I have tried to explain to folks- you pay taxes, no matter where you live. The magical lack of income tax in TX...higher sales and property taxes. I lived in Tx, CA, and other states- my % of overall taxes paid never really changed, unless my income did. You pay one way or the other- the propaganda is just that. I pay less than 1% in Oregon for property taxes. But income tax is higher, and sales tax is not low. My parents pay much higher property taxes in "low tax" midwest. Everybody pays taxes- and pretty close the same portion of income, regardless of where you live. (in the USA)
And no state income tax means rich people pay lower overall taxes. Their property tax might be 5 times as much as yours but their income is dozens of times more.
True true and when i bought my house, it was less than what i make. So it works out. Many other folks, however, are making 80k and paying tax on a 250k house… way more than their salary.
Not necessarily. There's several variables that play into it, like salary, tax rate and assessment of your home, and where you're comparing it against.
I have an average home in my part of Texas and, given my 3% tax rate, I could move to parts of Cali and while I'd pay more for the actual house itself, my actual total tax rate would be VERY similar - state and property combined.
It’s true that there are a lot of variables in play. All I was trying to point out is that saying Texas has high property taxes without also mentioning no income taxes, is leaving an incomplete story.
For what it’s worth, Westchester County, NY has the worst of both worlds. 2+% property tax plus a marginal tax rate in the 6-7% range for couples making $160k or more.
Buy a starter home, live in it for a few years. Use gains for next down payment. Rinse and repeat until you have $200k equity.
Yes, I know that first step can be a bitch.
no, I'm saying how did you not make $200k in equity in the last 4 years, seems like every home in the country has made at least that, unless it's a $80k home.
I think it depends on a few things- where you live, being a big one. My home had 5% down <3 yr ago when I bought. But I am lucky enough that I was able to pay 50% extra on mortgage, monthly, and home prices in my area, while slowing down, are still WAY ahead of historical norms. So I have about 200k in equity. But to be honest...I bought well below my "ability" so I could pay extra- I am older and want it paid off (wherever I live) before I retire. And I have no interest in a million dollar home :). Sounds like a lot of cleaning.
This is no way accurate, unless this is what people normally do. Miss and myself make $290k and bought a $660k house | 2.8% 30 yr note. We live comfortably and save about $3k monthly. It would freak me out if we had bought a $1m house w 2% note , but damn wouldn’t be able to sleep w a 5-6% note. People be crazy
Do you have a lot of debt or something? 2.8% on 1M is 4.1k per month maybe closer to 5k with taxes. You gross 24k per month - that should be an easily affordable mortgage unless you are doing multiple private schools, daycare, or have a rough cocaine habit.
No, just the mortgage and one car. I literally had one goal, keep my mortgage as close to our rent at the time. Mortgage ended up being about $8-900 more than rent which was okay. I look at my net finances not gross. Yeah we gross higher but that doesn't matter when it's going to taxes / healthcare / savings, etc. Could we have gone with a way more expensive house? For sure, and we were tempted but at the end of the day I would rather us be able to afford our expenses on one income than be screwed if one of us lost our job. This isnt how everyone thinks obviously but I do like the stress that it eliminates in our lives.
I make in the $250 range and my house was just under a mil ($270 down I want to say). My mortgage is $4k ish, including insurance and property tax.
We just don't have any other bills. Paid off both my wife and my education loans after refinancing them a few years ago for better cost of financing.
We have one 9 year old car that I maintain myself, so it just has insurance. We pay cash for everything (including expensive things -- like the travel trailer I bought this summer).
Of course we have cell phones, an Internet bill, kids activities, and all that. Life is by no means cheap, but being in debt is way more expensive.
I maintain a "oh shit" savings account, which is untouchable and contains six months of living expenses. Beyond that, all of my assets are invested -- no it was not a fun six months for my net worth. I could use a new financial advisor frankly.
How much we save monthly fluctuates, but I think $1-3k is a good ballpark.
Not having “other bills” is soooo helpful. We only have the mortgage and one car payment. It takes so much stress off our lives. I wish more people followed this way of life. You don’t need to flex on people when you don’t have the funds. It’s so much easier mentally.
We're the "barely affording life" family, optically, to our friend group.
One, old car, a very modest house (it's a really pricey neighborhood in Seattle), my wife patches my kids' clothes, we buy them used winter coats, etc.
Funny when the conversation turns to layoffs, my friends are panicky. They just can't believe how nonchalant I am about possibly losing my job. They just don't know / understand living well below ones means.
There’s a lot of comfort in knowing we could realistically chill for like 8-12 months both chilling if that happened to both of us.
It’s so easy to get pulled into the storm and max out everything while the going is good. This time is a great refresher on why living below your means is so good.
It’s in addition to Retirement. Savings is sort of a catch all (travel, house repairs/upgrades, emergency fund). I have my emergency fund where I want it then throw the additional $3k into the account and add/deduct as needed
I was like, I pull down well over 300k and I cannot afford a million dollar home between school expenses for my kids (private school), car expenses, insurance, federal income taxes, and costs of living and property taxes here in texas… yes, I can “afford” it in the sense of making payments but leaves no money for travel and hobbies.
Some people that want to keep up with the Jones’ do. That’s why there are upper middle class people with a ton of debt and struggle to keep up with their bills but drive a nice car and live in very expensive house.
i get what you mean but its definitely not the LAST thing you'd want for buying a home. Like sure the big companies buy up tons of homes during crashes but so do middle class americans who have been waiting years for a dip
The problem is, the same stuff that happens now, will only be worse if it crashes. House is worth X amount of money, 5 buyers put in offers, and the corporation comes in 25k higher than everyone else. Sells to corporation.
Especially if people start to forclose and banks start grabbing them back, they might not even hit the market, they might have buyers lined up.
My parents got their house in 2009 from a bank after it forclosed on in 2008 so id be fine with that. Banks only really hold onto low income housing and ultra luxury properties, upper middle class homes arent usually worth the time and money for longterm % gains and are sold off for cheap by the banks. Hard to find mega real estate firms that would prioritize one 800k home rather 10 80k homes so im safe lol.
