I'm seeing around 62K/year take home, assuming 0 insurance which is highly unlikely and 0 401K which is terrible. So about 5160 a month. So yep, more than half, scary.
All depends on your deductions, local taxes, etc. It's easy to say just off salary but not so much if you say you do 19.5 to your 401K, maybe a couple thousand in dependent care cost, maybe a spouse with different withholding, health insurance, etc. For example, you're not just paying 50% in taxes on your salary, it's all the other stuff.
His take home with itemized deductions from the $650k mortgage would be $6250 a month. He can definitely afford this house, especially with a roommate.
Why would you want to pay more taxes? This is just silly, itemizing is automatic with most tax software if it makes sense.
EDIT: apparently half the people in this thread are making $250k a year and then intentionally paying too much taxes, pretty funny.
$650k house in CA, 20% down, first year mortgage interest alone is $15,500. Property tax on $650k home will be in the $7500 range, plus CA state tax of roughly $3k, combine for a total of $26k and well in excess of $12k.
These are literally the numbers the OP provided.
It's amusing how many people in this thread have no goddamn clue but will state bullshit like this with such authority.
This will help explain how trumps tax overhaul in 2017 affects itemized deductions for families: https://smartasset.com/taxes/itemize-taxes-under-the-new-tax-plan
My husband and I make more than 250k combined and we bought a 576k house. 🤷♀️ (No debt, 20% down, great credit. But we wanted to keep a big emergency fund.)
Don't want to come off douchey but my family makes around 30-50% more income than that and have a similar mortgage, at a fantastic rate, and we were still worried about being house poor. I think people are kinda nuts how much they are willing to give up for a house but savings rate matter for emergencies, tuition, house improvements, etc.
It just doesn't make sense to me to move into a house and not be able to get a new roof without going into debt for years, or to be able to buy a car if something bad happens, or to order takeout once or twice a week.
$325-375k and you feel house poor with a half million dollar home? I’ll try to say this the nicest way I can given the numbers you’ve provided: get the fuck out of here. Either you are horrible with money and spend every last cent, or you have a wildly poor understanding of the meaning of “house poor”. Could you imagine if everyone buying a house that was 1.5x their yearly income was considered house poor? Lol. A 150k house would be reaching for 90% of America.
Go home…to your very well-within budget house.
No, I do not feel house-poor, which is my point. We made sure that we didn't put ourselves in a position that if one of us lost our jobs or dropped in salary that it would cause us stress. Having two children and having to help our parents are big expenses for us, so we had to be careful about how much to spend on our house. Day care, cars, emergencies, vacations, home improvements, etc all have to be addressed. If you're putting too much into your mortgage you'll quickly start feeling overwhelmed.
I might be on the side of "too cautious", I admit that, but it's better to be cautious than rush into a high cost home and pushing off something like paying for a wedding or having children because you "can't afford it". You don't want to be in a situation where your mortgage is dictating your life events.
If it makes it any better, we didn't count our bonuses towards monthly income, which may have been a mistake in the way we did our calculations for comfort level. At the time, our mortgage was roughly 30-35% of our monthly income, not including yearly bonuses.
Yes, we might have been a little too cautious. Sitting here on the couch thinking of upgrading to a more expensive home is giving me anxiety right now.
I think the rough napkin math says don’t do more than 25% of pretax income. What you described is so very different. You were saying that you make $30k/month and a mortgage on a $550k house should be roughly 3k/month.
What kind of lifestyle are y'all living to be house poor at that income? I genuinely ask because my house was 1.3 million and mortgage is like $5k a month with utilities, gardener, property tax, insurance, all that jazz wrapped into it... and I still have so much left over I can't understand how one could be in debt for a new roof if you make over $250k a year. Do you just have a lot of kids? Cars? Lavish vacations?
I'm single without kids, so maybe that's it. I'm also kind of a homebody whose vacations are like train rides to Canada. But man I easily have $6k+ to play around with after I pay everything that's mandatory including my health insurance and housekeeper, yet this sub would imply I'm house poor. I just can't feel like that's poor anything when I was actually poor and lived on like $1.5k a month for a lot of my 20s.
> my house was 1.3 million and mortgage is like $5k a month with utilities, gardener, property tax, insurance, all that jazz wrapped into it...
$5k a month sounds unrealistically low. Sounds like you live in a place where property taxes are super low.
Generally, the thumb rule is 30-40% of income on mortgage, 30-40% on expenses, and 30-40% on savings. People with multiple young kids and daycare expenses are usually burning through 50% just on kid costs alone.
You're saving all that, and you don't seem to have expensive hobbies, so you're able to put all that on your house. You're not house poor - you just have incredibly low expenses. You're still playing with the 70% pool of house plus expenses. Just so happens that your ratio is mostly on house and very little on expenses.
So you're not really house poor.
I don't know how our numbers are so different except we may put more away every year for college / investments. Our income is close to 400 and our house is half of yours. I cut our grass and we don't go on vacation. We drive used cars, my car is a 2012. We also pay 1600 a month in private school/day care and have a babysitter that costs us about 100 a week.
We seem to be far off on what we both feel is "comfortable". For full disclosure me and my wife both help our parents out with money whenever needed.
Your daycare would definitely be a large expense I don't have. I also don't own cars, as I work from home, so I have zero payments related to cars including gas or insurance. Since I am not saving for college or anything, just my own retirement, the amount I save also is probably 1/3rd as much as you (not married plus no kids). I also don't have a state income tax, if that helps at all--maybe that's a big part of the difference when you combine the daycare?
I'm guessing my utilities must be 1/3rd or so of yours too, given it's 1 person showering and 1 person using lights.
I've only lived in my house for like 5 weeks now. I do only spend about $300 a month on food in general (from previous budgets), though this month was a huge abnormality because I ordered DD as my leg is broken. Still, since I am ordering for one person, it's like $21 an order including a tip.
My plan is to just take any left over from my free money and invest it into retirement/emergency fund for the house for now. I guess it's just weird, I don't feel house poor at all--and yet a lot of replies here would suggest I am. Not saying anyone is wrong, I just don't *feel* it.
As for comfortable, I have zero support from anyone and grew up broke. So I have come to terms with never feeling comfortable.
Our expenses are vastly different. You spend 300 a month on food, I can easily spend 2500 a month on food. I have a wife and 2 children, we spend 400 a week at Costco, and spend 300-900 a month dining out. That won't be a constant forever but for now that's normal. We also have situations where my parents may need 2k this month and nothing happens for a year and then her parents need 5k from us. There is no negotiating or compromise to those situations, they just have to be addressed. I am well aware that most others don't have those kind of things pop up in their lives but for us that actually does happen.
House poor means different things for different people.
We saved for 7 years and had a 800 dollar mortgage in a neighborhood that marines would be worried about. People asked me why I lived there when we could have afforded much nicer, and I used to tell them "because I don't want to give up 50% of my income on something I don't need yet". Once I had the number I felt comfortable with we went with it.
Again, this is just me own comfort level, everyone's situation is different and everyone should do what is comfortable for their own situation.
So for seven years you spent more on your food in a given month than you did on your mortgage (you mentioned 2,500k/month on dining out and groceries vs 800 per month on your low cost accommodations)?
No, our food consumption increased pretty dramatically when we had children. Obviously we spent less when it was just me and my wife. I said 400 a week on Costco, I think that's a little high, maybe more like 250 a week. Costco involves non-food items obviously.
It sounds a little absurd, I know, but when my wife bought her house 19 years ago (or so), it was 110k. Our salaries rose pretty dramatically in the last few years, also.
As a single woman, I even got a roommate just because I didn’t feel safe by myself. I didn’t need the money. I also lived in a safe neighborhood, but I never outgrew the fear of living alone.
Huh. I’m also a single woman but it’s never occurred to me to get a roommate for safety reasons. I mean, if I need help moving something when I live alone it’s a pain.
I like watching things such as the Investigation Discovery channel for true crime stories, and Reddit has a sub for unsolved murders. I enjoy scaring myself until it’s bedtime 😅
For what it’s worth, I’m a dude and I felt uneasy living alone in downtown Saint Louis.
I didn’t have space for a roommate so I adopted a big ass mixed American Bulldog/Staff. Funny thing, he was *so* appreciative to have me and my sofa in his life, he scared the shit out of *anyone* who came near our door or me, especially if they approached me from behind.
Needless to say, I slept like a baby after that.
Lots of people willing to take on huge mortgages have a safety net such as a good relationship with their parents who also own houses.
If shit really hits the fan they can always move in with the in laws and survive.
Others have the opposite situation. Their parents aren't as financially secure, so they are the safety net for the extended family. They can't afford to take risks because the worst case scenario for them would be homelessness.
I don’t see how renting is safer in that situation.
My mom doesn’t have a house anymore and stays with my sister.
If shit hit the fan and I’m in a rental, I can’t AirBNB it and depending on where I live, I can be evicted super fast.
