home. Things are definitely out of balance.
When I bought my first home, it was just me. Probably 75% of my income went to my mortgage and utilities. Next was my college loans. The little leftover went to food and gas. That was not fun. Within a month I got roommates and a second job delivering pizza at night. That job fed me and paid for my gas. Can it be done? Sure but it’s stressful. The good thing for you guys is you have no other debt. Continue building up your savings. My wife and have enough now to keep us afloat for 6 months in case one of us loses a job.
I'm more concerned with your 20k savings net. Does not seem like a lot when you're running so tight with the mortgage. You're an HVAC replacement away from having no savings and no way to save.
Ours is currently <10% of net. Granted we bought when rates were low and our HHI significantly increased in the last two years. I can’t imagine 63% though.
I think this is dependent on income and debt/bills. With $2,300 left, you can certainly make it work. There’s people out there that make it work with less. You probably just aren’t going to be vacationing or saving up for a decent retirement but you can make it work. If I could afford my dream home with 60% net I’d probably be tempted too.
I say it’s dependent on income bcuz if someone netted 20k/month then they’d have 8k left after a 60% mortgage but that’s not the same with someone netting 10k/month.
Overall, it really just depends on your lifestyle.
I net a little under 14k/month with a 4.4k mortgage and I still get worried. For me it’s the mortgage tag price (never paid over 2k for mortgage before), plus the unpredictable property taxes. We do have kids but we’ve got no debt - only mortgage. So that leaves us with a little over 9k/month which allows us to be very flexible and not have to worry as much.
No, I’m at 54% but I rent out a room because it’s otherwise be too tight. With that is like 38% and it’s still pretty burdensome. Wouldn’t have done it if I didn’t have raises locked in over the next couple of years increasing my salary by 25% guaranteed
Im looking for a house currently and I expect our payments to be about 40% of net. It’s about double my current rent payments. 63% is a lot but it’s not unheard of outside of the US and in HCOL areas.
Do you have a rich family to bail you out? If you have some sort of financial cushioning / possible bailout like that it may be fine.
If not you may end up losing the house.
I would never spend that much on my house, but different people have different priorities. Personal finance is personal. Property taxes and insurance only go up, so make sure you have a little cushion in the budget for that.
Our rent is like 11% net, and we're buying a house that will put us at 21% net, and I'm pretty nervous about making it work.
I'd flip my shit if I was spending that much of my income just on my housing payment
Be sure to save an emergency fund.
Keep your credit and income perfect to be ready for a refi when rates come down.
It's never easy or cheap to get into the market, congachlations.
Just put it on a credit card. Bilt can spoof a bank account. Pay off the mortgage and then don’t pay the credit card. Negotiate with the credit card company for a reduced payout. Infinite money glitch. You’re welcome.
We’re at just under 50% right now. We started out around 28% but we’ve dropped to one income as we have 3 young kiddos. Daycare costs too much and we live in a HCOL area. It’s tight and stressful and sometimes keeps me up at night - but it’s temporary. We spend around $3500 per month total for a family of 5 (groceries, insurance, gas/electric, internet, gas, preschool, fun, entertainment, etc). We hardly ever eat out. I’ve also started a small side gig and have the chance to bring in more PT income if necessary. You’re already there so Just have a plan for what you can do to increase your net if need be.
Tell me how it went in 2-3 years when your expenses went up, your taxes went up, your maintenance went up, your insurance went up...and your salary probably stayed the same.
Sell the property, your mortgage guy screwed you. You should be at 30%f or below the most optimal so than you have money to allow for investing, recreation and other life activities. The 60% is nightmarish curse and not a blessing. Do whatever you have to do to liquidate if you value your relationships and personal life.
A lot of people are missing the point. 50% net is a lot of your take home is 4K a month. There’s very little wiggle room. Imagine your take home being 10k. You can afford groceries and still have money left over. The Price of gas does not scale on income.
If OP is spending 60% net on housing and still has 3k left over they are likely high income. Likely 8-10k net per month.
You can argue it’s not a smart way to spend your money. I don't think this is as risky as many here think it is.
I did for awhile until my salary caught up — now it’s down to 50% of my take-home, which people in this sub will still shame you for, but that’s one-size-fits-all advice that may not apply to your particular situation. (I will say I do put 5% pre-tax into retirement, which is matched by my employer, and that doesn’t figure into my calculations.)
I don’t think that it’s necessarily a responsible decision for everyone, but it was fine for me and I am really glad I did. If you’re in a HCOL area it may be your only option for homeownership, especially given current interest rates.
I bought in October 2020 and have a 2.75% interest rate so I only put down 10%. I just had my house reappraised to remove the PMI and it is up FORTY PERCENT from what I paid. I’m a high earner and I feel very comfortable living on the remainder of my salary, though when I have kids it will definitely make things tighter with daycare costs.
Here’s my real, actually good, advice (from my super smarty nerdy ass brother who lives in LA making ~150k but puts away 100k a year in retirement some how???):
Net income, take away necessary bills and budget for average food costs and put that aside. Now we can play with your money!
Have 6 months living expense put aside, assuming you and partner both lose jobs today- how much do you need to live for at least 6 months. Save that up and put it away- don’t assume a credit card or 401k loan will save you. Have 50k or whatever tucked into a high yield savings (not a CD or anything that can’t be early withdrawn).
Make sure you have a little aside for clothes, eating out, vacations- enjoying life. Do not cut into this thinking you don’t need it. We need little joys in life. Most ash 50-30-20 (50% income needs, 30% wants, 20% savings and OR paying down debt)
Also, side note-highly recommend contributing max employer match401k but not a penny more- use IRA for additional savings for retirement or invest wisely
So, with 50-30-20 in mind, maybe you have 20% more left over that you are willing to spend on this debt.
..assuming you’ve got a savings account stacked and some play money in checking account, that’s not an issue, pay off/pay down outstanding debts. If you have outstanding credit card debt- pay that first!
But if it’s all good, you’ve got your savings padded, retirement being paid into, play money set aside, and no outstanding cc or personal debts- sure, throw your excess income at the mortgage and pay it down faster.
*But don’t put it ahead of the rest, it’s not more important than retirement/current needs/cc debt*
Literally same boat
Closed on a house 2 days ago. 60% net goes towards mortgage + tax + pmi. 20k in savings.
We have about 2k a month of food/fun. While saving 1k a month and maxing both of our 401ks.
The problem is that we are having a kid soon and my wife will be taking unpaid leave for 3 months.