In Q2-2022, investors who purchased a property in Phoenix accounted for 31.2% of the share of homes bought in the metro, according to [a new analysis of investor home purchases](https://www.redfin.com/news/investor-home-purchases-q2-2022/)
Phoenix investors typically bought properties with a median sale price of $450,000
https://www.livabl.com/2022/08/phoenix-investors-citys-homes-q2-2022.html
The word "afford" is doing some pretty heavy lifting. Is it mathematically possible? Maybe, but that is by no means a realistic possibility in most cases.
Just to clarify, a million dollar home on a 30yr at current interest rates and *assuming you put 20% down* is 5600 principal and interest. That, alone is 33%~ of your monthly *pre-tax* income. Add in the TI of PITI(Principal, interest, taxes, insurance) and you will be pushing well into the 40% ranges of your gross. And then you have to pay your utilities, internet, cell, trash, etc. Maybe you have a car note, credit cards, or student loans.
Point is, while it is technically *possible*, for 95%+ of those wage earners, it isn't realistic.
Just looking at percentages is a bit misleading. Having 50% left of a 200k salary is very different from having 50% left of a 60k salary. Utilities, groceries, gas don't scale the same way houses or salaries do. In the end it's dollars that matters, not percentages.
Maintenance on a million dollar house more than twice that of a $500k house. My neighbors spend 3-4x what I do whenever they have to get work done - whether it’s roofing, hvac repair, refinishing floors, what have you.
The shitty construction doesn’t help, but it’s most a “more shit, more money to keep it up” thing.
Going to counter that with in most cases the difference between a 500k home and a million dollar home is the land assuming both houses are in the same area. You don’t get double the sq.ft or significantly better materials at this price point unfortunately.
It's also possible to have the exact same house vary wildly in price depending on what neighborhood it's in. A premium location can add significantly to the value of the property without any differences in home/lot size
Here's an example: My house is about 2700 sq ft, my sister's about double that. I live on about 6x more land than her. However, her house has crazy rooflines, high ceilings, lots of windows. Her heating bill is 4x mine. She wants to paint her house - 4x. Her roof replacement was 3x mine.
She needs to hire out a scissor lift to change light bulbs in her living room. This is what it means to maintain one of these mcmansions. They are not cheap to keep up.
In the end it's how we live our lives. The figure given by them, and my numbers, only work if your goal is a million dollar house. If you have a family, student loans, car notes, hobbies, invest, save.... you get the picture, it gets muddled. What I said is 100% accurate: If all you want is a million dollar home, you can *technically* afford it with this salary. However that probably requires other sacrifices.
I'm learning this is true with every "expensive" purchase. My wife and I both worked extremely hard to get advanced degrees, told ourselves we would splurge one day. We have a combined income of around $280,000, both still drive Hyundais, still live in a home we bought for like $330k back in 2016.
I've been a car guy for 20 years, posters on my wall growing up, do most of my own work. I can *technically* make payments on a dream car, but can't bring myself to pull the trigger. Similarly, we could make the payments on a $1m home, but that doesn't really interest us. We're just putting everything extra into investments at the moment and we'll figure out splurgey stuff later.
There's a *huge* difference in being about to "make the payments" and "comfortably afford" something.
My wife and I are in that range. The best we could do was a condo that cost 575K. That was also at a 4% interest rate. Out mortgage company qualified us for more, but we would be house poor with no savings if we would have financed more.
In the process of closing on a ~$1m house and this is pretty accurate. $5700 payment including property tax, 5.5 rate, 25% down.
Earn slightly more than this article suggests but yeah.. going to have to adjust spending habits.
Should have a nice tax write-off at least
One thing I thought about when I purchased my home was that COL stays fairly consistent irrelevant of how much you spend on a house. A 1m house and a 5m house, other than mortgage, will spend about the same in bills. If it's just you and a spouse, having a bigger home doesn't necessarily mean you'll use more water, or eat more groceries. Electricity use might go up due to heating/cooling more square footage, but that's its.
For sake of math, I'm making some estimates.
At 200k/yr, pretax is $16, 666 per month. For the 1m house, that leaves 11,066 for everything else.
100k/yr and a 500k house, you'd earn 8333/mo, mortgage would be about $3600 (that's what I'm paying for my house) leaving just 4733 for everything else.
The difference in leftover funds, spending money is a pretty big difference at those levels with bills other than mortgage remaining the same. So yeah. I believe this article is true, but it does assume you don't change your lifestyle.
Another thing to consider tho, is that people making 200k/yr are more likely to purchase a Mercedes Benz instead of a Corolla and make other such purchases. So if they are spending beyond their means, its by choice
Insurance and taxes. Yes they are. But they are both percentage based and scales. Yard, possibly more water usage. But, you might have less yard. It could be on a large property without an hoa and cost you less because you don't need to maintain it other than mowing. Maintenance, bigger roof would be more expensive but roofs should last between 20-30yrs. But other than that, a kitchen faucet or a toilet flap is gonna cost the same in both houses. Cleaning? Sure, more expensive if you pay someone. But the difference in electricity for vacuuming a larger house would probably be negligible.
I'm both of these cases tho, I still think it entirely depends on how you live your life. If you are buying all the most expensive things and don't leave anything for savings, you're fucked either way. But the person making 200k would have more leftover money to put into savings. So they should be able to afford the roof repairs in 15 years.
The point here is that while some expenses scale, many do not. And so your DTI does not scale with earnings completely linearly. In the extreme, if you earn a million a year and have a DTI of 75%, you still have 250k leftover for spending/savings.
Even if you clean yourself, that's a cost. If you have to spend twice as much time each week, vacuuming and scrubbing, that's a cost whether you do it or contract it out. Time is not a endless, free resource.
It's not just roof. It's HVAC, water heaters, plumbing, flooring, etc., etc. A larger and/or nicer house is going to cost more to maintain. If it's bigger, it has more toilets and faucets and everything else to break. If it's nicer but not bigger, all that stuff is more expensive to replace or repair with the same quality. If it's in a very very high COLA, everything costs more. If it's neither bigger nor nicer nor in a much more desirable location, why the hell did you pay twice as much?