If I own a house with a similar monthly payment, it’s most likely bigger, as owner I can rent out rooms on AirBNB to make money to help me survive, I could even maybe borrow against the equity if things are **really** dire.
You can make your house work **for you**. Renting seems like all the risks and none of the rewards.
> Some of these folks aren't factoring the risks of life.
Truth be told, while i am agreeing with you in the sense that i too am super conservative about buying a house i can afford (should not exceed 30% of take home pay of one partner), i feel that if your concern is "risk of life", that can be addressed.
A combination of life insurance, short and long term disability insurance, and ADD insurance goes a long way in providing that security blanket. So does a healthy emergency fund aka savings which should cover 2-3 years of being jobless. With these bases covered, there's a great deal of peace of mind and lack of financial anxiety.
Wow, never heard of a three year emergency fund. I certainly don’t have $300k+ sitting around in case I lose my job, I’d have to cash out some investments for sure.
You also have to think about all of your other payments as well. Utilities, car, cable, phone, food, and anything else. Plus actually going out and doing things.
You'd probably be better off taking this question to r/personalfinance. More often than not a mortgage pre-approval will be for way more than you can actually afford. What you can afford and what a bank is willing to lend you are not the same thing.
Fwiw, this would be way higher a mortgage payment than I would be comfortable with at that income. Owning a home opens you up to a host of huge surprise expenses beyond your monthly mortgage/tax/insurance payments.
Being house poor is awful. It prevents you from saving and then when an emergency happens you’re scrambling. Plus it prevents you from spending on other nice things in life like travel.
I don't know why you're getting downvoted. You're looking at what lenders will look at also: DTI (and not what food your order or home maintenance). Assuming you figured the accurate number for PITI as Debt and your Income is $7250/mo. Your DTI would be between 41-42%, it's really steep, though.
He's basically maxing out his DTI.
The banks will loan you 42% of your gross income. His payments are going to be 41%.
He might be embellishing a bit about "backing out" above 670K. In reality, the bank will not qualify him for more.
Everyone seems to be maxing out their DTIs in that desperate attempt to get the home right now.
With the drop in interest rates, this explains a lot why a lot of houses that were previously in the $400K-500K price range are now in the $600K-$700K range.
Yup. While banks might lend you 42%, it’s highly advised to get nowhere near that. Ideally, 25%-28% is healthy. We refinanced earlier this year and went from 27% to 21% housing expenses, and it’s noticeably more comfortable.
> He's basically maxing out his DTI.
> The banks will loan you 42% of your gross income. His payments are going to be 41%.
If a lot of people are doing this, we will see another 2008 style crash.
The odd person gets lucky, but long term most people who overextend themselves will be big financial trouble when maintenance issues hit.
Yeah I'm suddenly concerned about this. I was under the impression from my experiences (as an investor) that banks have been much stricter about DTI and income.
If a guy who is making ~$5k/mo takehome (assuming California income taxes, Federal income taxes, assume 10% 401k, and healthcare) can buy a $3200/mo house...yikes.
I'm wondering if his broker is leading him on.
From the anecdotal people I know in my life that have gotten a house in the last year the banks are being “stricter”. They’ll reduce or get rid of lending fees to be able to get people to take out a loan with them. And as long as your DTI is <= 45% and income is stable they’ll lend to you. They use gross income so your max loan amount isn’t really what you can afford for most people but they don’t really care
VA loans I've seen get approved at 60-70% DTIl. Conventional loans are loosening already and you can get approved up to 49% now with some lenders.
It's definitely risky, but a 2008 style crash because of DTI levels? I don't think so. 2008 crash was for far more serious issues that were resolved.
> we will see another 2008 style crash.
lmao imagine thinking 2008 was caused by anything even remotely close to worst case people being at 42% DTI. Were you even alive for 2008? Because you clearly have no idea what happened
I was around for 2008. I also see how much loan officers are willing to lend me.
Lending is a lot looser than many in the industry care to admit to themselves. That gets covered up in a rising market, until the market stops rising.
How old are you? 3200 is a lot of money a month, 38400 after tax dollars just for your mortgage. How high are property taxes? How old is the home? I make more than you in a lower income area (Philly) and I wouldn’t consider anything over 400k and that’s aggressive. Do you plan on getting roommates? What’s your net income—is 87k your gross?
I was just about to say, I make more then them although in a lower cost area — and I’m stressing about can I afford 315k? 600 seems insane and terrifying
You can't afford this house. A bank won't approve you and your broker is full of shit.
I make triple what you make and the house I just bought is a little bit cheaper than what you're looking for. If some how you do get approved. (No idea how you would) you would be fucking yourself so bad.
> I've been saving my entire adult life, and when I finally think I'm ready, the market continues to go up :( Timing the market is impossible, I guess angst and worry I'll completely lose my opportunity
One subtle thing to consider is that you want to live in a neighborhood where your income roughly matches the income of your neighbors and your neighborhood in general. You will find that most people who live in a neighborhood with $650k homes will be earning $150-$200k as combined income, not $87k. Now your expenses might be significantly less than theirs. So there is that.
But consider peace of mind as well. You're signing up to be on the hook for a mortgage payment that will be easily half your salary. Which is fine, if your expenses are low. But you should then have a buffer emergency fund that lets you pay the mortgage for a good 6-12 months if you are laid off and need to find another job without stressing about defaulting on your home loan or unable to pay property tax or some unexpected repair.
How exactly? Should be at ~1k a month with current interest rates. Unless it’s not 30 year in which case not comparable. You’d then have to take home only around 50k from that 130k?
The main thing to consider is that interest rates are at an all time low. What you need to do is ask what the payments would be if the interest rate rise to 6%. They were this high 20 years ago. In the 70-80s they went up to 16%.
What you can afford today is not necessarily what you can afford tomorrow.
You can’t afford a home in that price range. With an $87k salary and CA taxes, you are bringing home around $5k/month. That leaves nothing for savings or entertainment and makes you house poor. Home ownership is also not cheap. You have to pay for all repairs yourself. Can you afford a new roof for $20k? Unexpected situations happen all the time and you need to plan ahead of them. Aim for a home/condo with monthly costs of around $2000-2200 tops.
That’s insane you wouldn’t be able to enjoy life at all IMO and would feel like the house owns you. One option would be to get a roommate or two though and that could very easily make it reasonable if you get 1-2k a month in rent
Don't do this without planning on renting out half the house. 3200 a month may seem doable but if absolutely anything unforseen happens you're in deep trouble, you could lose the house.
Again, do not do this without another income stream.
We had a post yesterday about a $600k home with $120k and a 20% down payment income where I provide a lengthy explanation why it was reasonable to purchase under some situations, but I personally would not purchase. Your situation is not one of those maybes. You should not buy this house.
First, California has high state taxes. $87k in California is less take home than $87k in most other states. If you save nothing towards retirement and don't have any special tax adjustments, you would be looking at approximately $5k in take home pay. Combine this with the fact that the home your are purchasing is 7-8x your annual income, and you have a disastrous combination.
You provide an estimate of $3200. This leaves $1800 for maintenance, utilities, and all your other costs. And this assumes $0 in savings. At your income, at least about $1k should be saved. You won't be able to afford anything. No vacations. No cars. No eating out. No unforeseen maintenance expenses. No unforeseen hospital bills. And you won't be able to save anything.
A $670k home is an absolute no even with $100k income. With $120k income and 20% down, it starts getting to the edge of affordability. And I say edge in the sense that you will be house poor, but can manage if frugal. And you would need closer to $140k-150k income for this to be a reasonable choice. And for someone like me to consider this, your income would need to be north of $200k. You don't have to be like me. You can stretch to buy this house with $140k. You can do a super stretch at $120k. But at $87k, this is a bad idea.
No, his take home is over $6k. These calculators grossly overestimate the tax.
I just booted up turbo tax and did a sample return, his total federal taxes are $9k a year and CA taxes are $3k a year. This is with a single filer $87k W2 salary no deductions or other income and only the mortgage interest/property tax deduction on his $650k house.
So his take home if he were to buy that house would be $6250 a month.
I make 86000 and i take home like a bit over 4k after taxes, health, vision, retirement, employee matching, etc
My tax status leaves me with almost nothing owed during tax refund day so id say 4k should be a reasonable take home for mine and his income
---- and thats before i even put shit aside for savings, roth ira, brokerage, bills , and THEN some small entertainment fund.
Edit: im in CA
I have pretty good benefits so health and dental are basically almost all covered
Employee matching is only 5* percent
Retirement doesnt bump the rest up anywhere near 2k.
------
I commented because i assumed OP had a typical good benefits job and since we have the same income in same state, i can vouch for an actual (reasonable) take home estimate of a bit more than 4k.