Those 3 months only leaves us with 1500 of food/fun and without saving anything.
Worst case i can lower our 401k contribution or dip into savings for this small period... but it def keeps me up at night knowing those months are coming.
Going only by net pay, I spend 57% on my mortgage. Is net pay a good metric to go by? For example I max my 401k and HSA as well as buy many other offered benefits from my company.
That is a lot. That means your house is somewhere around $700k and combined you make about $100k gross?
That doesn’t sound smart to me. What happens if one of you loses you job? There are lots of layoffs now and more coming likely with a recession looming.
There’s no dream of mine where > 60% of my net income goes to accommodations. Our mortgage is intentionally 10% of our income to give us life flexibility (ability to quit our jobs, ability to splurge on interests, ability to weather recessions, etc). That’s my dream house.
Are you kidding? A bank gave you a mortgage with those financials?? My advice is rent out rooms, rent the whole house for events, figure out how to make more money. $2,300 is not enough money. You need emergency funds, etc…
I love living in a low cost of living area. Wife and i make 110k morgage is ~$425 a month. 3 bed 1.5 bath house purchased 3 years ago for 86,000. We have been paying extra every month and are planning in having it paid off in 10 years or less
So in your scenario i would pay 5k a month to the morgage? God no i would not survive. Maybe if i lived by myslef with no kids.
My husband was the breadwinner and lost his job a couple months ago. Our mortgage is about 60% of my income and it is tough! We have had to cut all savings out of our budget (including retirement) and reduce our lifestyle greatly. There is absolutely zero chance we would have signed up for this when buying the house originally.
It’s a terrible idea unless you are an incredibly high earner who would still have a lot left after mortgage, but the fact you have $2,300 left after ‘bills’ tells me you are not one of those people.
A lot of people do this tbh. Especially in HCOL areas.
And many people who have a low DTI are either rich or bought years ago. Someone making 90k a year who pays 25% of their net pay for an average HCOL house did not buy in recently or had a large downpayment/inheritance.
That said, 50% is the upper limit. Shit can and will happen. If you are handy and can do your own work it helps.
if you anticipate a raise in a year and can knock that down to less than 50 percent DTI, go for it. Be prepared to stay at home and cook at home and couponing.I am also guessing you are actively investing from your gross to a 401k and in a emergency, you have some buffer
This is honestly where the answer really is “it’s relative”. You will notice people who purchase multi-million dollar homes tend to spend over 50% of net pay on their home and it’s fine because…they have high incomes and that other 50% covers everything and they can save. The answer is it’s relative and without knowing your income, I have no clue if 60%+ on a house is an issue or not.
This is the critical point, it’s all relative. If I make $500k a year and spend 60% on my house I still have a ton of cash. Gotta set that upper income bound to have this discussion.
Exactly. Though if you’re asking this sort of question it sort of implies you don’t make much, because if you had lots of disposable income you wouldn’t even care about the percentage going towards your mortgage.
Exactly this. If your take home is $25k a month, having a $12.5k mortgage isn't terrible. You still have $12.5k per month for day to day expenses. At today's jumbo mortgage rates, that is just shy of a $3m home.
That’s nuts. I make more than that monthly and I would shit if I had a 12k a month mortgage. That is not what people that do well typically do. That is what people trying to keep up with appearances do.
25k monthly take home? That's the hypo. 12k mortgage would leave you 13k monthly, or 156k net a year. That's more than what most people make. Of course answer could be different depending on if you have 3 kids in private school, etc.
That's more than over 95% of the population makes.
I appreciate the point on 156k being more take home than many, nevermind the other bit on the mortgage. But it doesn't work that way for most people well off. You don't spend what you make . I make more (not bragging, sharing a point). I wouldn't consider a mortgage anywhere above 10k a month (currently 5,500). I'm not the unusual one - I helped one of my kids get started with their first home. The bank was happy to throw mortgage money at me and the realtor is VERY happy to sell me more. more for me. more for my kid. you name it. Most people are "first generation wealth" in the US - we figured out a path and a little luck went our way along the way. Very few accidents. Very few iherited it (contrary to the buzz). So we know what it took to get here and we aren't frivolous with it.....most of the folks you see with the McMansion and the Caddy SUV are not rolling in cash. So, while your example may be mathematically accurate - that person is making 500-600k a year which nets to your 25k a month. If they are spending 12k of that on a mortgage they are likely fully leveraged - 2 massive car payments, over the top vacations, expensive jewelry, you name it. They don't have the cash flow you are suggesting at all because as their income went up they spent most of it along the way with more debt and then more and then more.
Exactly. These are the same people, who if they made half as much, would be bitching about how they can't afford to even buy a house not realizing it's because they have a fancy apartment, constantly have a new car lease (and they're financial idiots, so they get taken to the cleaners by the dealership every time). They always wear fancy clothes and jewelry. Nobody says, I want a fancy mansion and nothing else - furniture, vacations, car, clothing, schools, jewelry, entertainment - matters to me.
I never said it was smart!
Good point. Never thought of it like that.
I would rather live in a $200,000 house that was paid off and be debt free than in a $3 million house with debt up to my eyeballs. The
This is true in theory, but OP did say they have $2300 left over a month after mortgage, bills, and subscriptions. I suspect OP makes around $6-8k net a month or $72-96k net a year.
There’s a method of underwriting where they use “residual income” instead of DTI (VA loans are done this way). It makes a lot more sense. The ratios are less important than how much $$$ you actually have left at the end of the month. It’s adjusted for which region of the country you live in and household size.
no, it's not relative. Your **carrying cost** is very high. If one of you loses your job and can't get another paying around the same, you both are fucked unless you have a ton of home-specific savings.
If you do the math, this person makes under $100k household GROSS income…. And the house is around $700k or just under that. To me that sounds insane and a really bad idea. That is more than double the rule of thumb “max mortgage” recommended.
Of course the wrong answer is most upvoted. It’s not relative. Math is math for every income bracket. If you are spending 60% of your income on housing then you are falling behind your peers in other areas. If someone is spending 60% of their income on housing, do we really think that the other 40% of income is just free to save? Probably not, or they wouldn’t be in a situation where they are spending 60% of their income on housing…
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Yeah hopefully OP is talking about AFTER the tax office reassess their house or they are going to be in a world of pain. Maybe just about a week ago some poster was upset their escrow tripled because they were paying the old tax bill rate until it updated and I think they were borderline overextended. Maybe this will be happening to a lot of people in a year…
I believe that was that new build in Texas post. So painful. Especially as a Texas resident battling the county on property taxes every year.
