Thank you u/bluecup32 for posting on r/FirstTimeHomeBuyer.
Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
I know you put that housing costs would be 40% of your take home pay, but what about the rest of your budget? Have you created a monthly budget with all bills and expenses (groceries, fun, eating out, etc)? If you have, and you've put your projected housing costs in that budget, are you comfortable with the amount you have left to save each month?
If you haven't done any of these things, I'd start there.
I did make a budget and after all of my expenses are factored in, we would have $2400 leftover for fun money and saving. I have an emergency fund, but would need to save around $500 a month for ongoing house costs. So that would leave us with $1900 a month for fun.
This is really the answer. Even after all that, you have a good amount left. You won't be saving hand over fist, but you're better off than most Americans.
Yea listen here! This house will be $1mil in 10years or less.
Second the rates to down, getting a house gets harder and they go up in price. Get it before more inflation (coming soon from money printing).
Refinance next year, or year after. (Equity lime of credit or loan is almost free to refinance on)
Then lower payments and lower rates.
You're making a **massive bet** that rates will decline.
After 40 years of declining and suppressed interest rates, we're moving into a cycle of higher rates for longer.
If you think we're going to see 2.8% or 3.5% or even 4% mortgages anytime soon, you're in for a world of financial hurt.
Unfortunately saying you’re better off than most Americans when it comes to anything financial is not saying much. Just look at the averages for anything, retirement savings, credit card debt, car loans etc.
You make a great income! You want to be saving much more than average if you want a comfortable retirement, breathing room, and mental peace. Not sure what your total savings or your net worth or other debts but 9% savings rate is quite low. But $1900/mo got fun is really high so if it were me I’d take from there and increase 401k.
Your wife staying home with the kids definitely helps but kids are expensive. We spend $200/mo just on diapers and formula.
Check out some of the money guys videos on YouTube. They have a lot of content about where you should be by different age groups.
Not disagreeing, but keep in mind that retirement is 65-67, I wouldn't wait until then to enjoy some purchases, cause anything can happen and you won't get to enjoy your money. Don't be stupid, but don't be so frugal either.
Agree with you as well. I’m definitely not advocating being a miser. That’s no way to live esp on $185k. But it’s helpful to run the numbers and try to project out what does 9% vs 12% savings look like? I don’t know OPs age but that could be a substantial difference. Plus plenty of people get to 65 or even 70 and just can’t retire.
Definitely about balance but almost $2k/mo fun seems high given a relatively low savings rate. I guess also depends how things are categorized… some people have separate budgets for eating out vs fun.
But back to OPs question, looks like I’m in the minority but I wouldn’t spend 40% of take home on a mortgage. That’s just too high for a single expense.
god this sub loves bringing this sub up
95% of americans are also not buying and needing to pay off a 500k house with a newborn(s) on 1 income. The average american is making 1/4 what this dude makes, their savings habits matter nothing here.
$6k of savings a YEAR 3 person family with 1 income, 4k/mo mortgage, and kids is absolutely nothing.
Such a stupid comparison, lots of dumb broke people egging each other on with bad advice once again in this sub
Wtf yes it is lol that's after the mortgage is paid and $500 for home expenses that most people also don't set aside every single month for emergencies because that's a lot too after everything else is paid.
It's like no one on this bitch grew up with a struggle at all lol.
Your wording is strong but I’m honestly with you. Just because most Americans don’t save much doesn’t mean that should be the benchmark. I agree that the average American’s saving habit shouldn’t be relevant here.
It’s like how most Americans are unhealthily overweight. Just because your fat % is less than average doesn’t mean it’s healthy or a good thing.
> So that would leave us with $1900 a month for fun.
You should peel off another 1200 for life as a homeowner and live off the remaining $700. Trust me.
\>So that would leave us with $1900 a month for fun.
Hot damn. I allocate only $200 a month to fun.
The way I see it, you can still afford to cover the necessities, save money each month, and spend freely on your hobbies and interests. I see no reason why this wouldn't be affordable for you, especially if you've factored in retirement plan contributions and savings expectations over the course of your life.
Another question to ask yourself is this, is the 10% difference in costs (about a whole 'nother $900) enough to make you rethink this? Maybe you'd rather be able to save more money or spend more money a month on items/experiences/hobbies/projects?
You make a good point. The issue is that I’m not in a LCOL area where I can get a SFH for 250k. SFH in my area are minimum 400k. We live in a MCOL area and I can’t relocate due to working in person.
You're actually in a very good spot. The old school rules which may or may not apply anymore are:
Buy a house no more than 3x your income and with a payment, PITI, not utilities included, no more than 1/3 your gross pay, I've always reinterpreted that as 40% net pay utilities included as taxes are variable.
So at 180k per year and $9k/month take home...
You can afford a $540k house with a max payment utilities included of $3600/month.
Now is any of the above accurate? Who knows. I'm just a guy on the internet. Why would you trust me and why would you trust rules of thumb over a decade old.
Make a budget. Plan it out. Compare cost of renting vs ownership and bake in any additional savings/investing and compare.
You make $180k/year I assume you are skilled enough to do the analysis or able enough to find and hire an advisor you trust.
That said. For context. I bought a. $300k townhome on $100k salary with an HOA. My total monthly payment utilities included is $2100/month. It sucks I wish it was less, but financially I'm alright.
Sounds like you have a reasonable buffer in your budget, then. Especially if you expect increases to your compensation over time to outpace inflation/tax increases, it seems pretty affordable for you
Are you sure your property tax numbers are accurate? Don’t go based on what the current tenant is paying. The county can and often will reassess the value after a sale and that number may go up.
I have the same mentality. The question you’re really asking is what you can “afford” vs what you are “willing to spend”. Most Americans are only able to choose what they can afford, you have the luxury of both. Weigh out the pros and cons of what is more important to you - the safety net of extra flexibility of the incoming cash, or upgrading to buying a primary residence. It’s a bit more than just budgeting at this point and took me over a decade before I was more okay upping my spend on a more comfortable house / location.
Did you factor in costs for the kids you said you want to start having?
Are you including saving/investing as an expense, or are you just lumping it together under "fun money" and saving whatever you don't spend?
Then you're fine! It's an old rule and seems like you should be fine buying even a more expensive house if you wanted. Stay within your budget and you're chillin.
I’d say its probably more common today than it was in the past.
Only you know if it’s manageable.