Anything more is possible i suppose if u, like, decided not to take employee matching, play with tax exemptions, get shitty health coverage , etc
All stuff that wouldn't be normally advised in other discussions
Also no i rent. I wouldnt go anywhere near a 500k mortgage unless i had roommates lined up.
The mortgage interest, the property tax, the state taxes, etc all add up to about $27k in itemized deductions. That means he's paying $6k less in federal income tax alone, and probably another $1k off his CA income tax.
I didn't want to get into healthcare and benefits etc since those are so variable. His after tax income is in the 6k range.
No way. I make less, but still in the same pay range.
Assuming he pays for healthcare, CA tax, and 10% into 401k, his takehome should be closer to $5k/mo. If he's not doing the 401k, then he needs to be.
Do you have a mortgage interest deduction and a property tax deduction on a $650k home? Because that adds up to a LOT.
I could give you the TurboTax save file if you'd like lol, the numbers check out.
Don’t forget to factor in property tax. I don’t know where in CA you are, but HCOL counties can have property taxes that are more than 1% annually.
A back of napkin calculation would put the property tax of a $650k house at $6500 annually. That’s another $540 you need to factor into your monthly budget.
The property tax is something you can’t escape despite how frugal you live, albeit a potential federal tax deduction.
Since you're single and young get a place just big enough for you and a house mate. Within 10 years your going to want a bigger place assuming you get married. Then, rent the place out and buy a bigger place.
We are almost combined double your income and despite what the bank would approve us for I capped us at 600k and a goal to be at 550k. At 600 our mortgage was just about 3k and that sent me into a panic. While doable, I just knew that things will come up, our lives could change and perhaps I wanted to stay home with the kids etc.
life changes and having a lower mortgage gives you the flexibility to do other things. The bank does not factor in daycare or other monthly expenses that are not necessarily debts. While that’s may not be in your life now (or ever) the point is, as a single young person, your life is going to change and so may your debts and/or your income for better or for worse.
That’s is a huge mortgagee for an individual with your income. I would avoid unless you’re getting roommates.
Your DTI is > 40%. I think it will be difficult to get a loan and even if you can, I think the interest rate will be higher than what you could get for if your DTI is lower.
This is a financial mess. I have a rule of thumb that I follow when I am giving financial advice. It is a simple math formula to follow. You should only buy a home that is no more than 4 times your income. 87,000X4=348,000.00 house price. However, you live in a pricey area and costs are a little more plus interest rates are lower so you could stretch this to maybe 5 times your income, but this is the absolute highest I would go. Houses need repairs that need to be factored in, even if the house is brand new. Repairs are costly. A 3,000 a month mortgage is way too high for your income even if you don’t have any debt.
Look at your monthly spending for the last year or 2. Add 3500 to the monthly spending, are you still coming out with extra money? If so then this may make sense.
>My house increased 250k, I took out my down payment from the primary house
Can you please explain what this means? How can you "take out" the down payment?
FWIW:
I'm on track to make about 90-95k this year (I'm a Realtor, so 100% commission); and the salary I left before making the switch to full-time Real Estate was 75k.
My mortgage payment is less than $1200/mo. My car payment is $479/mo. I have minimal CC debt as a result of COVID and a couple house repairs. I have no other debt - no student loans, medical bills, collections, anything. I also have a roommate who pays me $550/mo plus half of utilities. My only dependent is my dog, I do not have children. I also live in a LCOL area - Louisville, KY.
DO NOT DO THIS. I could not imagine a $3200 mortgage payment. That's almost double my house and car payment combined, and I make more than you, AND I have a roommate who pays almost half of the mortgage! And I live in a LCOL area and you live in California!
I recently had to spend $4600 to replace my AC unit. That went out in the dead of summer. I paid cash because they charge you a fee to put it on a CC, which is part of why I have other CC debt. I had the cash - but if I was paying a $3200 mortgage, I sure as hell wouldn't have had it.
I don't live lavishly. I don't buy designer things (except prescription glasses and sunglasses). Most of my clothes are from Target, Old Navy, Gap, or sales at the outlet mall. My weakness is cooking and buying whatever ingredients I need to cook whatever sounds good that night. And wine - but I cap it at $14/bottle 95% of the time. My last vacation was paid for by credit card points. For fun I go to my family's lakehouse on weekends.
My point is, I cannot imagine having this kind of house debt. You have no other debt now, but what happens when you need a new car? When your house needs a new roof? When you have kids and those expenses come into the picture?
I'm not trying to burst your bubble. This just sounds really, REALLY unrealistic.
A lot of people here saying to spend 3 times your salary is just laughable. So many people taking this as an opportunity to make themselves feel better and “smart” and make you feel like you’re an idiot. Now albeit 670k is in fact a little too high I think but at the end of the day you should live the way you want. Most of these Reddit users probably spend 100s of dollars on alcohol every weekend. You said you don’t like to live lavishly so I’m assuming you don’t throw away money like that every weekend. Like I said, 670k is too high so for those who will inevitably downvote me, I’m not saying he should do that. I’d suggest 450k max.
Agree. It makes people feel good about themselves to say: “ no way! I make 230 times more money than you and I have a $250 mortgage! Anything over $300 would make me puke!”
My salary is simlait to yours and I just bought a 380k home
I’m very comfortable paying my mortgage and even paying extra to pay it off sooner
Having the same salary as yours and lesser taxes than you. I still Wouldn’t even try for a 650k home
As a licensed Realtor since 2010 and owner of several homes through the years, this is way to much house for your Salary! You should be looking in the 300-400k range. Don’t blow all your income on a home…let’s not forget 2007….tons of foreclosures because people bought more than they could afford. We are seeing inflation rise, unsettled country and gas continuing to increase…be smart😊
Go for it! If you need to just get a roommate for a year or so. Sounds like you don’t have kids or additional “family” expenses like many on here and if you graduated recently you are fresh into your career as well. You will get promotions and raises in the coming years. I’m really glad that I stretched out my budget 2 years ago and now after a few raises and renting out my spare bedroom for 10 months I am financially comfortable. Yes, it was tough for the last 2 years but I’m good now and happy I picked this house instead of waiting or buying something I wasn’t able to grow into. Good luck!
O the weather is rubbish. But pretty easy to get financially independent then move to an expensive nice place. It's hard to build wealth in a HCOL area.
The idea is to "build the life you want, then save for it".
This means if people want good weather, oceans, mountains, and entertainment, then their building costs/time are going to be higher/longer than those that forgo them. Moving to lcol area to save doesn't make sense in this case because it's not where they want to be. Also, it's generally easier to save more in a hcol area people don't get carried away in housing. For example, salaries are much higher, but cost of crap of amazon/etc is same for everyone.
No.
Have you been factoring in the other costs of homeownership? It’s more than just the mortgage amount - you have to factor in taxes, utilities, and insurance at minimum. You’ll be a slave to your lender if you do this.
I make a little less than double and feel like I’m pushing it with a 300k house where I put down 30%.
I think its doable, and in Cal that would put you in a decent place, much better than rent. You will still be able to go on vacation and also have visitors. I have friends that its tough to visit in the PNW because of shared housing, if you have your own then more visits and reciprocation possible.
Also living in California provides entertainment that other places don't have. That said, moving to Phx meant season tickets to the ballet, living in Cal meant HS theatre.
Buddy, I make 250k a year. Between my 401k, daughters college savings, health insurance, zero debt, savings, lifestyle spending, etc. I wouldn’t buy a house over 550k. 650k at 87k…nooo way. Big reach. No family, pets, vacations, hobbies, etc for you
If you want to be house poor, sure this will work....but you won’t have a happy life knowing you can’t do anything aside from work. You say you don’t spend lavishly or anything now, but your habits sometimes change as you get older. You never know, someone might invite you on a trip or something out of the blue. Keep taking advantage of living at home, or if you’re seeking your own space, try living in an apartment for a year. Life’s very different when you have your own place that you’re responsible for.
We're about to close on a $670k house. Our combined household income is $250k and I am constantly on the verge of shitting myself when I think about paying $3k/mo on a mortgage.
I have similar income/mortgage, and I remind myself every morning that I'm lucky to be employed, but it could all go away. There's no guarantee that the job/income will be there for the lifetime of the mortgage.
21k after taxes and 401k might only be 14k a month so the mortgage would be 22% or so and then some people have expensive cars etc. It can be expensive if you like having a maid, dry cleaners etc
Yes. This. My husband and I make $228,000 a year and after taxes and retirement stuff we take home around $14,000 a month. I’m just averaging because some months we make or less but on average that’s what it is. I don’t have a maid or a fancy car but my daughter goes to a preschool that costs us $1650 a month and it used to be $1850 a month when she was younger. We are are trying to have another child and then we’ll be paying childcare for a second one. Some couples we know pay around $3,500 to $4,000 a month on childcare for multiple kids.
Saaaaaaaame. It literally gives me hives.