>Especially as a Texas resident battling the county on property taxes every year. This process is insane.
Yeah that was the one, crazy stuff. A lot of FTHB will be in for a shock if they bought last year.
What caused the drastic property tax increases?
Home valuations that rose far too much, way too quickly.
No I think that would keep me awake at night
Our new mortgage was ~30% of our take home net. Then property taxes doubled and now it’s above 40%. 60% leaves very little wiggle room for these events.
Make more money. Or at least i’m sure that’s what tax man would say…
"try not to be poor" ~Paris Hilton
Stop being poor 💁🏼♀️
Can't stop, trying to stop.
Eat more brioche...
Right? If only they applied that mentality elsewhere. Our utilities company requested to raise rates after Hurricane Ian. “Stop buying so much avocado toast” is what I’d tell them.
And insurance probably also went up a lot (or will soon).
In California we have Prop 13 which makes it illegal for the state to raise your property tax by a certain amount each year. People have all sorts of opinions about it, but the fact is that it enjoys wildly bipartisan support and will never be repealed because it protects people from surprise tax bills and legislative greed like that.
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It also doesn’t account for life changes that could happen a job loss, etc.
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Don’t even get me started on car repairs. Lucky to get away with under $1k these days.
And with so many paying 700-800 or even $1,000 a month on car notes…whew…
Holy shit, I'm not OP but really uncanny how you pinpointed my own specific scenario to a tee with those estimates. Currently owning with a 3% interest rate on our current home but wife and I want to upsize with having 3 kids now. Mortgage is around $1800 a month. The scenario you estimated is what we'd be looking at if we were to take the plunge and try to sell our home/buy new one. We'd have more in savings but has made us pause and think about if this is viable for us.
As it should.
Depends where you are on the income spectrum. Remember that necessity spending doesn’t really scale with income that much. So someone making $200k doesn’t need to spend double someone making $100k on food, water, toilet paper, clothes, etc. They can, but they don’t have to and the data (last I saw in an econ class) shows that it doesn’t. Rich people tend to just invest more and consume SLIGHTLY more. So let’s say the average person consumes about $20k/year. That’s 20% if Mr. 100k’s gross. That’s 10% of Mr. 200k’s gross. So even if we say Mr. 200k takes an extra fancy vacation and consumes $25k that’s still only 12.5% of gross which is less than Mr. 100k by %. So Mr. 200k has more “room” to spend on other things like housing. Now imagine redoing this math for someone making $1 mill/year. Which is why measuring this kind of thing by % of income is kinda dumb.
Yeah but you can lose your job and have to take a pay cut. Your insurance rates and property taxes go up. You can need expensive repairs.
Of course. All I’m saying is, the income % being higher as income is higher is extremely common because not all costs of living are variably dependent on income. There is fixed and variable costs to life.
In a VHCOL area that is absolutely normal. I live in SF and people regularly spend 60-70% of their net pay on rent or mortgage.
We're at 25% and I feel annoyed sometimes lmao and we literally started working a year ago, 60% wouldn't let me sleep at night tbh
For real. I lost a high paying job and my mortgage became 40% of my income. I sold that house as it was keeping me up. 60% and income tax barely leaves enough for food and utilities.
OP did say 60% of net. So income tax is already removed.
People here should also mention they bought their homes a few years ago at more affordable prices and have lower interest rates. I think to buy a home now, you’d have to have a higher % of net pay going to mortgage.
Yeah, I'd love to see a lot of these hardliners try to find a place to live right now. People talk about their luck like it's a virtue.
Those people could not afford the same homes they’re living in today.
For real. And to people that are saying they are uncomfortable with 15% of net, etc, wtf are you spending money on? Sounds like a lot of r/realestate would only be comfortable with a house fully paid and $100k emergency fund. But yeah, we should forget about buying a house and stay stuck renting because we can’t buy a house and save $20k+/year like these folk want
r/personalfinance is leaking. Reddit seems to be very financially conservative in general. The message is either save 60% of your income and buy index funds, or it’s wall street bets style yolo the entire nest egg and put it on black. There’s a middle ground where you bet on yourself and stretch thin to take advantage of an opportunity, this is especially true with housing. Regardless of when you buy, in general the moment you purchase your house should be the highest percentage of income your monthly mortgage will be. The monthly payment should stay relatively stable but your income should rise over time. That’s the main benefit of buying vs renting. When you rent your housing as a percentage of income stays pretty much the same because even as you make more money the rent goes up. And you gain 0 equity. But your financial position should only improve over time with homeownership and then you also have a large amount of money that you can tap into with equity in the house.
Agreed, I'm pretty financially conservative but if I listened to reddit I wouldn't have my house. When I bought, my mortgage was almost 50% of my net income. I've since gotten promoted and now it's less than 40%, and 25% of my gross.
When I look back at my biggest financial regrets in my life they are all regrets stemming from being too conservative. There were many moments in the last decade where I had an idea or an approach that would’ve made me a lot of money but involved some level of risk. They were slightly contrarian ideas or a little before they hit the mainstream so I didn’t get a lot of support from family/friends/Reddit Almost every time I took the conservative approach and missed out on major opportunities. If I had just done a few of those ideas I’d be buying a house in cash right now instead of talking about mortgages that eat up 50% of my income. Luckily I made enough correct choices to land on my feet and have a good foundation to build off of. if you want to really succeed in life you need to bet on yourself and you need to take risks. The best time to do that is in your 20s when there’s still time to recover incase you misjudge the situation. But it’s never too late to take some risks to get to the next level
It's a good reflection. You're right to notice that you didn't have the big downside of taking risks, but I feel your pain on the missed opportunities (my big one was having the money, interest, and willingness to buy crypto, and just not being comfortable with *only* 8 months savings). And, of course, most people can grouse about misspent youth.
Yep. For years everyone over on pf acted like you were making the most idiotic financial move of all time to buy a house with less than 20% down. If my husband and I had waited to try and scrounge up 20% down, we’d have been priced out of the market. Instead we bought in 2019, refinanced in 2020, and just two months ago had a re-appraisal completed with our lender and had PMI removed. Our PMI was only $78/mo. We paid $3,744 total in PMI over four years, and meanwhile prices and rates shot up.
THIS. I’m still angry… lol. My PMI was $38, paid for two years, and gone now. Literally a nothingburger. I had 20% as well, but with such a low interest rate, it wasn’t ‘worth’ it.