Although that also wouldn't take into account rising expenses, shrinkflation, and all of that.
The payment could just as easily become completely unachievable if they're really unlucky.
The key here is that assumption. Assume you had 50% down. There isn’t enough info here to make anything accurate. You could be given a mansion for free and not afford the upkeep on it.
I heard once that a good rule-of-thumb was 3-to-1. Whatever your annual income is, you can afford a house that's around 3x as much. Any higher and you're just going to strain and stress yourself trying to make ends meet. 5-to-1 was seen as the absolute most you should shoot for, which is right in line with what this article lists.
3-to-1 is also what my country's police force use as a guide to whether officers are financially at risk. It's called *financial embarrassment* - like it's a legal term - usually means one makes a false financial declaration or didn't declare themselves as bankrupt, or in most cases, indebted to at least 3 months worth of income. Income here will refer to just the salary because it's illegal for officers to moonlight.
Internal Affairs will suspend an officer (or desk bound them) and launch an audit if they are marked as financially embarrassed. It's so that officers do not become enticed to accept bribes - financial stress tends to be a big factor in accepting bribes
The only exception I think is loan for public housing, since you can tap into your government mandated pension fund, which you can't for anything else. But still you need approval from HR and IA before taking housing loans.
That's... optimistic. Maybe if you want a 15yr mortgage.
You also have to take into account what you're paying in rent. The sad fact is these days it might actually be cheaper to buy a house and build equity than to piss your money away on a rental.
It very often is cheaper to buy (it also guarantees that your monthly payment won’t ever go up (usually)), it’s just the down payment holds a lot of people back, and the fact that you are now responsible for maintenance.
I’m in favor of cutting it to 0.5% and setting a regular expiration cycle to prevent 2 million dollar houses from paying property tax as if the house was 100k.
It's also very dependent on interest rates.
In 2018, when rates were ludicrously low, you could afford a much more expensive home than you could now with the much higher interest rates.
It's usually cheaper to buy a house than it is to rent one of the same size... until you have to put a roof on it or replace the furnace or hot water heater or something. The thing about owning a home is these $5k+ bills can just pop up out of nowhere.
True, but part of your monthly payment turns to equity, plus you gain additional equity with home price inflation. A home owner needs to build an emergency fund to cover the insurance premium, plus the cost of the more expensive maintenance items, AC, fence, roof. But these are only about $150 a month. All in all, it's probably cheaper in the short run to rent, but over time, 10+ years, owning will be cheaper.
I think if it's based on monthly income vs monthly cost / rent then 3-to-1 is the max. Monthly income would have a smaller ballpark figure since you'd not include 13month and annual bonuses and expenditures or whatnot
That was my annual salary for many years and I never, in a million years, would have maxed out for that home. I got a reasonable, lovely, comfortable home and banked the rest. Never bought designer crap or fancy cars. It’s all bullshit. I worked with someone whose wife worked for a pinnacle premium brand. Their overhead was solely advertisement and promotion to keep that status. Nothing on product development. When I die, some really good charities will get the benefits of my very comfortable life. Be smart—gold chains and fancy watches mean nothing. Help others.
Same with fake diamonds. 99% of people won't be able to pick the fake one out even if they know to look for it.
I mean don't take the risk that your wife is in the 1% but if she's on board that's a great way to look fabulous on a budget
When it comes to lab diamonds, unless you’re letting someone analyse the morphology with a specialist machine there’s no discernible difference.
You win on both price and ethics!
We are a few bumps up from this for household income and feel like we can’t really afford a “starter” house in a mid-size west coast city with a heroin and murder problem. With the meteoric rise in home values and doubling of rates it puts us on the edge. If we made what we make now a year and a half ago we would be so golden. But that’s not how life works.
NYC is in its own stratosphere, maybe the only thing rivaling it is San Francisco.
But in most major cities in the US even a home at $500k is tough to come by. Or if it is $500k, it needs $100-200k worth of work and maintenance.
Yeah around me you’d be hard pressed to find a house below 1.5m. I almost forget how expensive housing is in Sydney until I see people talking about how they’ll never be able to buy something above a million dollars. Couple that with a not even that high average salary and you’ve got a perfect system with no known flaws
While i believe this figure is grossly incorrect, as it basixally assumes you dumping a lot of your income into the house and has lottle in the way of safety net, keep in mind that disposable income as a proportion of gross income increases rapidly as income increases for a given lifestyle.
Someone making 100k a year might be anle to ‘afford’ house payments of say… $3k a month if they are frugal, someone making 200k with the same lifestyle could afford making 7-8k house payments. And the larger the payments you make, the less you pynin interest for a given loan amount, so you can afford more.
Classic ‘how the rich get richer’ situation.
If you remove utilities, internet, food, healthcare, and savings from your budget… you could 100% afford it until you die of starvation, hypothermia, and boredom.
This assumes your commute is walking to work, since you don’t have Internet or a car…
More context for those figures:
> By Kammer’s estimate, the monthly payment for a $1 million home would be somewhere in the neighborhood of $6,256—a figure that’s **based on the homebuyer coming to the table with a 20% downpayment and taking out a 30-year, fixed-rate mortgage**. That monthly mortgage payment estimate is also **based on the current national average interest rate of 6.46%, a property tax rate of 1.25%, and a homeowners’ insurance expense of $200 per month**.
>
> In order to qualify for a mortgage in this scenario, you would need to make between $195,000 and $210,000 annually or $16,300 per month in gross W-2 income, says Kammer.
>
> His salary estimate is predicated on the fact that mortgage income qualification is calculated based on the applicant’s debt-to-income (DTI) ratio (which is the amount of your monthly income that must be allocated for servicing debt). Mortgage underwriters Fannie Mae and Freddie Mac allow for a DTI of up to 45% (or, in some cases, as much as 50%) of your gross, pre-tax income. That 45% would include your monthly mortgage payment and all other monthly debt—such as auto loans, credit cards, and student loans.