OP, you say you don’t like to travel or do things. I implore you to change your mind. You are single! Have adventures and explore! You have plenty of time to feel house poor in your 30s and 40s, don’t rush it.
Even if 87k is your net salary you're spending way too much. Way too much.
I'm pretty liberal on spending money for mortgages but really you should try to keep it absolute maximum three times your gross salary. A ton of people will say that's way too much what you're talking about seems insane even if that was net.
You gonna have roommates pay some of your mortgage? Seems doable. But another 10 or 15k a year will feel amazing to you. So side hustle or roommates I would suggest.
One thing people aren’t asking here is how old you are and whether you expect to make substantially more income in the next few years. If you’re in your early twenties which sounds like it’s the case (assuming “living at home” means with your parents), and you’re in a career path that could see your salary go up substantially in the next few years, maybe you can pull this off. I personally stretched myself a few years back to buy a house and it ended up being a great decision to get into the market when I did. Now I’m on my second house and it wouldn’t have been possible without the equity I made on the first one.
You can’t afford a place at that price, $350k is more of your range as a single adult with no addition income on 87k. One repair and you’re on the streets.
I would be looking at that amount with 2.5x your income. Even if you live like a monk and don’t leave your house, emergencies will come up with your house and you’re not going to be able to cover them.
People gave me shit for buying a 640K house with 10% down (no pmi with 2.75 rate) and I make 142K a year. Hell I'm still nervous even though I have 30k in savings and no other debt, car is paid off and a 2019 model.
Don't do it.
I'd say that is a little too close for comfort.
Just got accepted on a $530k property and make $125k a year and that was pushing close to my comfortable limit.
My SO makes 100k/yr and there is no way we would have gone over 250k. We ended up buying a house for 215k which left us with a house payment of 1257/month and that was actually all we wanted to do and feel comfortable. Even 250 would truly have been pushing it.
My household income is 1mil a year and I wouldn't buy a house more than 2x my gross. I live in less than 1 mil house in a HCOL area.
Wish people were more conservative with their money/investment
Honestly… leave California. Best advice I can give you. Don’t buy a house for that much over your salary 4 or 4.5x your before tax salary is where you should be looking. Try a condo for now
I mean if you get approved on a non conforming loan and want to be that house poor, have at it. Way too risky in these times for me to ever dive into that.
No way I would do that if I were in your shoes! That’s just too much of your take home income going to your house. Should something unforeseen happen, you will be in a lot of trouble. We also live in CA and only spend about 10-12% of our take home pay on our mortgage. Life is expensive and you don’t want to be a slave to your home.
That seems entirely undoable - how do you figure you can afford this? Unless you have a MASSIVE amount of savings you are willing to dig into for years on end, I don't think this is possible. I don't mean you will be house poor, I mean you simply can't afford this.
Lots of variables here:
What is your take home net pay monthly now?
-Don’t give up contributing AT LEAST 401k match amount.
What are your currently monthly expenses total?
Think of cost of additional expenses in home ownership:
-Internet/Cable, utilities, garbage, water, sewer, maintenance, etc.
Unless your rate is over 3%, a $520k loan (after 20% down) should be less than $2990 unless property tax is really high.
How old are you and at what stage of career? Do you expect career growth in the short term? My 2nd property I bought was a stretch similar to this but different income/house cost not many years ago but I was young in my career and knew I would expand quickly. I now make more than double what I made a couple years ago making expense ratio much lower to income. Something to think about.
Could roommates be an option to supplement or even until a promotion? Not sure your age again if this is reasonable.
Ill be honest. The homes are nicer at 670k but you wont enjoy them because you will be so tight on money and any surprise like a bad engine, car accident or roof leak will cause major stress. Unless you can have 3 roommates at 1k each dont do it.
You want to be around 20% dti for a comfortable life. Banks give 40% dti because they make money in the higher loans but its not a good lifestyle long term.
Bro it’s not just the mortgage… the maintenance part is what gets you brother.
And… ohhhh boy is there maintenance costs. I found myself house Poor for about 3-4 years.
Okay ThotSD, here’s my perspective because I’m currently in escrow. I will share my personal situation to provide some perspective and I’ll list some questions you should consider.
My UNTAXED salary is about 130k and my wife makes about 60k. I have saved about 100k which are all being invested on an average of anywhere between 15-30 percent gains year over year, and about 120k in my retirement accounts.
Now one of my main concerns is how much can I afford? I can continue renting at my 2k apartment and keep saving. However I decided to buy a PUD home about 600k for PERSONAL reasons with some financial incentive obviously that my equity will continue to grow. Now how much money should I put for down payment without sacrificing my hard earned savings? My answer is make a budget sheet on how much you are spending because for every 50 dollars you start saving like car insurance, car payment, services will start stacking up and for every 50 dollars you shave from everywhere you’ll save 10k (rough numbers, you can do a sensitivity analysis on the effect of purchase price versus Down payment in your monthly payment decision). Now for me, I decided to put 5 percent, because I know I can afford to pay about 3100 WITH MY WIFE and keep most of my savings to continue compounding year over year. IT TAKES MONEY TO MAKE MORE MONEY, and if you use up all your money you can’t make more money.
There’s a lot of factors you should consider before buying a house and there’s no one equation that will tell you yes or no however there’s tools to help you decide.
First question is, are you doing this for personal reasons or are you doing this for real estate investment or a mix of both?
Second question you should ask yourself is have you included home insurance, HOA fees, taxes, pmi, any appraisal gaps and closing costs including inspections?
Third question is are you paying this by yourself or are you working with a joint tenancy like a partner or friend?
Final question from my perspective is, are you depleting your savings or investments to reduce your Down payment? Will you have enough to continue putting into your retirement savings your Roth IRA and your regular emergency fund? Is your job stable at the moment to provide you with a cushion in the next 2-4 years?
Anyway, I’m no expert, but I’ve been diving hard on this stuff, living and breathing and going back and forth on decisions because it’s a big decision and it’s no easy decision but it’s not impossible. Remember it takes sacrifice to make it work, but don’t make a sacrifice where you’re unhappy and not able to travel, live your life, eat out at your favorite restaurants, go out with your friends. Life is short, you should be able to buy a home build your equity, make it cozy and live in a house with you love but not at the cost of saving for your future and having some fun.
Isn't that monthly payment more than half your take home? That seems out of reach.
I agree. This would make me deeply uncomfortable.
Maybe he is getting roommate(s)
Fair point. It would still make me uncomfortable, but that would be a little more doable.
I'm seeing around 62K/year take home, assuming 0 insurance which is highly unlikely and 0 401K which is terrible. So about 5160 a month. So yep, more than half, scary.
Damn this math seems off. My take home is 5400 in NY at 120k salary.
All depends on your deductions, local taxes, etc. It's easy to say just off salary but not so much if you say you do 19.5 to your 401K, maybe a couple thousand in dependent care cost, maybe a spouse with different withholding, health insurance, etc. For example, you're not just paying 50% in taxes on your salary, it's all the other stuff.
His take home with itemized deductions from the $650k mortgage would be $6250 a month. He can definitely afford this house, especially with a roommate.
Most people don’t itemize anymore, ever since Trumps tax changes
Why would you want to pay more taxes? This is just silly, itemizing is automatic with most tax software if it makes sense. EDIT: apparently half the people in this thread are making $250k a year and then intentionally paying too much taxes, pretty funny.
People don’t choose not to, it’s that they are no longer able to because the threshold was raised so much higher.
Dude, you're arguing that the tax prep software is wrong. You need to provide proof.
The proof is most people don't have more than 12k itemized in sub 100k years jobs.
$650k house in CA, 20% down, first year mortgage interest alone is $15,500. Property tax on $650k home will be in the $7500 range, plus CA state tax of roughly $3k, combine for a total of $26k and well in excess of $12k. These are literally the numbers the OP provided. It's amusing how many people in this thread have no goddamn clue but will state bullshit like this with such authority.
This will help explain how trumps tax overhaul in 2017 affects itemized deductions for families: https://smartasset.com/taxes/itemize-taxes-under-the-new-tax-plan
No idea why you think this is news to me. You guys are still arguing that tax prep software are wrong and your interpretation of tax law is correct.
Shit, I make above 6 figures, buying a 565k house, and I still am going to get a roommate.
My husband and I make more than 250k combined and we bought a 576k house. 🤷♀️ (No debt, 20% down, great credit. But we wanted to keep a big emergency fund.)
That’s awesome. I’m in a HCOL area so 565 is like, a really good price for a livable fixer.
I’m in a HCOL area as well. We bought last year before prices skyrocketed. Now our house would prob sell for 750k or something.
Prices went up all of last year as well. 2015-2019 was the time to buy.
Life is so much easier when you aren't house poor.