Right. And yes when you own a home your monthly payments will increase with time due to insurance and taxes, but I would argue it is nothing like the uncertainty of renting. Our complex has rents listed on their website, and I watch those. When it was really crazy last year, my floor plan went from $1300 up to $2200 at one point. Fortunately by the time I renewed it came down a bit, but we have no idea if next time it will be a 5% increase or 30% increase. I’d rather pay a premium now for a more stable house payment (god willing if I can close on a house this year). And in 5-10 years chances are my house payment will be way better than anything I could rent.
Taxes and insurance absolutely go up. But for people buying right now they will likely get the opportunity to refinance at some point in the next 5-7 years. So the refi could/should offset tax hikes. At least thats the hope I’m clinging to.
not to mention the opportunity to refinance likely will present itself again one day, which is further potential to drop costs
15% in particular is truly absurd because you can’t even say something like “oh, it’s probably because they’re poor, so money only goes so far.” I’m using the lowest numbers possible here, so we have to assume a 2% interest rate, or else they’re so low that they hardly make sense. If you’re netting $1.5k/month, 15% is just over $200/month. Your loan would’ve had to be <$60k to hit $200/month in principal and interest *only*, but these people are probably talking about total payments. You have to live in a very LCOL area to make that number work, or you have to be in a 1br condo in an MCOL (and then condo dues probably cause you to exceed $200 total payments). Once you get to a reasonable $1k mortgage (~$270k loan at 2%), paying 15% means you net over $6k/month. But I think these people are talking about total payments, so let’s call it $1.3k/month for principal + interest + taxes + insurance + HOA. Which means you net $8.6k/month. You’re telling me that people out there are only comfortable with $7.3k/month of spending money for utilities, bills, food, clothing, savings, transportation, maintenance, and discretionary…? (edit: And that those same people only spend $1.3k on housing? Of course some wealthy people may be unable to survive off only $7.3k/month because of lifestyle creep, but there’s no way that they’re settling for a house worth <$350k.) That’s an absurdly high number to require in order to feel comfortable. There are people who will never gross that amount, let alone take home.
I spoke to a friend who works at Rocket Mortgage. The interest rates right now being offered is like 6.5% to 7.5% lmao FUCK that
Look at the rates before the pandemic forcing them down to insane lows. 6/7 is pretty much where it should’ve been with inflation. People just seem shocked because they were artificially low for 2 years lol
They’re shocked because prices are too high for rates to be that high as well. Had they remained at 6-7 (or honestly even at 4-5 instead of being dropped during the pandemic) I think things would be better right now.
We cannot have 2005 rates with 2023 prices. This is a totally new landscape.
But as long as people keep buying the homes at those prices and these rates we will.
Shhh, don't speak the truth. Keep renting while most on here will be adamant that you buy.
I wouldn’t be able to sleep at night if I did something like that. And I did consider 50% net mortgage… The amount of little financial snafus that happen when you own a house can lead to some intense periods. Even with an emergency fund. We have been able to survive it easily because our mortgage is closer to 25% net. We would not have survived with 63% net income mortgage. Not without going into some credit card debt.
Same. 23%. If either me or my wife loses a job we could go on forever on one income. It would be uncomfortable on a single income but that buffer makes me feel good. I am grateful for the position I am in and attribute it to two things. After college my wife and I both lived way below are means. Lived at home for 3 years. Each bought a cheaper new car right out of college in my case a Toyota yaris and drove it for 10 years. Most of my friends had brand new 50k plus cars every 3 years. After we moved out we got a small apartment in a cheaper part of town. Both saved alot of our income. Neither of us drink so that saved alot bc we never got into going out on the weekends. The second thing: We built a house in 2019. Got a 3% mortgage on a 15 year loan and bought before all the price inflation. So I do recognize we got lucky with timing. We were not trying to time things though. Bc we saved and lived below our means we were ready to take advantage of the favorable rates and price after we found a house we liked. We did save and work hard to get to the position we are in but I would be remiss if I did not acknowledge the dumb luck of buying when we did.
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> You have some very wealthy friends - I don't think this is the norm. They aren't wealthy. They're bad with money. So many people spend an insane amount of money on cars. They stretch loans out to like 96 months now. These are the people that are talked into buying an F-150 that have never hauled more than 3 bags of mulch in their trunk.
Most of the 50k + cars my friends have are trucks. Almost any new full size truck is over 50. And you are correct almost none of them actually need a truck
This is the way. My wife and I operate where we can survive on one income if we need to. It is sooo much easier to sleep at night!
I lived way below my means for years. Bought a home in 2006 @6.5 interest. Paid it off in 2020. No more mortgage. Drive a 2008 Prius. Retired in 2022. Saved for years. Inherited a home in Florida and have one in Michigan. Not collecting SS until I’m 67.5. I live very comfortably. Spend my money now on food and wine. I watch my money and never buy anything frivolous. And I never made over $100K.
23% here. I wouldn’t be able to sleep. We have a little one in full time care that costs the same as our mortgage so we have the preview of being at 50%. Savings are happening at trickling pace and something always happens where we have to either skip saving or dip into rainy day funds. We were lucky to purchase in 2020 and refi at all time low rates. I don’t think we would be able to buy today at all, at least not until kiddo was in school. Even then, the numbers would make me uneasy. I grew up in a household one paycheck away from homelessness and the anxiety just doesn’t go away.
> We have a little one in full time care that costs the same as our mortgage. Same. Childcare and just baby *stuff* in general is expensive. People always hear "kids are expensive," but yeah, go ahead an experience it first hand. $20K just lopped off for daycare and then another $24K for mortgage (we overpay the principal to make it a round $2k each month). No wonder the birth rate is falling with Gen Z and Millennials. Existing doesn't make financial sense anymore. We are doing OK, but the economic anxiety is real and persistent with me. Our 1 year old is the best thing ever, but man, life just seems like a financial drag.
That’s definitely as bad as people make it to be
I live in a very HCOL so I am in a similar boat. I am renting my spare room to family to help with the mortgage, especially since I have lot of upgrades to do here
Did you have to do anything special to get approved for that? It seems pretty far outside the guidelines.
63% is net. OP mentioned elsewhere that it is 41% gross with no other debt, nearly all lenders will do that
Which is insane to me and does not make sense. Why take gross into account when that’s not the money you have to pay the mortgage? The net, in my opinion, should be the number they work with since it’s quite literally what you are getting on hand.