The ~28% rule is a good rule of thumb, but it can be bent a bit depending on the situation. It’s just a benchmark.
For example, if you have no other debts then 40% is probably manageable. If you also have a ton of student loans and 3 kids, probably should find a way to make closer to 28% or less
See my other comment - i suppose everyone can interpret it as the want, but I disagree. It makes no sense to base anything in personal finance off gross income because your net can vary so widely.
Gross income is used as the benchmark by lenders because it is more uniform, but i dont think its wise to run your personal budget based on gross income because you’ll inevitably over extend yourself
That’s what the 28% rule is based on though. You’re trying to apply a rule meant for gross income to take home pay which you shouldn’t do. If you want to look at take home pay then you shouldn’t be bringing up the 28% rule at all
Wow .. real aversion to mathematics here .. let's explore.
1) salaries have remained flat for 30 years. 100k when I was a kid was a nice salary, last week I heard someone say the same.
2) housing prices have EXPLODED in 30 years. 200k then over a million now.
Assuming theres a correlation between rent and salary - yesterdays correlation is not todays.
The 28% rule may have worked for your grandfather and maybe even your father, but no longer. Right now .. it's mathematically impossible.
The fact that homes are more expensive now doesn’t really change that the rule of thumb is 28% if you want to be comfortable
And nothing you just said actually addresses the comment you responded to. It was a rant that only wasn’t applicable but frankly it was wrong
Yeah we are planning on having kids and my wife being a SAHM. For the 28% rule I think that is gross income. I calculated that a $3200 payment would be about 22% of my gross income, but 35% of my take home pay.
I always took it as net income - i don’t think it makes much sense to look at gross income from a personal finance perspective.
Either way though, I think you would be fine at 35% of your take home even with a SAHM and kid. Obviously, only you know for sure, but i’m sure you would find a way to manage just fine even if its tight at first.
The rule is generally speaking about gross pay. Obviously deductions vary and so on, but that's the actual HUD recommendation. You can of course do whatever you want though.
Taking it as net income is convenient from a personal finance perspective, but it's just not accurate to how the 28% number was generated. So it's not really a debate of what's more useful. How the study was ran determines how the 28% should be used in guidance.
I always learned about the 28% rule as coming from a study that found individuals that reported their housing expenses as less than a third of their gross pay also reported feeling less stress/anxiety/depression. I'm having trouble finding the citation for this study, so I would appreciate anyone to help in posting it. But if you think about it from the scientific perspective, it makes sense to use gross pay as the comparison point because it's more definable at the time of the study. I have an idea of how much I'll make in 2023 because we're already more than halfway through it, and I also know what my perception of my happiness is over the course of this year. If I used net pay, I may have to use previous years data and I would also have to deal with the fact that sometimes the only difference in tax burden is someone's knowledge of tax law. So we can't say what percentage of net pay is linked to less stress because we haven't done a study on that yet.
That being said, do what works best for you. The point of a study is to provide evidence of something. When it comes to personal finance, you can really choose what to do with that evidence.
$850k for older 2 bed 2.5 bath townhomes in San Jose, CA. Even $1mil+ sometimes.
SFH that are $900k here are usually in the ghetto areas. $1.2 mil is where it’s in a more decent neighborhood.
My price for a 95 year old, 744 sf shack on .3 (mountainous, unusable) acres with only wood fire to heat it was $579k. I’d cry if I could have gotten something for 450k.
I really wish people stop making calculations like this. Percentage doesn't matter, having enough disposable income does. 40% of $10,000 is not the same as 40% of $2,000. Basically, if the remaining amount you don't spend on the house is enough to live comfortable, then you're golden. If it's not, even if the "percentage" is low, then don't do it.
Linear percentage calculations have limits, but they're good for rules of thumb.
Generally, the more expensive a house is, the more expensive repairs will be. If it's expensive because of the area, repairs just cost more than in the boonies. If it's expensive because of the size, there's more to break or need repairs. So scaling up you repair savings with the house makes some sense.
But yes, even 50% could be workable depending on the house and paycheck.
I agree not to add them to those particular rules of thumb. But it IS important to budget for the cost of a house holistically. Way too many who "drive til they qualify" but didn't factor in the cost of transportation, who don't realize a detached 2500 sf ranch house with a pool, will have a higher utility cost than an apartment, or who've never had to deal with house maintenance costs out of pocket.
\^Agreed. He also added his health insurance cost and 401k contributions + he is using his net pay and not his gross pay. Housing costs doesn't include those items.
40 times rent is exactly the 30% rule though?
Yearly income of 40 times your rent means your housing costs are 12/40ths of your pay. Divide by 4 to simplify the fraction, and you get 3/10, which is exactly 30%.
Yep. And it's just an individual comfort level. What some chart says you can afford and what you want to actually pay are way different. I hate these rules. People get into trouble because they can't really afford something,yet the chart says they'll be ok.
I don’t really see why it wouldn’t remain a good rule of thumb and stand the test of time.
If anything, people carry more student loans and spend more on other basic needs these days, meaning the 28% rule should be taken even more seriously.
Just because its a lot harder to find something that is within your means, doesn’t mean you have to branch out beyond your means
That said, its just a rule of thumb. If someone can make 40% or 50% work comfortably for them, then thats great. But it does remain a good benchmark for affordability
>I don’t really see why it wouldn’t remain a good rule of thumb and stand the test of time.
because housing got a shit-ton more expensive, interest rates doubled, the dollar inflated 30%+ in aggregate over the last few years, and wages did not commensurately catch up for the vast majority of folks.
>housing got a shit-ton more expensive
In a lot of places, it's literally not possible to buy a place that's below 40% your of your gross income anymore, unless you're willing to commute 1+ hours, in which case you're paying in time and commuting costs. I would be priced out of my current house due to increased valuations, property taxes, and interest rates; even with a couple of raises I've gotten in the past couple of years.
Only rule that still holds true is to buy when you can afford it and don't try to time the market.
Yea - so you can’t afford a house right now. Thats fine. You will eventually. I can’t afford a house now, so i rent something within my budget.
There’s no sense in over extending yourself and acting like you’re being forced to commit financial suicide just because the market ran away from you for a short period.
No one is making you take on something you cant afford
1/3 was never a good flat rule. It’s all dependent on income. I can spend 50% of my income on a home if I have $15000 left over for expenses without hurting myself.