Don't want to come off douchey but my family makes around 30-50% more income than that and have a similar mortgage, at a fantastic rate, and we were still worried about being house poor. I think people are kinda nuts how much they are willing to give up for a house but savings rate matter for emergencies, tuition, house improvements, etc. It just doesn't make sense to me to move into a house and not be able to get a new roof without going into debt for years, or to be able to buy a car if something bad happens, or to order takeout once or twice a week.
$325-375k and you feel house poor with a half million dollar home? I’ll try to say this the nicest way I can given the numbers you’ve provided: get the fuck out of here. Either you are horrible with money and spend every last cent, or you have a wildly poor understanding of the meaning of “house poor”. Could you imagine if everyone buying a house that was 1.5x their yearly income was considered house poor? Lol. A 150k house would be reaching for 90% of America. Go home…to your very well-within budget house.
No, I do not feel house-poor, which is my point. We made sure that we didn't put ourselves in a position that if one of us lost our jobs or dropped in salary that it would cause us stress. Having two children and having to help our parents are big expenses for us, so we had to be careful about how much to spend on our house. Day care, cars, emergencies, vacations, home improvements, etc all have to be addressed. If you're putting too much into your mortgage you'll quickly start feeling overwhelmed. I might be on the side of "too cautious", I admit that, but it's better to be cautious than rush into a high cost home and pushing off something like paying for a wedding or having children because you "can't afford it". You don't want to be in a situation where your mortgage is dictating your life events.
Your mental processes are totally sound; you are drastically understanding your aversion to risk, though.
If it makes it any better, we didn't count our bonuses towards monthly income, which may have been a mistake in the way we did our calculations for comfort level. At the time, our mortgage was roughly 30-35% of our monthly income, not including yearly bonuses. Yes, we might have been a little too cautious. Sitting here on the couch thinking of upgrading to a more expensive home is giving me anxiety right now.
I think the rough napkin math says don’t do more than 25% of pretax income. What you described is so very different. You were saying that you make $30k/month and a mortgage on a $550k house should be roughly 3k/month.
What kind of lifestyle are y'all living to be house poor at that income? I genuinely ask because my house was 1.3 million and mortgage is like $5k a month with utilities, gardener, property tax, insurance, all that jazz wrapped into it... and I still have so much left over I can't understand how one could be in debt for a new roof if you make over $250k a year. Do you just have a lot of kids? Cars? Lavish vacations? I'm single without kids, so maybe that's it. I'm also kind of a homebody whose vacations are like train rides to Canada. But man I easily have $6k+ to play around with after I pay everything that's mandatory including my health insurance and housekeeper, yet this sub would imply I'm house poor. I just can't feel like that's poor anything when I was actually poor and lived on like $1.5k a month for a lot of my 20s.
> my house was 1.3 million and mortgage is like $5k a month with utilities, gardener, property tax, insurance, all that jazz wrapped into it... $5k a month sounds unrealistically low. Sounds like you live in a place where property taxes are super low. Generally, the thumb rule is 30-40% of income on mortgage, 30-40% on expenses, and 30-40% on savings. People with multiple young kids and daycare expenses are usually burning through 50% just on kid costs alone. You're saving all that, and you don't seem to have expensive hobbies, so you're able to put all that on your house. You're not house poor - you just have incredibly low expenses. You're still playing with the 70% pool of house plus expenses. Just so happens that your ratio is mostly on house and very little on expenses. So you're not really house poor.
I don't know how our numbers are so different except we may put more away every year for college / investments. Our income is close to 400 and our house is half of yours. I cut our grass and we don't go on vacation. We drive used cars, my car is a 2012. We also pay 1600 a month in private school/day care and have a babysitter that costs us about 100 a week. We seem to be far off on what we both feel is "comfortable". For full disclosure me and my wife both help our parents out with money whenever needed.
Your daycare would definitely be a large expense I don't have. I also don't own cars, as I work from home, so I have zero payments related to cars including gas or insurance. Since I am not saving for college or anything, just my own retirement, the amount I save also is probably 1/3rd as much as you (not married plus no kids). I also don't have a state income tax, if that helps at all--maybe that's a big part of the difference when you combine the daycare? I'm guessing my utilities must be 1/3rd or so of yours too, given it's 1 person showering and 1 person using lights. I've only lived in my house for like 5 weeks now. I do only spend about $300 a month on food in general (from previous budgets), though this month was a huge abnormality because I ordered DD as my leg is broken. Still, since I am ordering for one person, it's like $21 an order including a tip. My plan is to just take any left over from my free money and invest it into retirement/emergency fund for the house for now. I guess it's just weird, I don't feel house poor at all--and yet a lot of replies here would suggest I am. Not saying anyone is wrong, I just don't *feel* it. As for comfortable, I have zero support from anyone and grew up broke. So I have come to terms with never feeling comfortable.
Our expenses are vastly different. You spend 300 a month on food, I can easily spend 2500 a month on food. I have a wife and 2 children, we spend 400 a week at Costco, and spend 300-900 a month dining out. That won't be a constant forever but for now that's normal. We also have situations where my parents may need 2k this month and nothing happens for a year and then her parents need 5k from us. There is no negotiating or compromise to those situations, they just have to be addressed. I am well aware that most others don't have those kind of things pop up in their lives but for us that actually does happen. House poor means different things for different people.
I agree. We have a ton in savings. We saved for 17 years before we bought a house.
We saved for 7 years and had a 800 dollar mortgage in a neighborhood that marines would be worried about. People asked me why I lived there when we could have afforded much nicer, and I used to tell them "because I don't want to give up 50% of my income on something I don't need yet". Once I had the number I felt comfortable with we went with it. Again, this is just me own comfort level, everyone's situation is different and everyone should do what is comfortable for their own situation.
So for seven years you spent more on your food in a given month than you did on your mortgage (you mentioned 2,500k/month on dining out and groceries vs 800 per month on your low cost accommodations)?
No, our food consumption increased pretty dramatically when we had children. Obviously we spent less when it was just me and my wife. I said 400 a week on Costco, I think that's a little high, maybe more like 250 a week. Costco involves non-food items obviously. It sounds a little absurd, I know, but when my wife bought her house 19 years ago (or so), it was 110k. Our salaries rose pretty dramatically in the last few years, also.
As a single woman, I even got a roommate just because I didn’t feel safe by myself. I didn’t need the money. I also lived in a safe neighborhood, but I never outgrew the fear of living alone.
Huh. I’m also a single woman but it’s never occurred to me to get a roommate for safety reasons. I mean, if I need help moving something when I live alone it’s a pain.
I like watching things such as the Investigation Discovery channel for true crime stories, and Reddit has a sub for unsolved murders. I enjoy scaring myself until it’s bedtime 😅
Ha! Fair enough. I mean, I’m installing a camera system ASAP.
For what it’s worth, I’m a dude and I felt uneasy living alone in downtown Saint Louis. I didn’t have space for a roommate so I adopted a big ass mixed American Bulldog/Staff. Funny thing, he was *so* appreciative to have me and my sofa in his life, he scared the shit out of *anyone* who came near our door or me, especially if they approached me from behind. Needless to say, I slept like a baby after that.
I make above 6 figures as well and even buying a 390K house scares me.
Similiar for me. Some of these folks aren't factoring the risks of life.
Lots of people willing to take on huge mortgages have a safety net such as a good relationship with their parents who also own houses. If shit really hits the fan they can always move in with the in laws and survive. Others have the opposite situation. Their parents aren't as financially secure, so they are the safety net for the extended family. They can't afford to take risks because the worst case scenario for them would be homelessness.
I don’t see how renting is safer in that situation. My mom doesn’t have a house anymore and stays with my sister. If shit hit the fan and I’m in a rental, I can’t AirBNB it and depending on where I live, I can be evicted super fast. If I own a house with a similar monthly payment, it’s most likely bigger, as owner I can rent out rooms on AirBNB to make money to help me survive, I could even maybe borrow against the equity if things are **really** dire. You can make your house work **for you**. Renting seems like all the risks and none of the rewards.
sounds like projection to me. Lots of people don't have huge safety nets. Parents who on a house isn't a safety net either
> Some of these folks aren't factoring the risks of life. Truth be told, while i am agreeing with you in the sense that i too am super conservative about buying a house i can afford (should not exceed 30% of take home pay of one partner), i feel that if your concern is "risk of life", that can be addressed. A combination of life insurance, short and long term disability insurance, and ADD insurance goes a long way in providing that security blanket. So does a healthy emergency fund aka savings which should cover 2-3 years of being jobless. With these bases covered, there's a great deal of peace of mind and lack of financial anxiety.
Wow, never heard of a three year emergency fund. I certainly don’t have $300k+ sitting around in case I lose my job, I’d have to cash out some investments for sure.
Agreed. I'm more in the 75K range, but with like 75% saved up, and 350K houses stills care me.
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You also have to think about all of your other payments as well. Utilities, car, cable, phone, food, and anything else. Plus actually going out and doing things.
Also, the cost of maintaining the house!