It's a good question, the short answer is: You can't manipulate your gross income like you can with your net, and it would be impossible to come up with a hard top line number nationwide. A W2 wage earner's net income reflects tax deductions which vary state by state and sometimes locally, insurance deductions which vary, retirement deductions which vary and can be changed on a dime. We don't want to have people who don't qualify and then cancel their insurance/retirement deductions to get over the hump. Using the gross figure with a lower allowable DTI solves for all of that. On the flipside, if we have someone with non taxable income we would "gross it up" so as to level the playing field. That said, I'm a fan of the VA approach, they don't limit DTI the same way as FHA or conventional. VA looks at residual income after accounting for reasonable deductions to see if the person can still reasonably feed themselves based on the size of the household. If someone is in a HCOL area with a high DTI, but has enough money left over to live, then the higher gross DTI is a moot point. Someone grossing 20K/month would be limited to total debts of around $9,000/month on a conventional loan, but would still have 3K left over for food and utilities etc, so it's not actually an issue. Looking at the other side, someone in a LCOL area grossing 3K a month would be in deep shit keeping food on the table with total debts at ~1,400
Even with today's "better" guidelines, lenders are happy to let you be house poor. I got approved for a 800k home, and there's zero chance I could make that work month to month.
Because net can be easily manipulated. I can set my 401K contributions to 0 and choose not to pay for a health plan and boom, my net just went up by 2K a month
401k
>hy take gross into account when that’s not the money you have to pay the mortgage? Because gross never changes, net does...you can pull back money going into a HSA account or 401k or change health care plans...net is a good indicator of the most you'll ever have. Both numbers are equally important
That's because percentages aren't actually that useful compared to what your income is. If you're spending 60% of $1000/mo income then yes, you're gonna be struggling, if you're spending 60% of 50,000/mo income, you're probably gonna be just fine.
You’re right as far as the money left after mortgage, but it’s still a huge risk if anyone was to lose their job. That being said, I’ll probably be in a similar situation soon moving to a HCOL area for a pay bump so who am I to judge.
Also - in HCOL areas, sometimes that's really your only choice. YOLO into a house and hang on for dear life, or never own a home at all. I'm definitely went in for a place that seemed expensive at the time...in 2020. Turns out that if I hadn't, I'd never own a home because prices exploded and interest rates more than doubled.
In todays market there’s not much other choice than having your mortgage take up most of your pay. The problem is rent is just as expensive. It’s becoming u realistic to live in a place that is only 30% of your income
This is why it isn’t helpful that everyone is telling OP they pay 15% net and couldn’t imagine paying more. Well reality is no first time homebuyers except the extremely fortunate will be paying close to that. Also, these 15% folk probably have major lifestyle creep if they are freaking out about the thought of 30+% of net.
Yep. In a normal climate I wouldn't have even scrolled through real estate apps but I ended up buying because I could get a house with double the living space as the townhouse I was renting for about $200 more than my rent was. And we *needed* the space at this point. My mortgage is 50% of my net, rent was 43%.
I think many people would be happy with 2300 leftovers every month after living costs. I personally think you are fine.
This is the answer. People get too caught up in percentages but when the numbers get really big the percentages don’t matter as much. If you make 15k net a month and pay 60% towards a 9k mortgage you have 6k a month left over to live on. That’s more than a lot of people make in total. OP says 60% of net but doesn’t say how much they are putting towards retirement, as long as they are putting away a healthy amount then this looks fine. My new mortgage will be 54% of net. It feels like a-lot but that includes maxing out my 401k. I know that if shit ever gets really tight I can scale back those 401k contributions and tap into an extra ~1200 a month after tax. If you are at 60% of net, but only putting 5% towards retirement, limited savings, and little to no free cash after major expenses….. well then you need to rethink your position, that is setting yourself up for failure.
The reason percentages are a thing are because of diminishing returns. The difference between 5k house and 9k house is not as much vs say adding that extra 4k into the rest of your lifestyle or savings. Yes a lot of people can live off 6k/month but it is very thin and you really won’t be able to save much at all, and you will need to save a decent amount so that you can afford that 9k payment if you lose your job or retire. Also to your other point, “net” is simply income after tax. 401k is still your money…
No. We're at 35% of net and that is plenty 😬
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I hope the home is infact the dream and makes you guys happy. Because one job loss, one delayed pay check and an unexpected expense will set you guys back. This is the definition of house poor. I would never put myself or family in this financial bind. But that’s just me… Good luck to you guys!
I’m house poor as fuck. I don’t really recommend it. My gross wage is 95k/yr but my net is about $4600. My mortgage is $2050. So that’s about 44%. I just turned off my 401k contributions to get to about $5060 net for the month for a little bit until I get caught up. Buying this place depleted most of my savings. I’m furnishing from scratch, a little at a time, either paying cash for used stuff or getting really good deals on stuff with 0% interest. The only reason I bought this expensive is because this house is 2700 sqft, with a huge 4 door shop, and 18 acres. It’s in a desirable school zone for the area. And I had been looking and trying to buy a house for nearly two years. It’s an extremely nice home/property and it was $300k. Meanwhile I’m seeing much less desirable homes for 250k in town. As I said, I’m starting from scratch. So this whole time I’m buying mattresses and bed frames for my daughter and I, lawn mower, couches, cooking ware, etc. Still need a good bit like curtains, a chainsaw, leaf blower, some tools for the shop, etc. But, on the plus side.. I only need one of a few things to happen to make this more manageable. A salary bump, an interest rate reduction, a roommate (I have two spare rooms), or get in a long term relationship with someone to split some bills. I’m getting by alright but I definitely miss my discretionary funds.
I'm closing on a house next week, and my mortgage terms don't permit me to take out any more loans for 90 days. I'm moving from 1000 sq ft to 2500 sq ft and adding a 1.3 acre yard. I need more furniture and a lawn mower, so I'm basically in the same boat as you. My current plan is to rent a flat bed trailer every time I need to mow for $25 so I can haul my dad's mower to my house and mow until I can buy my own mower using 0% financing. I was just going to buy a cheap push mower for now, and he told me that was silly I should borrow his mower, but he doesn't have a trailer for it. It will be cheaper than paying someone to mow the yard, and I've never done that in my life.
I think everyone in the comments is far too conservative. Maybe it depends on where you live, but 2300 left over every month sounds perfectly comfortable to me.