I wouldn’t but just pointing out that life has some pretty set expenses. If you make a high income a greater % can go towards home or other things.
\>1/3 was never a good flat rule. It’s all dependent on income.
That's because it wasn't ever meant to be a flat rule, it's a rule of thumb--meaning there are a lot of ways it can be bent and broken.
When was the last time you checked rental prices? Unless you're suggesting we forego having a home at all, I don't think renting is a feasible long-term solution. In the past two and a half years, I've paid roughly 40k in rent for a 900 sqft house. It's someone else's equity and I'm fucking tired of it.
I pay 1650 for a 2/1 1100 sq ft apartment in socal with my wife. Rent has increased a total of 150 over 5 years. We have a 6 figure down payment and will keep adding to it until we are at 140-150, then look in 2025. Just make it a priority.
Well, i rent, so… i check monthly
Renting isn’t all that bad financially. Its pretty competitive with homeownership at the moment with rates where they are
$40k in rent over 2.5 years is ~$1,300/month? You’d be paying more than that in PITI on a home at the moment, earning marginal equity
Yea, times are tough. Thats okay. I don’t think it’s worth bashing our heads in over, or selling out to buy a home as soon as possible
Using a percentage of pay as rule of thumb doesn't scale very well though. If it's a household around the median U.S. income of $70k, 60% of their monthly gross pay is just $3,200. In the posters case for their $180k income they are left with $9,000. Discounting keeping up with the Joneses most discretionary spending costs the same for everyone.
It’s genuinely impossible for most people to meet this guideline, especially in any major metro that people actually want to live in. The vast, vast majority of Americans who are looking for new housing, and thus need to consult this guideline, make between $50-90k and the average rents are $2000 or more.
>inb4 buh buh but not everyone!
Yeah, no shit. MOST people live in a major metro area and MOST people who need this rule need it BECAUSE they’re evaluating housing options. If you somehow lucked into signing a lease for $500 a month from 2011 for an English basement, then this guideline isn’t for you.
I live in Chicago and signed my lease 2 years ago. We don’t have rent control. I rent a sub-optimal place for $1,000/mo
Relax. Markets are cyclical. The world isn’t ending just because homeownership is expensive right now
It absolutely has relevance, dedicating more than 30% of your take home on housing alone, especially in a reality where costs are higher for everyday goods and debt is at all time high for individuals, dedicating an unnecessary amount towards housing is silly.
You can still find homes that are more affordable than what OP is looking at, especially considering we're talking about a mortgage of 3.2k. Sure it won't be a dream home but it's completely realistic even in the market we're seeing today.
These 'rules' aren't meant to be die hard guidelines to stand by, but they're a good point of reference. If OP wants to spend discretionary income on housing that's up to them, but again, these are reference points and are in no way meant to be the end all be all on the matter.
its not normal. the economy is set that way, that people taking mortgages are basically slaves to the employers. Want to take a 6month long leave off to work on your mental health and family? forget about it. Most of the people won't be able to afford even a month without a job without the fear to not be able to cover monthly payments
you decide, if you want to live like that
We are at 220k HHI but when we bought, it was 190k. Our PITI is $3150 and utilities are ~400 including internet. It was definitely manageable but we ate out less and had to be more mindful than we were before with a $2200 rent. It feels very comfortable now and we know it will just keep getting more comfortable as we get annual raises. We have a 6 month emergency fund which definitely helps the situation since we aren’t as worried about job loss.
And like you said you got to add in utilities, property taxes, home insurance, saving for repairs/renos, etc. That $3200 could be more like $4200 if not more tbh. Wild shit.
Yeah the $3200 is taxes and insurance included, plus $400 for utilities is $3600. Plus I’d be saving an extra $500 for maintenance. You are right it would end up being closer to 4K a month in housing costs. The market is nuts right now.
$400 a month for electricity? On a small house??
I have a 1400 sq ft house and WFH and spend around $100-$150 a month on electricity.
No way in hell is anyone spending $400 a month unless it's a huge house and they leave their lights on excessively.
$5500 after housing is paid for 2 people with kid is decent.
You ll probably even be able to save 1 to 2k/month
One asterisk to all those rules is that 60% that you ll be left with is vastly different depending on which salary we are talking about. Food and entertainment costs don’t scale as much as housing costs based on cost of living in the area.
This is why I'm angry. I wanted to buy a house in 2021 because of the amazing housing opportunities, but my fiancé wanted to wait. Now he would like to buy a house and everything is going against my favor.
In his/her defense… I bought at the “top of the market” at the time and literally everyone I knew called me a moron for buying it at that time. Well… my house is now worth $750k and I’m locked into a 3.25% interest rate.
It was a huge gamble at the time and it worked out very very well for me as I own a house I could never afford if I bought it today (mortgage would be roughly $5k today…).
I have never subscribed to timing the market, in any case (stocks, housing, etc). If it works for me at the time then I do it. I can’t control what the market will do after I buy it and anyone who says they know “this or that” regarding the future of the market is talking straight out of their ass.
Yes you will be house poor.
Welcome to America.
You have 2 choices:
Overpay for a house and be house poor
OR
Move into a crappier neighborhood/smaller house/far commute.
Real estate in this country is just stupid right now. I have a property I bought in 2019 that INCREASED IN VALUE BY 60% in just 4 years. They are saying property is up on average 88% in the last decade.
This is why you see crap like people who work daily in NYC but live all the way in the PA Pocono area. Property has become unaffordable.
I make 140k and spend about 40% (take home after ins and maxing out 401k) on PITI. It’s doable. I still go on a couple vacations every year. It’s doable without feeling house poor. No kids, so that helps.
thank you i needed to see this. made an offer on a house in a HCOL area in the LA suburbs that will be about 40% of take home after maxing out retirement + school debt payment, and was trying not to freak out as I ran the numbers and budget in every detail but still didn't trust myself after growing up struggling financially and now that i have a stable professional career, i still have a scarcity mindset
Take-home pay usually refers to your earnings after taxes are deducted, but not things like health insurance or 401k contributions.
Paradoxically, the more you earn, the larger percentage you can afford to spend on housing. Your other expenses don’t scale with your housing costs. At your income level, you can probably afford a higher percentage without much of an issue.
That assumes you can keep lifestyle creep under control. Don’t do this if you’re the sort of person who says, I now own a nice expensive house, so I need to drive a nice expensive BMW to go with it.