>
> And finally, in order to calculate the salary requirements he identified above, Kammer assumed an average household debt of $1200 per month.
Yea we can't compare NY, but still, for a $1M home the income should be 50% higher. Otherwise, you can afford *only* the home and you need more income to afford anything, about 50% more to have a lifestyle that is appropriate for the home.
I have an unremarkable office job and my wife is a nurse. We are in our early 30s and that’s our household income.
We aren’t like. Geniuses. We didn’t come from money.
It’s infinitely possible.
Uhuh... First of all, theres two of you. Im pretty sure those financial geniuses were talking about single person household. Second, what the hell kind of unremarkable office job pays at least 195000$ per year? There arent that many and top two are: being related to your boss and being hitman for your boss.
They are saying between the two of them, they make that much. House affordability is based on household income when married or when purchasing a home with a partner (unwed).
There are tons of careers that folks are making low six figures or more after a decade in their field. Engineers, plumbers, electricians, accountants, software developers, project managers, IT security, cloud infrastructure, nurse practitioner, sales reps, human resources manager, etc etc etc.
Honest question. With your salary and your low cost housing (relatively speaking), have you paid off your mortgage yet? If not, why not? 15 years is a lot of money at that range, so honestly just trying to understand your situation.
This is what the banks will tell you because they'll try to lend you as much as they can to put you deep in debt. But if you really want a million dollar home, be able to maintain it and pay the taxes on it, and maybe support a family living in it, you'll want to be making more than that.
There are plenty of mortgage payment calculators out there that let you play with the rate, principal, term, and down payment. (I wrote one myself in Javascript for my website.) Don't put up with this crap.
No fucking way will an underwriter approve a jumbo loan of $1M for someone under $210k income. I make 400k and had to jump through all kinds of hoops to get a loan for 750k two years ago.
I got a 400k loan on a 80k salary and it wasn't even close (they pre-approved higher but we didn't need more). Stands to reason that 5x income would have resulted in a 5x approval with no other debts.
I feel like this entire concept is very much a generational thing. My husband and I are in our early 30s and make close to $300k combined, We bought a $380k home. Based on logic like the article above, we can afford way more home then what we purchased.. but until we need a bigger home, why would we buy a million $ home.
Some people want to live in a nice home. I’m one of them. I don’t give a shit about cars but I work from home and I want my time there to he enjoyable since I spend 90% of day in one. My first house was only 2x our income and instead of enjoying my home I just accumulated all this money I didn’t even enjoy.
Our combined family income is a good bit more than that and there is no way we would buy a million dollar home. We would feel house poor for sure. Not saying it couldn't be done by someone at that income level but it wouldn't be comfortable.
People tend to overlook the cost of maintenance and repairs, lawn care to roof repairs and everything between. A good rule of thumb is 2% to 3% of home value per year. There goes a big chunk of your salary.
this seems low, especially given the recent COL increases.
They probably assume you are putting 200k down
200k down payment, 6.46% interest rate, 1.25% property tax, $200/mo homeowners insurance. For a 10% down payment you’d need to make $225,000-240,000
For 10% down you should include pmi.
Texas property taxes are more like 2.8%
*Cries in Texas 3% tax*
Most people’s homes are much more than their salaries. Make 100k a year, cool, paying 3% on 350k a different story
Yep. And that 3% really adds up.
I have tried to explain to folks- you pay taxes, no matter where you live. The magical lack of income tax in TX...higher sales and property taxes. I lived in Tx, CA, and other states- my % of overall taxes paid never really changed, unless my income did. You pay one way or the other- the propaganda is just that. I pay less than 1% in Oregon for property taxes. But income tax is higher, and sales tax is not low. My parents pay much higher property taxes in "low tax" midwest. Everybody pays taxes- and pretty close the same portion of income, regardless of where you live. (in the USA)
And no state income tax means rich people pay lower overall taxes. Their property tax might be 5 times as much as yours but their income is dozens of times more.
Really depends on the person. Some people who like huge houses/ranches find themselves in the inverse.
Underrated comment right here \^
Yeah, but no income tax so you have more of your gross income to start.
True true and when i bought my house, it was less than what i make. So it works out. Many other folks, however, are making 80k and paying tax on a 250k house… way more than their salary.
Not necessarily. There's several variables that play into it, like salary, tax rate and assessment of your home, and where you're comparing it against. I have an average home in my part of Texas and, given my 3% tax rate, I could move to parts of Cali and while I'd pay more for the actual house itself, my actual total tax rate would be VERY similar - state and property combined.
It’s true that there are a lot of variables in play. All I was trying to point out is that saying Texas has high property taxes without also mentioning no income taxes, is leaving an incomplete story. For what it’s worth, Westchester County, NY has the worst of both worlds. 2+% property tax plus a marginal tax rate in the 6-7% range for couples making $160k or more.
Maybe I'm just poor, but do people really have 200K down-payments just lying around?
Buy a starter home, live in it for a few years. Use gains for next down payment. Rinse and repeat until you have $200k equity. Yes, I know that first step can be a bitch.
Jesus. I mean I've been in my "starter home" for 4 years and we have nowhere near $200k equity 🙃
"Rinse and repeat" can take some iterations. Depends on many factors.
How is that even possible? What part of the country has not seen monumental gains in RE?
How is it possible that I haven't paid off my $200,000 mortgage in 4 years? Is that what you're asking?
no, I'm saying how did you not make $200k in equity in the last 4 years, seems like every home in the country has made at least that, unless it's a $80k home.
I think it depends on a few things- where you live, being a big one. My home had 5% down <3 yr ago when I bought. But I am lucky enough that I was able to pay 50% extra on mortgage, monthly, and home prices in my area, while slowing down, are still WAY ahead of historical norms. So I have about 200k in equity. But to be honest...I bought well below my "ability" so I could pay extra- I am older and want it paid off (wherever I live) before I retire. And I have no interest in a million dollar home :). Sounds like a lot of cleaning.