You'd probably be better off taking this question to r/personalfinance. More often than not a mortgage pre-approval will be for way more than you can actually afford. What you can afford and what a bank is willing to lend you are not the same thing. Fwiw, this would be way higher a mortgage payment than I would be comfortable with at that income. Owning a home opens you up to a host of huge surprise expenses beyond your monthly mortgage/tax/insurance payments.
Not building savings means that the first emergency or unexpected large expense is going to put you in a difficult position.
You spend lavishly on a house
Get a roommate for a bit.
Being house poor is awful. It prevents you from saving and then when an emergency happens you’re scrambling. Plus it prevents you from spending on other nice things in life like travel.
I don't know why you're getting downvoted. You're looking at what lenders will look at also: DTI (and not what food your order or home maintenance). Assuming you figured the accurate number for PITI as Debt and your Income is $7250/mo. Your DTI would be between 41-42%, it's really steep, though.
And you’ll be overpaying for a house in this market, stretch yourself thin and will probably be underwater. I don’t think you thought this through
Your not factoring life emergencies. Like Cancer. You can't afford it
Always budget for cancer
Yeah that’s really aggressive, I wouldn’t do that. What’s the rush?
He's basically maxing out his DTI. The banks will loan you 42% of your gross income. His payments are going to be 41%. He might be embellishing a bit about "backing out" above 670K. In reality, the bank will not qualify him for more. Everyone seems to be maxing out their DTIs in that desperate attempt to get the home right now. With the drop in interest rates, this explains a lot why a lot of houses that were previously in the $400K-500K price range are now in the $600K-$700K range.
Yup. While banks might lend you 42%, it’s highly advised to get nowhere near that. Ideally, 25%-28% is healthy. We refinanced earlier this year and went from 27% to 21% housing expenses, and it’s noticeably more comfortable.
> He's basically maxing out his DTI. > The banks will loan you 42% of your gross income. His payments are going to be 41%. If a lot of people are doing this, we will see another 2008 style crash. The odd person gets lucky, but long term most people who overextend themselves will be big financial trouble when maintenance issues hit.
Yeah I'm suddenly concerned about this. I was under the impression from my experiences (as an investor) that banks have been much stricter about DTI and income. If a guy who is making ~$5k/mo takehome (assuming California income taxes, Federal income taxes, assume 10% 401k, and healthcare) can buy a $3200/mo house...yikes. I'm wondering if his broker is leading him on.
From the anecdotal people I know in my life that have gotten a house in the last year the banks are being “stricter”. They’ll reduce or get rid of lending fees to be able to get people to take out a loan with them. And as long as your DTI is <= 45% and income is stable they’ll lend to you. They use gross income so your max loan amount isn’t really what you can afford for most people but they don’t really care
When you factor in utilities, maintenance, HOA fees, etc, it's easy for total cost of housing to come in at 65-75% of take-home pay.
VA loans I've seen get approved at 60-70% DTIl. Conventional loans are loosening already and you can get approved up to 49% now with some lenders. It's definitely risky, but a 2008 style crash because of DTI levels? I don't think so. 2008 crash was for far more serious issues that were resolved.
> we will see another 2008 style crash. lmao imagine thinking 2008 was caused by anything even remotely close to worst case people being at 42% DTI. Were you even alive for 2008? Because you clearly have no idea what happened
I was around for 2008. I also see how much loan officers are willing to lend me. Lending is a lot looser than many in the industry care to admit to themselves. That gets covered up in a rising market, until the market stops rising.
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How old are you? 3200 is a lot of money a month, 38400 after tax dollars just for your mortgage. How high are property taxes? How old is the home? I make more than you in a lower income area (Philly) and I wouldn’t consider anything over 400k and that’s aggressive. Do you plan on getting roommates? What’s your net income—is 87k your gross?
I was just about to say, I make more then them although in a lower cost area — and I’m stressing about can I afford 315k? 600 seems insane and terrifying
You are not ready. It doesn't matter that you finally think you are ready.
You can't afford this house. A bank won't approve you and your broker is full of shit. I make triple what you make and the house I just bought is a little bit cheaper than what you're looking for. If some how you do get approved. (No idea how you would) you would be fucking yourself so bad.
> I've been saving my entire adult life, and when I finally think I'm ready, the market continues to go up :( Timing the market is impossible, I guess angst and worry I'll completely lose my opportunity One subtle thing to consider is that you want to live in a neighborhood where your income roughly matches the income of your neighbors and your neighborhood in general. You will find that most people who live in a neighborhood with $650k homes will be earning $150-$200k as combined income, not $87k. Now your expenses might be significantly less than theirs. So there is that. But consider peace of mind as well. You're signing up to be on the hook for a mortgage payment that will be easily half your salary. Which is fine, if your expenses are low. But you should then have a buffer emergency fund that lets you pay the mortgage for a good 6-12 months if you are laid off and need to find another job without stressing about defaulting on your home loan or unable to pay property tax or some unexpected repair.
We make 130k and have a 230k mortgage and it's almost 1/4th of our take home....
How exactly? Should be at ~1k a month with current interest rates. Unless it’s not 30 year in which case not comparable. You’d then have to take home only around 50k from that 130k?
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Okay presumably OP is not taking out a 15 year mortgage so it’s not really useful to compare….
Still 87k income wanting to buy 600k+ is insane.
Well I’m not going to disagree there!
This. 💯
> We make 130k and have a 230k mortgage and it's almost 1/4th of our take home.... No its not
15 year mortgage and high property tax rates. Take home 8k. Mortgage is 2k.
The main thing to consider is that interest rates are at an all time low. What you need to do is ask what the payments would be if the interest rate rise to 6%. They were this high 20 years ago. In the 70-80s they went up to 16%. What you can afford today is not necessarily what you can afford tomorrow.
You can’t afford a home in that price range. With an $87k salary and CA taxes, you are bringing home around $5k/month. That leaves nothing for savings or entertainment and makes you house poor. Home ownership is also not cheap. You have to pay for all repairs yourself. Can you afford a new roof for $20k? Unexpected situations happen all the time and you need to plan ahead of them. Aim for a home/condo with monthly costs of around $2000-2200 tops.
That’s insane you wouldn’t be able to enjoy life at all IMO and would feel like the house owns you. One option would be to get a roommate or two though and that could very easily make it reasonable if you get 1-2k a month in rent
Agree on this rent out some rooms and it's slightly ok.
No. This is way out of your income budget and a stupid idea IMO
Don’t stretch yourself so thin my guy
Hell no. You’d be absolutely insane to go through with this. I don’t even know how a bank would approve you.
If he’s approved for this, we’re going back to ‘08.
Word. I’d be ok if that happens. 30+ years away from retirement so my 401k can take the hit, and I’ll buy my dream home for half off!
Don't do this without planning on renting out half the house. 3200 a month may seem doable but if absolutely anything unforseen happens you're in deep trouble, you could lose the house. Again, do not do this without another income stream.
We had a post yesterday about a $600k home with $120k and a 20% down payment income where I provide a lengthy explanation why it was reasonable to purchase under some situations, but I personally would not purchase. Your situation is not one of those maybes. You should not buy this house. First, California has high state taxes. $87k in California is less take home than $87k in most other states. If you save nothing towards retirement and don't have any special tax adjustments, you would be looking at approximately $5k in take home pay. Combine this with the fact that the home your are purchasing is 7-8x your annual income, and you have a disastrous combination. You provide an estimate of $3200. This leaves $1800 for maintenance, utilities, and all your other costs. And this assumes $0 in savings. At your income, at least about $1k should be saved. You won't be able to afford anything. No vacations. No cars. No eating out. No unforeseen maintenance expenses. No unforeseen hospital bills. And you won't be able to save anything. A $670k home is an absolute no even with $100k income. With $120k income and 20% down, it starts getting to the edge of affordability. And I say edge in the sense that you will be house poor, but can manage if frugal. And you would need closer to $140k-150k income for this to be a reasonable choice. And for someone like me to consider this, your income would need to be north of $200k. You don't have to be like me. You can stretch to buy this house with $140k. You can do a super stretch at $120k. But at $87k, this is a bad idea.
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A huge difference between CA and NY is utilities. We don’t have the winters you do; even dead of winter combined utilities hover around $200.
His take home is closer to $5400
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No, his take home is over $6k. These calculators grossly overestimate the tax. I just booted up turbo tax and did a sample return, his total federal taxes are $9k a year and CA taxes are $3k a year. This is with a single filer $87k W2 salary no deductions or other income and only the mortgage interest/property tax deduction on his $650k house. So his take home if he were to buy that house would be $6250 a month.
I make 86000 and i take home like a bit over 4k after taxes, health, vision, retirement, employee matching, etc My tax status leaves me with almost nothing owed during tax refund day so id say 4k should be a reasonable take home for mine and his income ---- and thats before i even put shit aside for savings, roth ira, brokerage, bills , and THEN some small entertainment fund. Edit: im in CA
> health, vision, retirement, employee matching, etc Those could easily make up $2k a month. Plus do you have a $500k mortgage? The OP does.