Ultimately, there’s no substitute for sitting down and crunching the actual numbers. Break down all of your monthly spending, see how much of a cushion you’d have, and decide if that’s enough.
The guideline is something like 30% of gross, with no more than 41% total debt-to-gross-income (including mortgage). Don't borrow at the top of what banks will lend. You'll hate how poor you feel.
Unless you bought a house before 2022 then yeah, that’s normal now-a-days. Once you throw kids into the mix it’ll get harder. I have 3 kids and my wife is a SAHM. That $2400 fun money will go very quickly, lol
I make the same- just purchased a $500k home with 20% down. Here’s what I’ll tell ya.. the rule applies less as you earn more as long as the rest of your lifestyle is consistent. You’ll still have $5k/month after your housing costs… that’s more than the average American makes pre tax and all you have left to figure out is food & transportation. You’ll be fine
Don’t forget maintenance/repair costs. I’m caught in a trap like this after a divorce and while I can “afford” the mortgage, things like having the hot water heater quit are killing me
Thanks for posting. I’m in a similar boat right now. I want to buy but my rent is so low (18% of my net take home) and I’ve gotten so used to that, the idea of 30% being spent on a mortgage is kind of scary. But at the same time, it’s easily doable. It’s just something I’m trying to wrap my head around.
My wife and I make $150k a year. Closing on a home that gonna be about $3800 a month. We currently save about 5k a month and pay $1600 on top of that for rent. We live comfortably so I knew we would be well able to tackle a bigger payment for something like a house that will really propel us to independence. Screw the percentage because that’s for normal people and normal people are broke. If you can manage a large payment then do it. I would make sure you can obviously but nobody knows your situation better than you!!!
I make $215K a year. Mortgage is $3789 on a house I just bought for $725K and put 25% down, 5.99 rate.
This was basically what I had to spend. Because I max out retirements it definitely is 45% of take home.
I have to imagine it's pretty fucking common. But making big dollars mean more left over in the other 55%
Only you know this. Make a monthly budget for all fixed and variable expenses and then determine what you’re comfortable spending for housing. You will also need to consider additional expenses like home maintenance.
Spending 40% in housing for someone who doesn’t have other bills and already has 100k in their savings for repairs is probably okay.
Spending 40% when there are other debts and no savings will be dicey.
Yes, these are extremes, but they prove the point this depends on your individual budget. Do the math, not just for buying the house but for other financial goals. It’ll take you a long way.
We have an emergency fund. So we would save about $500 a month for ongoing housing costs. I made a mock up budget and after all of our expenses we would have $1900 leftover each month left for fun money.
We are in the same situation with about $2,000 left over for “fun/savings.” I wish it was more, but when rates come down the payment will too. We are going to deal with it in the short term knowing that we at least are building equity, and that when rates drop the competition will get crazy again so who knows where prices will go.
The data showed the "new" $100,000 is actually close to $250,000 in the California cities of Oakland, Los Angeles and Long Beach. Overall, Oakland ranked fourth, with a $245,600 minimum salary needed to feel like you're taking home $100,000.May 1, 2023
Nuts ain't it.
Source:
https://www.foxla.com/news/250k-salary-new-100k-california-cities-money#:~:text=The%20data%20showed%20the%20%22new,you're%20taking%20home%20%24100%2C000.
Yeah I wish! Houses in my area got expensive and are now 400k minimum. With interest rates and these prices I’m looking at a 3k a month payment even with 20% down.
That's why I'm not buying rn. I think there are A LOT of people in this boat. A bunch of people that overextended themselves in the last three years are at serious risk if there's an economic downtown.
I'm happy to not be among them.
We pay more than 40% of our income for our housing. It is stressful and we definitely have to make sacrifices/plan for emergencies. But it was worth it for our daughter to live in a good neighborhood. Make sure you have a good stock pile of cash before you take a risk like that. Worth it for us but can ruin you if you’re not prepared.
Yeah that’s makes sense. It is super stressful and yes I agree, part of it is that I want our kids to grow up in a somewhat safe area with decent school.
I think your lifestyle and other expenses play a large role in what you're comfortable with spending.
You need to create a budget and see what amount you're comfortable spending at the end of the day.
My husband & I currently spend around 40% of take home pay on housing expenses (incl utilities, internet, trash), but we both work from home (own only 1 car) and don't really spend money on things outside of food and essentials. We don't plan on having kids either. So when we broke down our budget, we still felt comfortable with it.
We also realized when we were dating & living separately yearsss ago, we were each paying around half of what we're spending together on our house -- so we've theoretically made it work before when making less money 😝 (we lived in LA at the time, so COL is very high overall).
We're hoping in the future there will be an opportunity to refinance to help bring down some of the pain of the higher interest rates, but we're comfortable where we're at either way.
It's a very personal choice and you have to ultimately make it for yourself based on your lifestyle and priorities.
Well. I’m hoping to be a STAM in the near future and that’s where we’ll be after I stop working. If we pay down some debt (cars/student loans), I think we’ll still be in an alright position.
It's always individual-dependent. 40% of your takehome may be fully fine, if the rest of your takehome covers all of your living expenses and you are still maxxing out your RothIRA, HSA, great contributions to 401k, no toxic debt.
These rules of thumb are to get you started with your math. If 40% puts you deeper in debt every month elsewhere, then it's too much. If you are on the sunny side of the budget, the math isn't hard to justify.
You are not just buying "housing" like you do when you are renting, but also a wealth asset. As home values have gone up, historically, you will likely eventually own your home outright and if the home is worth $450k today you will likely be an asset Millionaire by the time the house is paid off. At that point you can continue living there rent and mortgage free, just worry about property taxes and insurance, or sell your $1 Million, $1.3 Million, Dollar home.
Not all bad for someone who after all bills are paid and all retirement investments are made has $1,900 left over every month for "fun money".
You make 6x the median US income and are buying a home at the median price, of course it won't be 40% of take home.
Generally its a rule for lending because statically the higher percentage a mortgage is of you income, the higher the default chance. Our lender would not go higher than 30% even tho they could, that was just their rule.
It's the interest rates. Interest rates suck right now and it reduced your buying power HUGELY.
How do you know utilities will be $400/month? Personally, my house is 2k sqft and fully electric, and my electric bill is usually under $200/month. Water, when I'm not watering the lawn, is \~$40/month.