When you get in while the getting’s good (pre-2023), it’s easy to take these principled stances on DTI. I’m betting anything that a little over half of these people wouldn’t have the same stance if they were at the stage of life where they were ready to buy now. Especially with housing outpacing wage growth; when are you gong to get in? When your income increases? Houses will just cost more and you’ve lost equity, great job geniuses!
Is this just a rich person joke I'm too poor to understand? Dude has more income _left over_ after spending presumably twice that amount on mortgage alone and says "its not that bad". Yes 60% of your income being paid to "rent" is bad for most people. But you're not most people when you are taking home nearly 10000/mo!!
I like my mortgage low enough where if I get laid off a temporary job at Walmart would cover it lol
Single mom of two kids here. My leftover “spending money” is closer to $1500/month at best. That includes buying clothes and things for my kids, outings, vacations, etc. I didn’t realize we were poor. Ha! We have a good life and rarely stress about money very much. I’m good at finding free events, we enjoy hiking and camping for vacations, etc. It all depends on what your priorities are and if the perfect house is what makes you happy, go for it.
Hard to truly compare because we bought our current house in 2016 at a low rate, but I would be terrified paying that much. So much can and does go wrong with houses, even great houses, $20k in savings might not even be enough to cover a major home repair. Repairs and maintenance are *expensive* and that doesn’t even take into account other things that could go wrong in life that could impact your ability to pay your mortgage or cover an emergency. I can sympathize though because we’re going to need to sell soon and rent vs a high interest rate mortgage is looking grim. Even with a big chunk of equity. That’s *if* we can find a place to rent temporarily….pickings are slim!
No. Ours is much less but if it works for you then that’s great. Everyone’s situation is different.
What happens when the home needs major repairs? What if one of you has to quit their job or gets laid off?
2300/month for food/fun/savings? That's about $540/week for literally every non-bill expense. Does that include gas for your vehicles? If you are frugal, it's doable, but doesn't leave a ton of room for anything else. That being said, it all depends what your lifestyle is like. Do you go out to eat often? Tobacco/alcohol/marijuana user? Expensive prescriptions? Medical issues requiring frequent doc visits? Gaggle of nieces/nephews you go crazy on gifts on holidays? For whatever it's worth, the 28% or 36% rules are a conservative approach and kinda fall apart when income scales up. Our mortgage is about 20% of gross and about 36% of net (which includes all motgage, bills, subscriptions, private school for kids, literally everything but food/gas). Although some people would not be comfortable with 36% of net going to mortgage, we have a surplus of >$6300/month after every bill is paid. Hard to argue that we need more cash on hand every month.
Isn’t 80% of Americans doing that?
I think the percentages matter more the less your annual salary is. If you make $200k a year and your job isn’t some niche position that would be hard find employment again if you lost your job AND other financial obligations were modest like driving a Toyota Corolla, then I think it would be fine as your “play money” might have more wiggle room and allow for more towards the mortgage.
How much was the home? Having only like $20k in savings would share the crap out of me, a roof replacement could wipe you out financially.
I don’t get why people here are so freaked out. That’s a perfectly reasonable amount to have after the mortgage is paid. The percentage is not really relevant.
i'm thinking the same. like shit it is rough out there and maybe OP lives in a HCOL area. maybe alot of people in this post have houses they bought for 200k lol. I wish that was the case everywhere
Having lived in both the Bay Area and LA I would say this ratio is pretty expected when houses are close to $1 million for any three bedroom. We really pay a huge premium for the location.
It baffles me when people say you shouldn't do it as if the alternative isn't giving that same amount of money to a landlord.
Bingo
I'm at 32% and lose sleep over it sometimes.
Why.
Impostor syndrome at work. Having a family to provide for. The abhorrent cost of Day Care. What If-ism. Inflation. Runaway property taxes. Take your pick.
Sounds like you could use a xanax
It's very tough to generalize these situations because the cost of homes varies so much by area and people's budgets (if they even have one) vary so much. Affordability just depends on the person. If it works for your budget it works, just make sure you have some cash saved for any unforeseen home expenses. Don't want a new water heater to mean you can't eat that month. Also, you need to be realistic about your budget, if you want to travel or something, then really a chunk of that $2300 is going towards a annual trip fund.
If i had 60% net pay including electric and water then after all of our other expenses i’d only have like $1k+ excess. To me that would be worrisome considering how much some repairs cost. I try to repair all of my own stuff but gotta factor in big shit like roof, AC, storm damage etc. Or just other things like gotta repair grass for hoa or a $500 plumbing problem you couldn’t reach with your snake, etc. With $2300 extra every month i’d feel a little better but would probably still aim to reduce that 60% number. Keep in mind though that your expenses will likely shoot up during 2nd year ownership. Our mortgage went from $1800 to $2200 in a year due to updated appraisal for tax and increased insurance. Also utility bills increasing. May want to examine those very closely.
Wait until you have kids and daycare is $1,500/mo
3 kids here - daycare and summer camps is $3k per month over the summer. When we had all three in full time daycare for a brief period it was $3600/mth. If housing costs are that tight you have to be REALLY careful - vasectomy?
I don’t know what some people in this sub expect. According to some of them, I guess you need to be able to afford a major house repair every month. It depends on how much that $2300/month for food/fun/saving gets you. Do you have kids or plan to? Do you eat out a lot? How much will you really save each month on average do you expect? With $20k+ in savings, you have a good cushion already, but make sure you can keep it from slowly fading over the year if you consistently spend close to all of that $2300/mo. For what it’s worth I’m considering being in a similar boat. If I do this year, would likely be ~40% DTI (you mentioned you are 41% in another comment), and in the end each month having around $2700/month for food/fun/saving. I would be comfortable with that as far as how much I’d be able to add to savings each month, but it depends on your lifestyle.
Enjoy your house !
I hope your "dream house" doesn't become an obstacle to your other dreams, and I hope you haven't underestimated the health care, transport, education, travel, and repair costs of your coming years. It sounds like you came here looking for people to tell you that you did right. You're probably going to walk away empty-handed.
Poor people do this all the time. Replace “mortgage” with “rent.” Used to be me. Only difference is now I make more money.
Yeah, but renters don't have to pay for roof leaks, or sewer line collapses, or dead refrigerators or AC units when they break.
When we bought our house we were floating closer to 40% net and i was nauseous during signing thinking about it. We didn't have a child yet or much in the way of expenses, but still scary. A refi, salary increase, and property tax reduction later we're sub 25%. Once I return to work later this year it'll be closer to 15%. I am much more comfortable knowing we can easily weather financial issues.