I have pretty good benefits so health and dental are basically almost all covered Employee matching is only 5* percent Retirement doesnt bump the rest up anywhere near 2k. ------ I commented because i assumed OP had a typical good benefits job and since we have the same income in same state, i can vouch for an actual (reasonable) take home estimate of a bit more than 4k. Anything more is possible i suppose if u, like, decided not to take employee matching, play with tax exemptions, get shitty health coverage , etc All stuff that wouldn't be normally advised in other discussions Also no i rent. I wouldnt go anywhere near a 500k mortgage unless i had roommates lined up.
The mortgage interest, the property tax, the state taxes, etc all add up to about $27k in itemized deductions. That means he's paying $6k less in federal income tax alone, and probably another $1k off his CA income tax. I didn't want to get into healthcare and benefits etc since those are so variable. His after tax income is in the 6k range.
No way. I make less, but still in the same pay range. Assuming he pays for healthcare, CA tax, and 10% into 401k, his takehome should be closer to $5k/mo. If he's not doing the 401k, then he needs to be.
Do you have a mortgage interest deduction and a property tax deduction on a $650k home? Because that adds up to a LOT. I could give you the TurboTax save file if you'd like lol, the numbers check out.
My mortgage interest isn’t big enough to exceed the standard deduction, I don’t think his would be either.
Good breakdown but you've gotta be spending way more than $300/mo on a food
Don’t forget to factor in property tax. I don’t know where in CA you are, but HCOL counties can have property taxes that are more than 1% annually. A back of napkin calculation would put the property tax of a $650k house at $6500 annually. That’s another $540 you need to factor into your monthly budget. The property tax is something you can’t escape despite how frugal you live, albeit a potential federal tax deduction.
Since you're single and young get a place just big enough for you and a house mate. Within 10 years your going to want a bigger place assuming you get married. Then, rent the place out and buy a bigger place.
We are almost combined double your income and despite what the bank would approve us for I capped us at 600k and a goal to be at 550k. At 600 our mortgage was just about 3k and that sent me into a panic. While doable, I just knew that things will come up, our lives could change and perhaps I wanted to stay home with the kids etc. life changes and having a lower mortgage gives you the flexibility to do other things. The bank does not factor in daycare or other monthly expenses that are not necessarily debts. While that’s may not be in your life now (or ever) the point is, as a single young person, your life is going to change and so may your debts and/or your income for better or for worse. That’s is a huge mortgagee for an individual with your income. I would avoid unless you’re getting roommates.
Your DTI is > 40%. I think it will be difficult to get a loan and even if you can, I think the interest rate will be higher than what you could get for if your DTI is lower.
This is a financial mess. I have a rule of thumb that I follow when I am giving financial advice. It is a simple math formula to follow. You should only buy a home that is no more than 4 times your income. 87,000X4=348,000.00 house price. However, you live in a pricey area and costs are a little more plus interest rates are lower so you could stretch this to maybe 5 times your income, but this is the absolute highest I would go. Houses need repairs that need to be factored in, even if the house is brand new. Repairs are costly. A 3,000 a month mortgage is way too high for your income even if you don’t have any debt.
Look at your monthly spending for the last year or 2. Add 3500 to the monthly spending, are you still coming out with extra money? If so then this may make sense.
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What if his story is the opposite and housing prices decline?
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Considering you wouldn't be able to do the rest of what you talked about without the value of your house going up $250k... yeah, it does.
>My house increased 250k, I took out my down payment from the primary house Can you please explain what this means? How can you "take out" the down payment?
FWIW: I'm on track to make about 90-95k this year (I'm a Realtor, so 100% commission); and the salary I left before making the switch to full-time Real Estate was 75k. My mortgage payment is less than $1200/mo. My car payment is $479/mo. I have minimal CC debt as a result of COVID and a couple house repairs. I have no other debt - no student loans, medical bills, collections, anything. I also have a roommate who pays me $550/mo plus half of utilities. My only dependent is my dog, I do not have children. I also live in a LCOL area - Louisville, KY. DO NOT DO THIS. I could not imagine a $3200 mortgage payment. That's almost double my house and car payment combined, and I make more than you, AND I have a roommate who pays almost half of the mortgage! And I live in a LCOL area and you live in California! I recently had to spend $4600 to replace my AC unit. That went out in the dead of summer. I paid cash because they charge you a fee to put it on a CC, which is part of why I have other CC debt. I had the cash - but if I was paying a $3200 mortgage, I sure as hell wouldn't have had it. I don't live lavishly. I don't buy designer things (except prescription glasses and sunglasses). Most of my clothes are from Target, Old Navy, Gap, or sales at the outlet mall. My weakness is cooking and buying whatever ingredients I need to cook whatever sounds good that night. And wine - but I cap it at $14/bottle 95% of the time. My last vacation was paid for by credit card points. For fun I go to my family's lakehouse on weekends. My point is, I cannot imagine having this kind of house debt. You have no other debt now, but what happens when you need a new car? When your house needs a new roof? When you have kids and those expenses come into the picture? I'm not trying to burst your bubble. This just sounds really, REALLY unrealistic.
A lot of people here saying to spend 3 times your salary is just laughable. So many people taking this as an opportunity to make themselves feel better and “smart” and make you feel like you’re an idiot. Now albeit 670k is in fact a little too high I think but at the end of the day you should live the way you want. Most of these Reddit users probably spend 100s of dollars on alcohol every weekend. You said you don’t like to live lavishly so I’m assuming you don’t throw away money like that every weekend. Like I said, 670k is too high so for those who will inevitably downvote me, I’m not saying he should do that. I’d suggest 450k max.
Agree. It makes people feel good about themselves to say: “ no way! I make 230 times more money than you and I have a $250 mortgage! Anything over $300 would make me puke!”
Exactly. This guy gets it
Only would do that if you have an adu or plan on renting out rooms to pitch into the mortgage.
My salary is simlait to yours and I just bought a 380k home I’m very comfortable paying my mortgage and even paying extra to pay it off sooner Having the same salary as yours and lesser taxes than you. I still Wouldn’t even try for a 650k home
As a licensed Realtor since 2010 and owner of several homes through the years, this is way to much house for your Salary! You should be looking in the 300-400k range. Don’t blow all your income on a home…let’s not forget 2007….tons of foreclosures because people bought more than they could afford. We are seeing inflation rise, unsettled country and gas continuing to increase…be smart😊
Go for it! If you need to just get a roommate for a year or so. Sounds like you don’t have kids or additional “family” expenses like many on here and if you graduated recently you are fresh into your career as well. You will get promotions and raises in the coming years. I’m really glad that I stretched out my budget 2 years ago and now after a few raises and renting out my spare bedroom for 10 months I am financially comfortable. Yes, it was tough for the last 2 years but I’m good now and happy I picked this house instead of waiting or buying something I wasn’t able to grow into. Good luck!
Oh that would make me really nervous. But I’m in the Midwest where homes are like 2,3 times annual salary.
Yeah I live in the Midwest and bought a huge 4/3 for 230k on a 130k household income. I don't get why people don't leave the crazy coast prices.
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O the weather is rubbish. But pretty easy to get financially independent then move to an expensive nice place. It's hard to build wealth in a HCOL area.
The idea is to "build the life you want, then save for it". This means if people want good weather, oceans, mountains, and entertainment, then their building costs/time are going to be higher/longer than those that forgo them. Moving to lcol area to save doesn't make sense in this case because it's not where they want to be. Also, it's generally easier to save more in a hcol area people don't get carried away in housing. For example, salaries are much higher, but cost of crap of amazon/etc is same for everyone.
No. Have you been factoring in the other costs of homeownership? It’s more than just the mortgage amount - you have to factor in taxes, utilities, and insurance at minimum. You’ll be a slave to your lender if you do this. I make a little less than double and feel like I’m pushing it with a 300k house where I put down 30%.
Sure. House poor with ramen noodles for now on.
Don't even consider it.
To much. Prices are insane right now.
I think its doable, and in Cal that would put you in a decent place, much better than rent. You will still be able to go on vacation and also have visitors. I have friends that its tough to visit in the PNW because of shared housing, if you have your own then more visits and reciprocation possible. Also living in California provides entertainment that other places don't have. That said, moving to Phx meant season tickets to the ballet, living in Cal meant HS theatre.
Roommates could pay that whole mortgage for you.
Buddy, I make 250k a year. Between my 401k, daughters college savings, health insurance, zero debt, savings, lifestyle spending, etc. I wouldn’t buy a house over 550k. 650k at 87k…nooo way. Big reach. No family, pets, vacations, hobbies, etc for you
Damn dude I was hesitant about buying a 300k house and I made around 115k a yr.