I mean, after your housing costs you'll still have $5500. That's pretty damn good. What are your other bills?
It’s the interest rate that’s making it so high. Unfortunately all the rates are rising & probably won’t go down for some time. When the rates were super low during Covid we refinanced our mortgage and took advantage of the low rates & locked in at under 2% making our mortgage payment $1500 monthly for a $500,000 loan.
These rules are stupid and not even applicable in VHCOL areas unless people expect them to be forever renters. As long as you’re comfortable with the mortgage payments (you got money left for saving, entertainment, unforeseen events, etc.) then you’re fine.
Adjust your standards.
Cheap Price. Great Location. Huge Size.
Pick two that are important to you because you can’t get all 3 (generally speaking - some people love living in rural areas, so maybe they could get all 3).
The "rules" apply less and less as you make more money.
If you're making $30k a month, even if you spend 75% of it on a house, vacation home, and timeshare... 25% of $30k is more than enough to meet the rest of your necessary expenses.
Those "rules" are meant as a guideline for first time homebuyers who are stretching their budgets to make things work.
The more you make the more you can spend. The 30% rule is a general guideline for someone starting out in their career with debt and is meant to be a financial planning tool. For example someone that makes 50K a year takes home 30k or so after deductions which put them at ~1K a month for housing and leaves 1.5K for everything else. At 180k you’d have 3-4x that much for everything else even if you spent 40% of your take home on housing.
Whatever you laying out is just the visible stuff, and the invisible bill is the scary part. If you are buying a brand new home then you may not have much stuff to repair, but if you are buying an older house from a careless home owner or previous rental, then the repairing bill can easy drain out your bank account.
That’s just mortgage and utilities. Something breaks? $. Need to mow? $. Need your trash picked up? $. Your wife hates the color of that wall? $. Your mortgage and utilities are the absolute bare minimum to live there but there are lots of other expenses
That's a personal choice. Most people either save for a large down payment or accept the fact that they will purchase a starter home (less desirable area, small house, condo...) And then build equity into buying another home.
If you're willing to cut expenses to afford a SFH, that's your personal choice. Some people decide to be house-rich, cash-poor, some people decide to purchase a smaller/less expensive home and still enjoy the little things in life.
You (and SO) are the only people that can make that decision. It's not up to Reddit. Every person makes the decision that's best for them.
I only make about 40k/year and spend about 50% on mortgage (after taxes) which includes money set aside for local taxes. No debits though. It's not ideal, but I have a nice 2000sqft 3br ranch home built in 1989. I am able to keep all utilities average under $250/mo. So IDK, live it up moderately while you can.
"That’s about 22% of my gross monthly pay. After taxes, $400 per month health insurance and saving 9% in my 401k my pay is $9100 a month. That means that the $3200 payment would be 35% of my take home pay. Add in $400 for utilities and my housing costs are now 40% of my take home pay."
You're doing the math wrong. You might as well tell us what your grocery expenses, gym membership, and monthly entertainment bill (concerts, dining out, etc.) and take that off your take home pay too.
On your income, you can definitely swing it. Your budget has plenty of free cash based on your comments.
I would just encourage you to have a strong idea of what your contingencies are if you have a reduction in income due to being a single income household with kids. Is your position and industry stable? Is there reasonable expectation that you can get comparable pay in the same area? Plan for the worst so you can give your kid your best.
Keep renting. The housing market will correct itself. It is very out of whack right now. Do not let realtors scare you into a bad deal just because they want to keep making commission
I’m not an expert here, I’ve just spent my entire adult life paying rent and bills.
40% of your TOTAL take home (is this including the wife’s income too?) would be very uncomfortable. For a few years, I paid exactly half my income toward rent and it was hard. I had to count every single dollar, every single week, and track everything, and still some months I had to figure out which bill I could fall behind on without my credit and my life being negatively impacted.
Travel and fun really did not exist for me. I’ve since told myself “never again.”
Apparently you’ll be pre-approved in the states to spend 50% of your income on total housing costs (mortgage, insurance, rolled in property taxes etc), as far as I’m understanding. I am not yet a homeowner. I’m just starting the journey.
I am not going to be entering a situation where half our income goes just to the house payment. It costs way more money to own than to rent. You’re on the hook for everything that breaks or needs updating or maintaining.
We want kids so I’m just insisting we stash money away like squirrels the best we can in this crap economy. I grew up in a poor household. I don’t want to live that way as an adult.
Short Answer: YES. You will be house poor.
We are where you are thinking at right now, percentage wise. 44% of take-home right now, OUCH! It's very tight to be honest.
But his income is increasing 10% by next March, and I'm self-employed with very variable income so can increase by 0% or 25%+ per month, if I'm motivated to earn or not. Right now, yes I'm motivated since we've been renting for 13 years and want to move next year when his promotion raise goes through by next March (so move April or later).
But I'll be honest with you. We had a foster kid last year, no payments other than $2k were received for food stamps for her only. So we paid for all her costs. Kids are really expensive. I don't mean to be a Debbie Downer but she was 17.5 so basically an adult and we're out $10k+ for the time she was with us - this is just what we had to cash-flow or add to credit cards with her here versus her not being here. I also stay-at-home so my life was full-time devoted to her. I couldn't work. I spent 40+ hours per week on her needs - severely abused, 2nd grade education level, slight special needs (Autism, ADHD, SPD). For reasons she's not with us any more (more in my profile posts but when a foster kid threatens to kill you they are removed by the state). TMI I know if God Forbid anything happens and you, your wife or kids have any medical issues at all, I'm afraid you'll be too house-poor to be able to live life, let alone pay medical bills, credit card debt, car loans as you'll need a larger car for more kids, the list goes on.
In the end, we've decided to stay put in our rental for right now, even though we've been here for 6 years. We'll TTC for our first bio, but adopt if it doesn't work out in a year (we're 40! so no time like the present). He has guaranteed, union-backed raises plus a promotion raise so 25% increase over the next 3 years. Not including my income. So we'll pay off the rest of our debt, save our emergency fund, save our downpayment, save closing costs, moving costs and furniture fund. And hope our rent doesn't increase more and eat into our bank account while we continue to save.
In a way you should look at it as forced savings. That 20% down-payment on a $450,000, that $90,000, is already equity you own. Over time as your principal payment outstrips your interest payment (more principal than interest is paid at the half-way point of the mortgage duration) your equity position in the house grows until you own it all. It isn't an expense like, say, your utility bills every month, but a long term investment you pay into to eventually own the place outright.