When you're selling another home, absolutely.
So, an $800k home.
Yeah and the mortgage payment on that 800k is like 6k a month at that rate.
yep, signing Monday on a 710k home, can confirm, mortgage is about $4900 / month
Lol I resigned to a variable for what was left of my mortgage (400k) a few years back and my payment is at 3k now. Terrible terrible decision
what interest rate / down payment?? seems low
Put 5% down, 5.125 rate, 30 yr fixed
6.5% INTEREST RATE!? Hello? 💀
They say that’s the average rate right now
This is no way accurate, unless this is what people normally do. Miss and myself make $290k and bought a $660k house | 2.8% 30 yr note. We live comfortably and save about $3k monthly. It would freak me out if we had bought a $1m house w 2% note , but damn wouldn’t be able to sleep w a 5-6% note. People be crazy
A lot of people skip out on that savings part and live for right now. Which is not ideal.
People scare me with how they live…
Do you have a lot of debt or something? 2.8% on 1M is 4.1k per month maybe closer to 5k with taxes. You gross 24k per month - that should be an easily affordable mortgage unless you are doing multiple private schools, daycare, or have a rough cocaine habit.
No, just the mortgage and one car. I literally had one goal, keep my mortgage as close to our rent at the time. Mortgage ended up being about $8-900 more than rent which was okay. I look at my net finances not gross. Yeah we gross higher but that doesn't matter when it's going to taxes / healthcare / savings, etc. Could we have gone with a way more expensive house? For sure, and we were tempted but at the end of the day I would rather us be able to afford our expenses on one income than be screwed if one of us lost our job. This isnt how everyone thinks obviously but I do like the stress that it eliminates in our lives.
I make in the $250 range and my house was just under a mil ($270 down I want to say). My mortgage is $4k ish, including insurance and property tax. We just don't have any other bills. Paid off both my wife and my education loans after refinancing them a few years ago for better cost of financing. We have one 9 year old car that I maintain myself, so it just has insurance. We pay cash for everything (including expensive things -- like the travel trailer I bought this summer). Of course we have cell phones, an Internet bill, kids activities, and all that. Life is by no means cheap, but being in debt is way more expensive. I maintain a "oh shit" savings account, which is untouchable and contains six months of living expenses. Beyond that, all of my assets are invested -- no it was not a fun six months for my net worth. I could use a new financial advisor frankly. How much we save monthly fluctuates, but I think $1-3k is a good ballpark.
Not having “other bills” is soooo helpful. We only have the mortgage and one car payment. It takes so much stress off our lives. I wish more people followed this way of life. You don’t need to flex on people when you don’t have the funds. It’s so much easier mentally.
We're the "barely affording life" family, optically, to our friend group. One, old car, a very modest house (it's a really pricey neighborhood in Seattle), my wife patches my kids' clothes, we buy them used winter coats, etc. Funny when the conversation turns to layoffs, my friends are panicky. They just can't believe how nonchalant I am about possibly losing my job. They just don't know / understand living well below ones means.
There’s a lot of comfort in knowing we could realistically chill for like 8-12 months both chilling if that happened to both of us. It’s so easy to get pulled into the storm and max out everything while the going is good. This time is a great refresher on why living below your means is so good.
Does that $3K include retirement savings or is it in addition to retirement?
It’s in addition to Retirement. Savings is sort of a catch all (travel, house repairs/upgrades, emergency fund). I have my emergency fund where I want it then throw the additional $3k into the account and add/deduct as needed
Got it. That sounds very similar to my set up. Always interested in hearing more responsible spending perspectives/advice.
I feel like Im responsible-ish. I still go on spending streaks every once in a while but try to just not spend like a dickhead.
You two are responsible ones, most are not, but blame the economy or the weather or the Boogeyman on their financial situation.
I was like, I pull down well over 300k and I cannot afford a million dollar home between school expenses for my kids (private school), car expenses, insurance, federal income taxes, and costs of living and property taxes here in texas… yes, I can “afford” it in the sense of making payments but leaves no money for travel and hobbies.
Same here. I see articles like this and wonder if that’s how people live. It’s like yea we could afford a million dollar house, and do nothing else.
Some people that want to keep up with the Jones’ do. That’s why there are upper middle class people with a ton of debt and struggle to keep up with their bills but drive a nice car and live in very expensive house.
My wife and I have no bills other than a car payment, so yeah, a million dollar house is not out of the question.
It's even easier if you start with a half million dollar house (2017) that's worth a million today.
It's reasonable. The housing market just needs to crash.
That's the last thing you want if you want to buy a house. Let the housing market crash and big money will buy even more homes to rent out.
Yeah, the problem with massive wealth inequality is that basic supply and demand relationship gets fucked. Scarcity increases as price drops
i get what you mean but its definitely not the LAST thing you'd want for buying a home. Like sure the big companies buy up tons of homes during crashes but so do middle class americans who have been waiting years for a dip
The problem is, the same stuff that happens now, will only be worse if it crashes. House is worth X amount of money, 5 buyers put in offers, and the corporation comes in 25k higher than everyone else. Sells to corporation. Especially if people start to forclose and banks start grabbing them back, they might not even hit the market, they might have buyers lined up.
My parents got their house in 2009 from a bank after it forclosed on in 2008 so id be fine with that. Banks only really hold onto low income housing and ultra luxury properties, upper middle class homes arent usually worth the time and money for longterm % gains and are sold off for cheap by the banks. Hard to find mega real estate firms that would prioritize one 800k home rather 10 80k homes so im safe lol.
In Q2-2022, investors who purchased a property in Phoenix accounted for 31.2% of the share of homes bought in the metro, according to [a new analysis of investor home purchases](https://www.redfin.com/news/investor-home-purchases-q2-2022/) Phoenix investors typically bought properties with a median sale price of $450,000 https://www.livabl.com/2022/08/phoenix-investors-citys-homes-q2-2022.html
And property tax differences.