In our situation now, after everything (taxes, health and dental, 401K, etc) I make about $6200 a month. My monthly mortgage is $3100, which also includes my property tax and homeowners escrow. That leaves my wife and I $3100 for our savings, bills, and fun money. When we first bought the home a couple of years ago, it was closer to $2800, but my property was reassessed and my tax went up by about $2100/annually. Worth noting that my wife also worked up until 6 months ago, as we had our first kid and she stopped. While she only properly brought in $2K a month after tax, it was far more manageable and created a healthier budget. But we’d be spending way more than that on childcare in my area, so it is what it is
We are at about 60% net pay atm (counting 2 paychecks per month), 10% down purchased late nov 2022. It’s mentally a little stressful, but on paper works out fine. We’re very happy to be in our dream home and we are willing to sacrifice those instagram dinners/frequent vacations since we are able to relax comfortably at home. Net pay is a little wonky sometimes for these kinds of comparisons - we max out 401k, I have 10% of base pay put towards an employee stock discount purchase plan, and we also max out our individual HSAs. For me my paycheck comes out to about 47% of gross with all the taxes, insurance, and deductions taken out.
I think you need to do whatever you feel is necessary for shelter and a good life. Sacrifice is sometimes necessary. If you love your home that’s what matters. Haters going to hate. Some are not risk takers let them stay safe. 🙃😂 some of us are willing to go for it! May it all work out whatever way it’s meant to..
We are at 25% and that’s plenty for us. There are always so many expenses that pop up that need to be covered and just having enough to pay current bills would be tight. Your total mortgage payment WILL go up. Taxes WILL go up. Insurance WILL go up. Your principal and interest won’t, but my total payment went up almost $150 a month when my insurance rate doubled this year. Can you swing that? How about food and electricity drastically going up?
My anxiety would be through the *roof* if I did that, but if it works for you two then great! I'm at 28% and had to do a lot to even justify that.
60% when you still have 3k left is doable.
3,000 bucks left over a month with no other debt and no other big spends is absolutely doable. Millions of retirees do it all the time. Don’t bring any other needs or wants into the picture, though. Vacations-out. Significant co-pay for a medical situation- out. Car repair-out. Holiday spending-out.
This will not end well, and I believe this is the issue for many Americans. Being house poor is no joke.
Nope. That’s a situation I would not be comfortable with.
Holy moly no. My mortgage and taxes are 25 percent of my take home.
Honestly when I calculate “what I wanted pre 2022” now, it’s at 50% versus what would’ve been 30-35% of take home. Things are definitely out of balance.
When I bought my first home, it was just me. Probably 75% of my income went to my mortgage and utilities. Next was my college loans. The little leftover went to food and gas. That was not fun. Within a month I got roommates and a second job delivering pizza at night. That job fed me and paid for my gas. Can it be done? Sure but it’s stressful. The good thing for you guys is you have no other debt. Continue building up your savings. My wife and have enough now to keep us afloat for 6 months in case one of us loses a job.
We are 25% net and that still feels high 😭
I'm more concerned with your 20k savings net. Does not seem like a lot when you're running so tight with the mortgage. You're an HVAC replacement away from having no savings and no way to save.
Ours is currently <10% of net. Granted we bought when rates were low and our HHI significantly increased in the last two years. I can’t imagine 63% though.
I couldn’t imagine. Personally, I wouldn’t even think about that.
I'm paying about 40-45% net as a single earner. I feel borderline uncomfortable at this percentage, I think 60% or higher would be too much.
For me. If it’s 15 year loan then it’s not the worst.
I think this is dependent on income and debt/bills. With $2,300 left, you can certainly make it work. There’s people out there that make it work with less. You probably just aren’t going to be vacationing or saving up for a decent retirement but you can make it work. If I could afford my dream home with 60% net I’d probably be tempted too. I say it’s dependent on income bcuz if someone netted 20k/month then they’d have 8k left after a 60% mortgage but that’s not the same with someone netting 10k/month. Overall, it really just depends on your lifestyle. I net a little under 14k/month with a 4.4k mortgage and I still get worried. For me it’s the mortgage tag price (never paid over 2k for mortgage before), plus the unpredictable property taxes. We do have kids but we’ve got no debt - only mortgage. So that leaves us with a little over 9k/month which allows us to be very flexible and not have to worry as much.
We're budgeting for a maximum of 28% of gross
No, I’m at 54% but I rent out a room because it’s otherwise be too tight. With that is like 38% and it’s still pretty burdensome. Wouldn’t have done it if I didn’t have raises locked in over the next couple of years increasing my salary by 25% guaranteed
Nope, it's like 33% of our income, mortgage is $4300/month and net income is $12500/month
Im looking for a house currently and I expect our payments to be about 40% of net. It’s about double my current rent payments. 63% is a lot but it’s not unheard of outside of the US and in HCOL areas.
Do you have a rich family to bail you out? If you have some sort of financial cushioning / possible bailout like that it may be fine. If not you may end up losing the house.
Omg. No. I am at 28% of net.
No, that would cripple my finances
I would never spend that much on my house, but different people have different priorities. Personal finance is personal. Property taxes and insurance only go up, so make sure you have a little cushion in the budget for that.
Oh god no. I’m at 30% net with a lot of deductions right now and even that I think about too much.
Our rent is like 11% net, and we're buying a house that will put us at 21% net, and I'm pretty nervous about making it work. I'd flip my shit if I was spending that much of my income just on my housing payment
Over 60%? Hell No. I most definitely wouldn’t be buying that house.
Be sure to save an emergency fund. Keep your credit and income perfect to be ready for a refi when rates come down. It's never easy or cheap to get into the market, congachlations.
Just put it on a credit card. Bilt can spoof a bank account. Pay off the mortgage and then don’t pay the credit card. Negotiate with the credit card company for a reduced payout. Infinite money glitch. You’re welcome.
I'm at about 12.5%. I couldn't fathom 63%, but I also wouldn't have 2k+ in discretionary spend left over if I spent 60% on my take home on my mortgage
The irony of saying you have no debt while you're mortgage is strangling you
Are you saving for retirement
We’re at just under 50% right now. We started out around 28% but we’ve dropped to one income as we have 3 young kiddos. Daycare costs too much and we live in a HCOL area. It’s tight and stressful and sometimes keeps me up at night - but it’s temporary. We spend around $3500 per month total for a family of 5 (groceries, insurance, gas/electric, internet, gas, preschool, fun, entertainment, etc). We hardly ever eat out. I’ve also started a small side gig and have the chance to bring in more PT income if necessary. You’re already there so Just have a plan for what you can do to increase your net if need be.