Also a big piece to factor in is your new mortgage interest deduction. If you haven't had many tax deductions up until now you'll see a healthy jump in take home pay.
No kids and assuming you don't travel a lot you should be comfortable. 1 kid still doable. With 2 kids it will start to get tight, but by then I assume your pay will be higher.
I'm I still in shock that people have money left over for savings and "fun" after paying their monthly bills, even working overtime im lucky to save 20.00 a month.
Suggestion, start a family and move to a 2/2 apartment close to a park/playground. Babies don't need much room, they need parents that are not stressed out.
Thank you u/bluecup32 for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
I know you put that housing costs would be 40% of your take home pay, but what about the rest of your budget? Have you created a monthly budget with all bills and expenses (groceries, fun, eating out, etc)? If you have, and you've put your projected housing costs in that budget, are you comfortable with the amount you have left to save each month? If you haven't done any of these things, I'd start there.
I did make a budget and after all of my expenses are factored in, we would have $2400 leftover for fun money and saving. I have an emergency fund, but would need to save around $500 a month for ongoing house costs. So that would leave us with $1900 a month for fun.
That’s much more than 95% of Americans have for fun in any month of the year.
This is really the answer. Even after all that, you have a good amount left. You won't be saving hand over fist, but you're better off than most Americans.
Every time you pay down the principal, that's saving.
Yea listen here! This house will be $1mil in 10years or less. Second the rates to down, getting a house gets harder and they go up in price. Get it before more inflation (coming soon from money printing). Refinance next year, or year after. (Equity lime of credit or loan is almost free to refinance on) Then lower payments and lower rates.
This sub is wild. There's very few circumstances I would suggest waiting to buy. My only regret is waiting as long as i did.
You're making a **massive bet** that rates will decline. After 40 years of declining and suppressed interest rates, we're moving into a cycle of higher rates for longer. If you think we're going to see 2.8% or 3.5% or even 4% mortgages anytime soon, you're in for a world of financial hurt.
Unfortunately saying you’re better off than most Americans when it comes to anything financial is not saying much. Just look at the averages for anything, retirement savings, credit card debt, car loans etc. You make a great income! You want to be saving much more than average if you want a comfortable retirement, breathing room, and mental peace. Not sure what your total savings or your net worth or other debts but 9% savings rate is quite low. But $1900/mo got fun is really high so if it were me I’d take from there and increase 401k. Your wife staying home with the kids definitely helps but kids are expensive. We spend $200/mo just on diapers and formula. Check out some of the money guys videos on YouTube. They have a lot of content about where you should be by different age groups.
Not disagreeing, but keep in mind that retirement is 65-67, I wouldn't wait until then to enjoy some purchases, cause anything can happen and you won't get to enjoy your money. Don't be stupid, but don't be so frugal either.
Agree with you as well. I’m definitely not advocating being a miser. That’s no way to live esp on $185k. But it’s helpful to run the numbers and try to project out what does 9% vs 12% savings look like? I don’t know OPs age but that could be a substantial difference. Plus plenty of people get to 65 or even 70 and just can’t retire. Definitely about balance but almost $2k/mo fun seems high given a relatively low savings rate. I guess also depends how things are categorized… some people have separate budgets for eating out vs fun. But back to OPs question, looks like I’m in the minority but I wouldn’t spend 40% of take home on a mortgage. That’s just too high for a single expense.
This is true. When 56% of Americans can’t cover a $1000 dollar emergency with cash, the bar is low.
> MCOL area most people would be a happy if they had $250 for fun money I would recon
[удалено]
I was about to comment the same.
What is fun?
god this sub loves bringing this sub up 95% of americans are also not buying and needing to pay off a 500k house with a newborn(s) on 1 income. The average american is making 1/4 what this dude makes, their savings habits matter nothing here. $6k of savings a YEAR 3 person family with 1 income, 4k/mo mortgage, and kids is absolutely nothing. Such a stupid comparison, lots of dumb broke people egging each other on with bad advice once again in this sub
Wtf yes it is lol that's after the mortgage is paid and $500 for home expenses that most people also don't set aside every single month for emergencies because that's a lot too after everything else is paid. It's like no one on this bitch grew up with a struggle at all lol.
Your wording is strong but I’m honestly with you. Just because most Americans don’t save much doesn’t mean that should be the benchmark. I agree that the average American’s saving habit shouldn’t be relevant here. It’s like how most Americans are unhealthily overweight. Just because your fat % is less than average doesn’t mean it’s healthy or a good thing.
> So that would leave us with $1900 a month for fun. You should peel off another 1200 for life as a homeowner and live off the remaining $700. Trust me.
$1900 a month for fun sounds absolutely terrible. /s honestly it sounds like you’ll be fine. And you’ll be building that equity in the process.
\>So that would leave us with $1900 a month for fun. Hot damn. I allocate only $200 a month to fun. The way I see it, you can still afford to cover the necessities, save money each month, and spend freely on your hobbies and interests. I see no reason why this wouldn't be affordable for you, especially if you've factored in retirement plan contributions and savings expectations over the course of your life. Another question to ask yourself is this, is the 10% difference in costs (about a whole 'nother $900) enough to make you rethink this? Maybe you'd rather be able to save more money or spend more money a month on items/experiences/hobbies/projects?
I think Op is just conservative. I allocate $300 a month for fun as a single woman in NJ/NYC.
You make a good point. The issue is that I’m not in a LCOL area where I can get a SFH for 250k. SFH in my area are minimum 400k. We live in a MCOL area and I can’t relocate due to working in person.
You're actually in a very good spot. The old school rules which may or may not apply anymore are: Buy a house no more than 3x your income and with a payment, PITI, not utilities included, no more than 1/3 your gross pay, I've always reinterpreted that as 40% net pay utilities included as taxes are variable. So at 180k per year and $9k/month take home... You can afford a $540k house with a max payment utilities included of $3600/month. Now is any of the above accurate? Who knows. I'm just a guy on the internet. Why would you trust me and why would you trust rules of thumb over a decade old. Make a budget. Plan it out. Compare cost of renting vs ownership and bake in any additional savings/investing and compare. You make $180k/year I assume you are skilled enough to do the analysis or able enough to find and hire an advisor you trust. That said. For context. I bought a. $300k townhome on $100k salary with an HOA. My total monthly payment utilities included is $2100/month. It sucks I wish it was less, but financially I'm alright.