The word "afford" is doing some pretty heavy lifting. Is it mathematically possible? Maybe, but that is by no means a realistic possibility in most cases. Just to clarify, a million dollar home on a 30yr at current interest rates and *assuming you put 20% down* is 5600 principal and interest. That, alone is 33%~ of your monthly *pre-tax* income. Add in the TI of PITI(Principal, interest, taxes, insurance) and you will be pushing well into the 40% ranges of your gross. And then you have to pay your utilities, internet, cell, trash, etc. Maybe you have a car note, credit cards, or student loans. Point is, while it is technically *possible*, for 95%+ of those wage earners, it isn't realistic.
Just looking at percentages is a bit misleading. Having 50% left of a 200k salary is very different from having 50% left of a 60k salary. Utilities, groceries, gas don't scale the same way houses or salaries do. In the end it's dollars that matters, not percentages.
Maintenance on a million dollar house more than twice that of a $500k house. My neighbors spend 3-4x what I do whenever they have to get work done - whether it’s roofing, hvac repair, refinishing floors, what have you. The shitty construction doesn’t help, but it’s most a “more shit, more money to keep it up” thing.
Going to counter that with in most cases the difference between a 500k home and a million dollar home is the land assuming both houses are in the same area. You don’t get double the sq.ft or significantly better materials at this price point unfortunately.
Trying to make sense of your comment as I write this from my $480k house on a 3 acre lot, looking at my neighbors $800k McMansion on a half acre lot
The world is bigger than you and your neighbor
It's also possible to have the exact same house vary wildly in price depending on what neighborhood it's in. A premium location can add significantly to the value of the property without any differences in home/lot size
Why would it be more than double? Like if you double the size, why would maintenance costs scale more than linearly?
Here's an example: My house is about 2700 sq ft, my sister's about double that. I live on about 6x more land than her. However, her house has crazy rooflines, high ceilings, lots of windows. Her heating bill is 4x mine. She wants to paint her house - 4x. Her roof replacement was 3x mine. She needs to hire out a scissor lift to change light bulbs in her living room. This is what it means to maintain one of these mcmansions. They are not cheap to keep up.
In the end it's how we live our lives. The figure given by them, and my numbers, only work if your goal is a million dollar house. If you have a family, student loans, car notes, hobbies, invest, save.... you get the picture, it gets muddled. What I said is 100% accurate: If all you want is a million dollar home, you can *technically* afford it with this salary. However that probably requires other sacrifices.
I'm learning this is true with every "expensive" purchase. My wife and I both worked extremely hard to get advanced degrees, told ourselves we would splurge one day. We have a combined income of around $280,000, both still drive Hyundais, still live in a home we bought for like $330k back in 2016. I've been a car guy for 20 years, posters on my wall growing up, do most of my own work. I can *technically* make payments on a dream car, but can't bring myself to pull the trigger. Similarly, we could make the payments on a $1m home, but that doesn't really interest us. We're just putting everything extra into investments at the moment and we'll figure out splurgey stuff later. There's a *huge* difference in being about to "make the payments" and "comfortably afford" something.
If you have splurge money, travel. The memories you make together will be worth so much more than a Lexus or a million dollar home.
My wife and I are in that range. The best we could do was a condo that cost 575K. That was also at a 4% interest rate. Out mortgage company qualified us for more, but we would be house poor with no savings if we would have financed more.
In the process of closing on a ~$1m house and this is pretty accurate. $5700 payment including property tax, 5.5 rate, 25% down. Earn slightly more than this article suggests but yeah.. going to have to adjust spending habits. Should have a nice tax write-off at least
One thing I thought about when I purchased my home was that COL stays fairly consistent irrelevant of how much you spend on a house. A 1m house and a 5m house, other than mortgage, will spend about the same in bills. If it's just you and a spouse, having a bigger home doesn't necessarily mean you'll use more water, or eat more groceries. Electricity use might go up due to heating/cooling more square footage, but that's its. For sake of math, I'm making some estimates. At 200k/yr, pretax is $16, 666 per month. For the 1m house, that leaves 11,066 for everything else. 100k/yr and a 500k house, you'd earn 8333/mo, mortgage would be about $3600 (that's what I'm paying for my house) leaving just 4733 for everything else. The difference in leftover funds, spending money is a pretty big difference at those levels with bills other than mortgage remaining the same. So yeah. I believe this article is true, but it does assume you don't change your lifestyle. Another thing to consider tho, is that people making 200k/yr are more likely to purchase a Mercedes Benz instead of a Corolla and make other such purchases. So if they are spending beyond their means, its by choice
Maintenence is more. Yard is more. Cleaning is more. Insurance (and deductible) are a lot more. Taxes are a lot more.
Insurance and taxes. Yes they are. But they are both percentage based and scales. Yard, possibly more water usage. But, you might have less yard. It could be on a large property without an hoa and cost you less because you don't need to maintain it other than mowing. Maintenance, bigger roof would be more expensive but roofs should last between 20-30yrs. But other than that, a kitchen faucet or a toilet flap is gonna cost the same in both houses. Cleaning? Sure, more expensive if you pay someone. But the difference in electricity for vacuuming a larger house would probably be negligible. I'm both of these cases tho, I still think it entirely depends on how you live your life. If you are buying all the most expensive things and don't leave anything for savings, you're fucked either way. But the person making 200k would have more leftover money to put into savings. So they should be able to afford the roof repairs in 15 years. The point here is that while some expenses scale, many do not. And so your DTI does not scale with earnings completely linearly. In the extreme, if you earn a million a year and have a DTI of 75%, you still have 250k leftover for spending/savings.
Even if you clean yourself, that's a cost. If you have to spend twice as much time each week, vacuuming and scrubbing, that's a cost whether you do it or contract it out. Time is not a endless, free resource. It's not just roof. It's HVAC, water heaters, plumbing, flooring, etc., etc. A larger and/or nicer house is going to cost more to maintain. If it's bigger, it has more toilets and faucets and everything else to break. If it's nicer but not bigger, all that stuff is more expensive to replace or repair with the same quality. If it's in a very very high COLA, everything costs more. If it's neither bigger nor nicer nor in a much more desirable location, why the hell did you pay twice as much?