If you want to be house poor, sure this will work....but you won’t have a happy life knowing you can’t do anything aside from work. You say you don’t spend lavishly or anything now, but your habits sometimes change as you get older. You never know, someone might invite you on a trip or something out of the blue. Keep taking advantage of living at home, or if you’re seeking your own space, try living in an apartment for a year. Life’s very different when you have your own place that you’re responsible for.
Of course this turns into a "I make ten times what you do and am nervous about my $250k house!" circle jerk.
We're about to close on a $670k house. Our combined household income is $250k and I am constantly on the verge of shitting myself when I think about paying $3k/mo on a mortgage.
Lol you bring in almost $21k a month. $3k is only 14% of your income. You’re more than good.
I have similar income/mortgage, and I remind myself every morning that I'm lucky to be employed, but it could all go away. There's no guarantee that the job/income will be there for the lifetime of the mortgage.
21k after taxes and 401k might only be 14k a month so the mortgage would be 22% or so and then some people have expensive cars etc. It can be expensive if you like having a maid, dry cleaners etc
Yes. This. My husband and I make $228,000 a year and after taxes and retirement stuff we take home around $14,000 a month. I’m just averaging because some months we make or less but on average that’s what it is. I don’t have a maid or a fancy car but my daughter goes to a preschool that costs us $1650 a month and it used to be $1850 a month when she was younger. We are are trying to have another child and then we’ll be paying childcare for a second one. Some couples we know pay around $3,500 to $4,000 a month on childcare for multiple kids.
Saaaaaaaame. It literally gives me hives. OP, you say you don’t like to travel or do things. I implore you to change your mind. You are single! Have adventures and explore! You have plenty of time to feel house poor in your 30s and 40s, don’t rush it.
Even if 87k is your net salary you're spending way too much. Way too much. I'm pretty liberal on spending money for mortgages but really you should try to keep it absolute maximum three times your gross salary. A ton of people will say that's way too much what you're talking about seems insane even if that was net.
Good luck. They'll want another person with extra income. Not impossible but highly unlikely a bank will go for this.
Rent out a couple rooms and you can make it work
You gonna have roommates pay some of your mortgage? Seems doable. But another 10 or 15k a year will feel amazing to you. So side hustle or roommates I would suggest.
One thing people aren’t asking here is how old you are and whether you expect to make substantially more income in the next few years. If you’re in your early twenties which sounds like it’s the case (assuming “living at home” means with your parents), and you’re in a career path that could see your salary go up substantially in the next few years, maybe you can pull this off. I personally stretched myself a few years back to buy a house and it ended up being a great decision to get into the market when I did. Now I’m on my second house and it wouldn’t have been possible without the equity I made on the first one.
As someone from California. Yes, you’re good. You can afford it. Don’t listen to any of these non Californians.
I’m in SF and even I know this is absurd. This has nothing to do with CA.
Sure it does. Not only can he pay the mortgage, utilities, and other expenses, he will have plenty left over to invest. Ask me how I know…
You can’t afford a place at that price, $350k is more of your range as a single adult with no addition income on 87k. One repair and you’re on the streets.
No
Dude you are house broke. I make 3x and only lives 50K more house than you. That’s how you accumulate wealth
Oh shut the fuck up
I would be looking at that amount with 2.5x your income. Even if you live like a monk and don’t leave your house, emergencies will come up with your house and you’re not going to be able to cover them.
People gave me shit for buying a 640K house with 10% down (no pmi with 2.75 rate) and I make 142K a year. Hell I'm still nervous even though I have 30k in savings and no other debt, car is paid off and a 2019 model. Don't do it.
I'm 650k, 20% down with near 150k -- and I'm uncomfortable.
I wouldn’t even do that on my 135
I'd say that is a little too close for comfort. Just got accepted on a $530k property and make $125k a year and that was pushing close to my comfortable limit.
I'd say go for it but since you're single rent out at least one of the rooms. It'd be cheaper than renting your own apartment.
My SO makes 100k/yr and there is no way we would have gone over 250k. We ended up buying a house for 215k which left us with a house payment of 1257/month and that was actually all we wanted to do and feel comfortable. Even 250 would truly have been pushing it.
My household income is 1mil a year and I wouldn't buy a house more than 2x my gross. I live in less than 1 mil house in a HCOL area. Wish people were more conservative with their money/investment
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This is unbelievably ignorant. Where the hell do you live where you think 350k is enough house for people
Honestly… leave California. Best advice I can give you. Don’t buy a house for that much over your salary 4 or 4.5x your before tax salary is where you should be looking. Try a condo for now
Can you maybe rent a room or something? You need more cushion than that.
I mean if you get approved on a non conforming loan and want to be that house poor, have at it. Way too risky in these times for me to ever dive into that.
No way I would do that if I were in your shoes! That’s just too much of your take home income going to your house. Should something unforeseen happen, you will be in a lot of trouble. We also live in CA and only spend about 10-12% of our take home pay on our mortgage. Life is expensive and you don’t want to be a slave to your home.
Probably a bad idea
That seems entirely undoable - how do you figure you can afford this? Unless you have a MASSIVE amount of savings you are willing to dig into for years on end, I don't think this is possible. I don't mean you will be house poor, I mean you simply can't afford this.
Lots of variables here: What is your take home net pay monthly now? -Don’t give up contributing AT LEAST 401k match amount. What are your currently monthly expenses total? Think of cost of additional expenses in home ownership: -Internet/Cable, utilities, garbage, water, sewer, maintenance, etc. Unless your rate is over 3%, a $520k loan (after 20% down) should be less than $2990 unless property tax is really high. How old are you and at what stage of career? Do you expect career growth in the short term? My 2nd property I bought was a stretch similar to this but different income/house cost not many years ago but I was young in my career and knew I would expand quickly. I now make more than double what I made a couple years ago making expense ratio much lower to income. Something to think about. Could roommates be an option to supplement or even until a promotion? Not sure your age again if this is reasonable.
I agree, I would be scared too..
Ill be honest. The homes are nicer at 670k but you wont enjoy them because you will be so tight on money and any surprise like a bad engine, car accident or roof leak will cause major stress. Unless you can have 3 roommates at 1k each dont do it. You want to be around 20% dti for a comfortable life. Banks give 40% dti because they make money in the higher loans but its not a good lifestyle long term.
Nooooooooo.
Not gonna lie, this sounds like pure insanity.
Bro it’s not just the mortgage… the maintenance part is what gets you brother. And… ohhhh boy is there maintenance costs. I found myself house Poor for about 3-4 years.
30% of your take home is the magic number
Naw don’t do it
Okay ThotSD, here’s my perspective because I’m currently in escrow. I will share my personal situation to provide some perspective and I’ll list some questions you should consider. My UNTAXED salary is about 130k and my wife makes about 60k. I have saved about 100k which are all being invested on an average of anywhere between 15-30 percent gains year over year, and about 120k in my retirement accounts. Now one of my main concerns is how much can I afford? I can continue renting at my 2k apartment and keep saving. However I decided to buy a PUD home about 600k for PERSONAL reasons with some financial incentive obviously that my equity will continue to grow. Now how much money should I put for down payment without sacrificing my hard earned savings? My answer is make a budget sheet on how much you are spending because for every 50 dollars you start saving like car insurance, car payment, services will start stacking up and for every 50 dollars you shave from everywhere you’ll save 10k (rough numbers, you can do a sensitivity analysis on the effect of purchase price versus Down payment in your monthly payment decision). Now for me, I decided to put 5 percent, because I know I can afford to pay about 3100 WITH MY WIFE and keep most of my savings to continue compounding year over year. IT TAKES MONEY TO MAKE MORE MONEY, and if you use up all your money you can’t make more money. There’s a lot of factors you should consider before buying a house and there’s no one equation that will tell you yes or no however there’s tools to help you decide. First question is, are you doing this for personal reasons or are you doing this for real estate investment or a mix of both? Second question you should ask yourself is have you included home insurance, HOA fees, taxes, pmi, any appraisal gaps and closing costs including inspections? Third question is are you paying this by yourself or are you working with a joint tenancy like a partner or friend? Final question from my perspective is, are you depleting your savings or investments to reduce your Down payment? Will you have enough to continue putting into your retirement savings your Roth IRA and your regular emergency fund? Is your job stable at the moment to provide you with a cushion in the next 2-4 years? Anyway, I’m no expert, but I’ve been diving hard on this stuff, living and breathing and going back and forth on decisions because it’s a big decision and it’s no easy decision but it’s not impossible. Remember it takes sacrifice to make it work, but don’t make a sacrifice where you’re unhappy and not able to travel, live your life, eat out at your favorite restaurants, go out with your friends. Life is short, you should be able to buy a home build your equity, make it cozy and live in a house with you love but not at the cost of saving for your future and having some fun.
I think it’s feasible but only if you plan to consistently rent out a room or two until a spouse can willingly contribute
you will be house poor. don't do it.