The $9k a month take home is factoring $16k a year in savings, so OP could realistically go higher.
I know this doesn’t help but darn your lucky. Homes around me cost 800k up and they aren’t even fancy.
$2400 a month was until recently my monthly take home pay. I imagine you'll be fine even factoring in kids and a higher cost of living area.
Yeah man that’s plenty of money left over….
Is that including retirement savings?
My retirement savings are 9% pretax plus 5% match. So yes that’s after saving for retirement.
Sounds like you have a reasonable buffer in your budget, then. Especially if you expect increases to your compensation over time to outpace inflation/tax increases, it seems pretty affordable for you
Consider putting more to retirement, maxing out your 401k and ira. Your older self will thank you. Seems like you have the budget to do it too
Are you sure your property tax numbers are accurate? Don’t go based on what the current tenant is paying. The county can and often will reassess the value after a sale and that number may go up.
I have the same mentality. The question you’re really asking is what you can “afford” vs what you are “willing to spend”. Most Americans are only able to choose what they can afford, you have the luxury of both. Weigh out the pros and cons of what is more important to you - the safety net of extra flexibility of the incoming cash, or upgrading to buying a primary residence. It’s a bit more than just budgeting at this point and took me over a decade before I was more okay upping my spend on a more comfortable house / location.
Lmao only $20000 a year for fun?? Bro…
It’s doable but save as much as you can. There are so many hidden costs people don’t budget.
Did you factor in costs for the kids you said you want to start having? Are you including saving/investing as an expense, or are you just lumping it together under "fun money" and saving whatever you don't spend?
Then you're fine! It's an old rule and seems like you should be fine buying even a more expensive house if you wanted. Stay within your budget and you're chillin.
I’d say its probably more common today than it was in the past. Only you know if it’s manageable. The ~28% rule is a good rule of thumb, but it can be bent a bit depending on the situation. It’s just a benchmark. For example, if you have no other debts then 40% is probably manageable. If you also have a ton of student loans and 3 kids, probably should find a way to make closer to 28% or less
The 28% rule is your pay before taxes and retirement contributions; it’s not what your paycheck is
SO MANY just dont understand this is the formula.
Yup and 28% of gross is very close to 50% of net.
See my other comment - i suppose everyone can interpret it as the want, but I disagree. It makes no sense to base anything in personal finance off gross income because your net can vary so widely. Gross income is used as the benchmark by lenders because it is more uniform, but i dont think its wise to run your personal budget based on gross income because you’ll inevitably over extend yourself
That’s what the 28% rule is based on though. You’re trying to apply a rule meant for gross income to take home pay which you shouldn’t do. If you want to look at take home pay then you shouldn’t be bringing up the 28% rule at all
Wow .. real aversion to mathematics here .. let's explore. 1) salaries have remained flat for 30 years. 100k when I was a kid was a nice salary, last week I heard someone say the same. 2) housing prices have EXPLODED in 30 years. 200k then over a million now. Assuming theres a correlation between rent and salary - yesterdays correlation is not todays. The 28% rule may have worked for your grandfather and maybe even your father, but no longer. Right now .. it's mathematically impossible.
The fact that homes are more expensive now doesn’t really change that the rule of thumb is 28% if you want to be comfortable And nothing you just said actually addresses the comment you responded to. It was a rant that only wasn’t applicable but frankly it was wrong
A lot of people in California wouldn’t have a roof over their head if they strictly adhered to that arbitrary and antiquated 28% guideline.
100K is double the national median household income. It’s still a very good salary.
Yeah we are planning on having kids and my wife being a SAHM. For the 28% rule I think that is gross income. I calculated that a $3200 payment would be about 22% of my gross income, but 35% of my take home pay.
I always took it as net income - i don’t think it makes much sense to look at gross income from a personal finance perspective. Either way though, I think you would be fine at 35% of your take home even with a SAHM and kid. Obviously, only you know for sure, but i’m sure you would find a way to manage just fine even if its tight at first.
The rule is generally speaking about gross pay. Obviously deductions vary and so on, but that's the actual HUD recommendation. You can of course do whatever you want though.
Yeah there isn’t anything around me at a price where I can get a payment around the $2200 mark. Pretty much only condos.
You don't look at net because a lot of net income can be adjusted, it isn't fixed expenses.
Taking it as net income is convenient from a personal finance perspective, but it's just not accurate to how the 28% number was generated. So it's not really a debate of what's more useful. How the study was ran determines how the 28% should be used in guidance. I always learned about the 28% rule as coming from a study that found individuals that reported their housing expenses as less than a third of their gross pay also reported feeling less stress/anxiety/depression. I'm having trouble finding the citation for this study, so I would appreciate anyone to help in posting it. But if you think about it from the scientific perspective, it makes sense to use gross pay as the comparison point because it's more definable at the time of the study. I have an idea of how much I'll make in 2023 because we're already more than halfway through it, and I also know what my perception of my happiness is over the course of this year. If I used net pay, I may have to use previous years data and I would also have to deal with the fact that sometimes the only difference in tax burden is someone's knowledge of tax law. So we can't say what percentage of net pay is linked to less stress because we haven't done a study on that yet. That being said, do what works best for you. The point of a study is to provide evidence of something. When it comes to personal finance, you can really choose what to do with that evidence.
If this were the case Ike , people wouldn’t be able to afford home in hcol
*cries in San Diego*
... wails in San Francisco
Is 475k really even a HCOL area anymore? I was reading that the median house in the us is now 400-500k.
450k is ENTRY price in HCOL areas. That's a 90 year old shack on an eigth of an acre in some parts of the country.
I was imagining that 475k was more like entry price in a MCOL area. With 600k being entry price in a HCOL area.
$850k for older 2 bed 2.5 bath townhomes in San Jose, CA. Even $1mil+ sometimes. SFH that are $900k here are usually in the ghetto areas. $1.2 mil is where it’s in a more decent neighborhood.
4 bed 3 bath is 2.5m where I live
Depends if we are talking SFH or condos here, doesn’t it?
My price for a 95 year old, 744 sf shack on .3 (mountainous, unusable) acres with only wood fire to heat it was $579k. I’d cry if I could have gotten something for 450k.