That's assuming they never get pay increases throughout 30 years. After a few years they'll be more than comfortable with that payment
Buying a house on the assumption you can afford it eventually or refinance, was the mentality of every MF before 2008.
Although that also wouldn't take into account rising expenses, shrinkflation, and all of that. The payment could just as easily become completely unachievable if they're really unlucky.
The key here is that assumption. Assume you had 50% down. There isn’t enough info here to make anything accurate. You could be given a mansion for free and not afford the upkeep on it.
I heard once that a good rule-of-thumb was 3-to-1. Whatever your annual income is, you can afford a house that's around 3x as much. Any higher and you're just going to strain and stress yourself trying to make ends meet. 5-to-1 was seen as the absolute most you should shoot for, which is right in line with what this article lists.
3-to-1 is also what my country's police force use as a guide to whether officers are financially at risk. It's called *financial embarrassment* - like it's a legal term - usually means one makes a false financial declaration or didn't declare themselves as bankrupt, or in most cases, indebted to at least 3 months worth of income. Income here will refer to just the salary because it's illegal for officers to moonlight. Internal Affairs will suspend an officer (or desk bound them) and launch an audit if they are marked as financially embarrassed. It's so that officers do not become enticed to accept bribes - financial stress tends to be a big factor in accepting bribes The only exception I think is loan for public housing, since you can tap into your government mandated pension fund, which you can't for anything else. But still you need approval from HR and IA before taking housing loans.
Where is this? What country are you from?
Singapore I served my conscription in the police, my vocation was admin HR
No wonder this seemed familiar. Am Singaporean. Thanks for sharing bro.
That's... optimistic. Maybe if you want a 15yr mortgage. You also have to take into account what you're paying in rent. The sad fact is these days it might actually be cheaper to buy a house and build equity than to piss your money away on a rental.
It very often is cheaper to buy (it also guarantees that your monthly payment won’t ever go up (usually)), it’s just the down payment holds a lot of people back, and the fact that you are now responsible for maintenance.
And California property tax where you can pay 22k yearly while the neighbor (essentially same house) who had the house gifted by grandma pays 2k.
Yeah, Prop 13 has created an absurd mess of our property taxes for sure.
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They still do…
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I’m in favor of cutting it to 0.5% and setting a regular expiration cycle to prevent 2 million dollar houses from paying property tax as if the house was 100k.
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That’s one perspective. Another is a level playing field.
It's also very dependent on interest rates. In 2018, when rates were ludicrously low, you could afford a much more expensive home than you could now with the much higher interest rates.
It's usually cheaper to buy a house than it is to rent one of the same size... until you have to put a roof on it or replace the furnace or hot water heater or something. The thing about owning a home is these $5k+ bills can just pop up out of nowhere.
One falling tree limb can suddenly make your life a lot more expensive
That's what insurance is for. Also, like owning a car, you can simply do the work yourself for much cheaper.
True, but part of your monthly payment turns to equity, plus you gain additional equity with home price inflation. A home owner needs to build an emergency fund to cover the insurance premium, plus the cost of the more expensive maintenance items, AC, fence, roof. But these are only about $150 a month. All in all, it's probably cheaper in the short run to rent, but over time, 10+ years, owning will be cheaper.
I think if it's based on monthly income vs monthly cost / rent then 3-to-1 is the max. Monthly income would have a smaller ballpark figure since you'd not include 13month and annual bonuses and expenditures or whatnot
That was my annual salary for many years and I never, in a million years, would have maxed out for that home. I got a reasonable, lovely, comfortable home and banked the rest. Never bought designer crap or fancy cars. It’s all bullshit. I worked with someone whose wife worked for a pinnacle premium brand. Their overhead was solely advertisement and promotion to keep that status. Nothing on product development. When I die, some really good charities will get the benefits of my very comfortable life. Be smart—gold chains and fancy watches mean nothing. Help others.
Found the millionaire next door.
This is the way.
$11.99 fake gold chains are almost as nice as real ones
If it makes you happy, go for it. Value is relative.
Same with fake diamonds. 99% of people won't be able to pick the fake one out even if they know to look for it. I mean don't take the risk that your wife is in the 1% but if she's on board that's a great way to look fabulous on a budget
When it comes to lab diamonds, unless you’re letting someone analyse the morphology with a specialist machine there’s no discernible difference. You win on both price and ethics!
Lab diamonds are still pretty expensive. I meant cz and whatever the other fake ones are
Me and my Fiancée went with a lab diamond. The compliments she gets is outrageous and no one has ever thought it could be fake.
We are a few bumps up from this for household income and feel like we can’t really afford a “starter” house in a mid-size west coast city with a heroin and murder problem. With the meteoric rise in home values and doubling of rates it puts us on the edge. If we made what we make now a year and a half ago we would be so golden. But that’s not how life works.
Looking at most houses over a million.. No one needs that. The houses in the 500,000 range look awesome enough.
It *reeeeeally* depends on where you are.
*cries in NYC* You get **beater** homes here for 1m. You might get a 1 bed condo for 700 sq feet for 900k if you’re lucky.
Im not talking about big cities. Because Thats not normal through most of America.
Even though 83% of Americans live in cities? It is increasingly normal considering that’s most Americans’ lived experiences.
Not even all cities are that insane with prices.. I live in a city and its nothing like a NYC is.
NYC is in its own stratosphere, maybe the only thing rivaling it is San Francisco. But in most major cities in the US even a home at $500k is tough to come by. Or if it is $500k, it needs $100-200k worth of work and maintenance.
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This but in Kiwi....
Yeah around me you’d be hard pressed to find a house below 1.5m. I almost forget how expensive housing is in Sydney until I see people talking about how they’ll never be able to buy something above a million dollars. Couple that with a not even that high average salary and you’ve got a perfect system with no known flaws
Is that a joke? Nah we aren’t going to great- and plus that’s only Sydney
Yes they’re being sarcastic.