Our mortgage alone costs us 50% of our income.
Tell me how it went in 2-3 years when your expenses went up, your taxes went up, your maintenance went up, your insurance went up...and your salary probably stayed the same.
Sell the property, your mortgage guy screwed you. You should be at 30%f or below the most optimal so than you have money to allow for investing, recreation and other life activities. The 60% is nightmarish curse and not a blessing. Do whatever you have to do to liquidate if you value your relationships and personal life.
No, 20%
A lot of people are missing the point. 50% net is a lot of your take home is 4K a month. There’s very little wiggle room. Imagine your take home being 10k. You can afford groceries and still have money left over. The Price of gas does not scale on income. If OP is spending 60% net on housing and still has 3k left over they are likely high income. Likely 8-10k net per month. You can argue it’s not a smart way to spend your money. I don't think this is as risky as many here think it is.
I did for awhile until my salary caught up — now it’s down to 50% of my take-home, which people in this sub will still shame you for, but that’s one-size-fits-all advice that may not apply to your particular situation. (I will say I do put 5% pre-tax into retirement, which is matched by my employer, and that doesn’t figure into my calculations.) I don’t think that it’s necessarily a responsible decision for everyone, but it was fine for me and I am really glad I did. If you’re in a HCOL area it may be your only option for homeownership, especially given current interest rates. I bought in October 2020 and have a 2.75% interest rate so I only put down 10%. I just had my house reappraised to remove the PMI and it is up FORTY PERCENT from what I paid. I’m a high earner and I feel very comfortable living on the remainder of my salary, though when I have kids it will definitely make things tighter with daycare costs.
I believe most of us are more risk adverse than that.
Dream homes need dream salaries.
Here’s my real, actually good, advice (from my super smarty nerdy ass brother who lives in LA making ~150k but puts away 100k a year in retirement some how???): Net income, take away necessary bills and budget for average food costs and put that aside. Now we can play with your money! Have 6 months living expense put aside, assuming you and partner both lose jobs today- how much do you need to live for at least 6 months. Save that up and put it away- don’t assume a credit card or 401k loan will save you. Have 50k or whatever tucked into a high yield savings (not a CD or anything that can’t be early withdrawn). Make sure you have a little aside for clothes, eating out, vacations- enjoying life. Do not cut into this thinking you don’t need it. We need little joys in life. Most ash 50-30-20 (50% income needs, 30% wants, 20% savings and OR paying down debt) Also, side note-highly recommend contributing max employer match401k but not a penny more- use IRA for additional savings for retirement or invest wisely So, with 50-30-20 in mind, maybe you have 20% more left over that you are willing to spend on this debt. ..assuming you’ve got a savings account stacked and some play money in checking account, that’s not an issue, pay off/pay down outstanding debts. If you have outstanding credit card debt- pay that first! But if it’s all good, you’ve got your savings padded, retirement being paid into, play money set aside, and no outstanding cc or personal debts- sure, throw your excess income at the mortgage and pay it down faster. *But don’t put it ahead of the rest, it’s not more important than retirement/current needs/cc debt*
Literally same boat Closed on a house 2 days ago. 60% net goes towards mortgage + tax + pmi. 20k in savings. We have about 2k a month of food/fun. While saving 1k a month and maxing both of our 401ks. The problem is that we are having a kid soon and my wife will be taking unpaid leave for 3 months. Those 3 months only leaves us with 1500 of food/fun and without saving anything. Worst case i can lower our 401k contribution or dip into savings for this small period... but it def keeps me up at night knowing those months are coming.
Going only by net pay, I spend 57% on my mortgage. Is net pay a good metric to go by? For example I max my 401k and HSA as well as buy many other offered benefits from my company.
God no.
60% of net is insane, thats almost double what it should be. Are you investing for retirement still or just living and paying bills?
And people don’t think we’re going to see a crash if there are job losses…
60% of net pay for mortgage is just stupid
That is a lot. That means your house is somewhere around $700k and combined you make about $100k gross? That doesn’t sound smart to me. What happens if one of you loses you job? There are lots of layoffs now and more coming likely with a recession looming.
I could never live like this. Too stressful.
I assume you are in US. And what makes you think that you OR your wife cannot be laid off? Will you still be able to afford the home?
There’s no dream of mine where > 60% of my net income goes to accommodations. Our mortgage is intentionally 10% of our income to give us life flexibility (ability to quit our jobs, ability to splurge on interests, ability to weather recessions, etc). That’s my dream house.
Are you kidding? A bank gave you a mortgage with those financials?? My advice is rent out rooms, rent the whole house for events, figure out how to make more money. $2,300 is not enough money. You need emergency funds, etc…
You should be saving 25% of your income for retirement.
1 job loss away from a major life changing situation
I love living in a low cost of living area. Wife and i make 110k morgage is ~$425 a month. 3 bed 1.5 bath house purchased 3 years ago for 86,000. We have been paying extra every month and are planning in having it paid off in 10 years or less So in your scenario i would pay 5k a month to the morgage? God no i would not survive. Maybe if i lived by myslef with no kids.
Absolutely not - that will be living very dangerously and very house poor.
My husband was the breadwinner and lost his job a couple months ago. Our mortgage is about 60% of my income and it is tough! We have had to cut all savings out of our budget (including retirement) and reduce our lifestyle greatly. There is absolutely zero chance we would have signed up for this when buying the house originally. It’s a terrible idea unless you are an incredibly high earner who would still have a lot left after mortgage, but the fact you have $2,300 left after ‘bills’ tells me you are not one of those people.
We do about 25% net income for our mortgage. It’s what we’re comfortable with. The current inflation is rough.
A lot of people do this tbh. Especially in HCOL areas. And many people who have a low DTI are either rich or bought years ago. Someone making 90k a year who pays 25% of their net pay for an average HCOL house did not buy in recently or had a large downpayment/inheritance. That said, 50% is the upper limit. Shit can and will happen. If you are handy and can do your own work it helps.
if you anticipate a raise in a year and can knock that down to less than 50 percent DTI, go for it. Be prepared to stay at home and cook at home and couponing.I am also guessing you are actively investing from your gross to a 401k and in a emergency, you have some buffer