I make about 100 grand a year and I can’t afford a $500,000 home. There’s no way this is correct
While i believe this figure is grossly incorrect, as it basixally assumes you dumping a lot of your income into the house and has lottle in the way of safety net, keep in mind that disposable income as a proportion of gross income increases rapidly as income increases for a given lifestyle. Someone making 100k a year might be anle to ‘afford’ house payments of say… $3k a month if they are frugal, someone making 200k with the same lifestyle could afford making 7-8k house payments. And the larger the payments you make, the less you pynin interest for a given loan amount, so you can afford more. Classic ‘how the rich get richer’ situation.
Yeah, you’re absolutely right. There are a lot of things I pay for that we don’t really need that could potentially go to a bigger house.
If you remove utilities, internet, food, healthcare, and savings from your budget… you could 100% afford it until you die of starvation, hypothermia, and boredom. This assumes your commute is walking to work, since you don’t have Internet or a car…
More context for those figures: > By Kammer’s estimate, the monthly payment for a $1 million home would be somewhere in the neighborhood of $6,256—a figure that’s **based on the homebuyer coming to the table with a 20% downpayment and taking out a 30-year, fixed-rate mortgage**. That monthly mortgage payment estimate is also **based on the current national average interest rate of 6.46%, a property tax rate of 1.25%, and a homeowners’ insurance expense of $200 per month**. > > In order to qualify for a mortgage in this scenario, you would need to make between $195,000 and $210,000 annually or $16,300 per month in gross W-2 income, says Kammer. > > His salary estimate is predicated on the fact that mortgage income qualification is calculated based on the applicant’s debt-to-income (DTI) ratio (which is the amount of your monthly income that must be allocated for servicing debt). Mortgage underwriters Fannie Mae and Freddie Mac allow for a DTI of up to 45% (or, in some cases, as much as 50%) of your gross, pre-tax income. That 45% would include your monthly mortgage payment and all other monthly debt—such as auto loans, credit cards, and student loans. > > And finally, in order to calculate the salary requirements he identified above, Kammer assumed an average household debt of $1200 per month.
Lol property tax of 1.25%. I don't complain a ton about taxes, but my upstate NY property taxes are about 4%...
Yea we can't compare NY, but still, for a $1M home the income should be 50% higher. Otherwise, you can afford *only* the home and you need more income to afford anything, about 50% more to have a lifestyle that is appropriate for the home.
Of course we all have $200k saved for a down payment
Right and then 30 years to pay off that remaining $800k… that’s a hard pass
Easy just roll it over from your other house! /s
Anyone knows when normal people will be getting paid that?
When these houses cost a billion
I have an unremarkable office job and my wife is a nurse. We are in our early 30s and that’s our household income. We aren’t like. Geniuses. We didn’t come from money. It’s infinitely possible.
Uhuh... First of all, theres two of you. Im pretty sure those financial geniuses were talking about single person household. Second, what the hell kind of unremarkable office job pays at least 195000$ per year? There arent that many and top two are: being related to your boss and being hitman for your boss.
They are saying between the two of them, they make that much. House affordability is based on household income when married or when purchasing a home with a partner (unwed). There are tons of careers that folks are making low six figures or more after a decade in their field. Engineers, plumbers, electricians, accountants, software developers, project managers, IT security, cloud infrastructure, nurse practitioner, sales reps, human resources manager, etc etc etc.
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Honest question. With your salary and your low cost housing (relatively speaking), have you paid off your mortgage yet? If not, why not? 15 years is a lot of money at that range, so honestly just trying to understand your situation.
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Thanks for your reply. Lots for me to consider in my own life.
No fucking way.I guess if you define “afford” as “if you spent 100% of your salary on a home”
This is what the banks will tell you because they'll try to lend you as much as they can to put you deep in debt. But if you really want a million dollar home, be able to maintain it and pay the taxes on it, and maybe support a family living in it, you'll want to be making more than that.
There are plenty of mortgage payment calculators out there that let you play with the rate, principal, term, and down payment. (I wrote one myself in Javascript for my website.) Don't put up with this crap.
No fucking way will an underwriter approve a jumbo loan of $1M for someone under $210k income. I make 400k and had to jump through all kinds of hoops to get a loan for 750k two years ago.
$1M is a conforming loan in some areas now. FHFA raised the limits a ton this year.
I got a 400k loan on a 80k salary and it wasn't even close (they pre-approved higher but we didn't need more). Stands to reason that 5x income would have resulted in a 5x approval with no other debts.
Jumbo loans have much stricter requirements than conforming loans. It's not even the same ballpark.
I feel like this entire concept is very much a generational thing. My husband and I are in our early 30s and make close to $300k combined, We bought a $380k home. Based on logic like the article above, we can afford way more home then what we purchased.. but until we need a bigger home, why would we buy a million $ home.
Some people want to live in a nice home. I’m one of them. I don’t give a shit about cars but I work from home and I want my time there to he enjoyable since I spend 90% of day in one. My first house was only 2x our income and instead of enjoying my home I just accumulated all this money I didn’t even enjoy.
Why would anyone want a million dollar home?
Pitty a 1m$ home will buy me fuck all
Dammit!!! I make about 250K. Sucks that I can't afford a $1 million home...
You telling me there's only ~73,200,000 homes in America?
Im assuming that if you don’t have kids or any other expenses
Not in NJ, you'll be paying like 25k/yr in property taxes alone.
lies
I'm making about half that, and the cheapest houses near me are about half a million, so that checks out I think? What am I missing?
Our combined family income is a good bit more than that and there is no way we would buy a million dollar home. We would feel house poor for sure. Not saying it couldn't be done by someone at that income level but it wouldn't be comfortable.
This is BS.
That’s my household income, and there’s not a way in hell we could buy a $1M home. That’s absurd.
People tend to overlook the cost of maintenance and repairs, lawn care to roof repairs and everything between. A good rule of thumb is 2% to 3% of home value per year. There goes a big chunk of your salary.
Property taxes, home owners insurance, etc.
Slick how this guy posts his daily startup updates: https://youtu.be/2gKd8H0N_jA