Minus the 90 year old shack
Yep no, itsnt, 800k house in Seattle metropolitan area
Yup, good luck finding anything under 800k in LA too
Even middle of no where Arizona it's like $360k+ for a house. When the average HOUSEHOLD income is $55k. Math doesn't math.
Ha, you must be referring to Casa Grande.
475 is dirt cheap
600k+ for starter homes in VHCOL but even within that there’s areas that start even higher.
More like double that, essentially no 6 figure SFH in VHCOL. (sure there are some at $979,000 that come up once in a great while and sell for 1.1M.
Where?? I’m in the Bay Area and there’s literally nothing but trailers and studio condos for 600K
I really wish people stop making calculations like this. Percentage doesn't matter, having enough disposable income does. 40% of $10,000 is not the same as 40% of $2,000. Basically, if the remaining amount you don't spend on the house is enough to live comfortable, then you're golden. If it's not, even if the "percentage" is low, then don't do it.
Linear percentage calculations have limits, but they're good for rules of thumb. Generally, the more expensive a house is, the more expensive repairs will be. If it's expensive because of the area, repairs just cost more than in the boonies. If it's expensive because of the size, there's more to break or need repairs. So scaling up you repair savings with the house makes some sense. But yes, even 50% could be workable depending on the house and paycheck.
These “rules” were dreamt up by Boomers in a long ago far away economy. They have no relevance anymore.
[удалено]
I agree not to add them to those particular rules of thumb. But it IS important to budget for the cost of a house holistically. Way too many who "drive til they qualify" but didn't factor in the cost of transportation, who don't realize a detached 2500 sf ranch house with a pool, will have a higher utility cost than an apartment, or who've never had to deal with house maintenance costs out of pocket.
\^Agreed. He also added his health insurance cost and 401k contributions + he is using his net pay and not his gross pay. Housing costs doesn't include those items.
40x rent rule pre-tax is what most NY real estate/landlord/rentals use. 30% rent is a delusional dream in a world that no longer exists.
40 times rent is exactly the 30% rule though? Yearly income of 40 times your rent means your housing costs are 12/40ths of your pay. Divide by 4 to simplify the fraction, and you get 3/10, which is exactly 30%.
[удалено]
HOA is definitely part of the calc.
Yep. And it's just an individual comfort level. What some chart says you can afford and what you want to actually pay are way different. I hate these rules. People get into trouble because they can't really afford something,yet the chart says they'll be ok.
I don’t really see why it wouldn’t remain a good rule of thumb and stand the test of time. If anything, people carry more student loans and spend more on other basic needs these days, meaning the 28% rule should be taken even more seriously. Just because its a lot harder to find something that is within your means, doesn’t mean you have to branch out beyond your means That said, its just a rule of thumb. If someone can make 40% or 50% work comfortably for them, then thats great. But it does remain a good benchmark for affordability
>I don’t really see why it wouldn’t remain a good rule of thumb and stand the test of time. because housing got a shit-ton more expensive, interest rates doubled, the dollar inflated 30%+ in aggregate over the last few years, and wages did not commensurately catch up for the vast majority of folks.
>housing got a shit-ton more expensive In a lot of places, it's literally not possible to buy a place that's below 40% your of your gross income anymore, unless you're willing to commute 1+ hours, in which case you're paying in time and commuting costs. I would be priced out of my current house due to increased valuations, property taxes, and interest rates; even with a couple of raises I've gotten in the past couple of years. Only rule that still holds true is to buy when you can afford it and don't try to time the market.
Yea - so you can’t afford a house right now. Thats fine. You will eventually. I can’t afford a house now, so i rent something within my budget. There’s no sense in over extending yourself and acting like you’re being forced to commit financial suicide just because the market ran away from you for a short period. No one is making you take on something you cant afford
1/3 was never a good flat rule. It’s all dependent on income. I can spend 50% of my income on a home if I have $15000 left over for expenses without hurting myself. I wouldn’t but just pointing out that life has some pretty set expenses. If you make a high income a greater % can go towards home or other things.
\>1/3 was never a good flat rule. It’s all dependent on income. That's because it wasn't ever meant to be a flat rule, it's a rule of thumb--meaning there are a lot of ways it can be bent and broken.
When was the last time you checked rental prices? Unless you're suggesting we forego having a home at all, I don't think renting is a feasible long-term solution. In the past two and a half years, I've paid roughly 40k in rent for a 900 sqft house. It's someone else's equity and I'm fucking tired of it.
I pay 1650 for a 2/1 1100 sq ft apartment in socal with my wife. Rent has increased a total of 150 over 5 years. We have a 6 figure down payment and will keep adding to it until we are at 140-150, then look in 2025. Just make it a priority.
Well, i rent, so… i check monthly Renting isn’t all that bad financially. Its pretty competitive with homeownership at the moment with rates where they are $40k in rent over 2.5 years is ~$1,300/month? You’d be paying more than that in PITI on a home at the moment, earning marginal equity Yea, times are tough. Thats okay. I don’t think it’s worth bashing our heads in over, or selling out to buy a home as soon as possible
I'm sorry I came at you so hard. I don't think you're right, but my pitchfork was sharpened for someone else.
Using a percentage of pay as rule of thumb doesn't scale very well though. If it's a household around the median U.S. income of $70k, 60% of their monthly gross pay is just $3,200. In the posters case for their $180k income they are left with $9,000. Discounting keeping up with the Joneses most discretionary spending costs the same for everyone.
It’s genuinely impossible for most people to meet this guideline, especially in any major metro that people actually want to live in. The vast, vast majority of Americans who are looking for new housing, and thus need to consult this guideline, make between $50-90k and the average rents are $2000 or more. >inb4 buh buh but not everyone! Yeah, no shit. MOST people live in a major metro area and MOST people who need this rule need it BECAUSE they’re evaluating housing options. If you somehow lucked into signing a lease for $500 a month from 2011 for an English basement, then this guideline isn’t for you.
I live in Chicago and signed my lease 2 years ago. We don’t have rent control. I rent a sub-optimal place for $1,000/mo Relax. Markets are cyclical. The world isn’t ending just because homeownership is expensive right now
Chicago is the best value for money big city in the US for sure
It absolutely has relevance, dedicating more than 30% of your take home on housing alone, especially in a reality where costs are higher for everyday goods and debt is at all time high for individuals, dedicating an unnecessary amount towards housing is silly. You can still find homes that are more affordable than what OP is looking at, especially considering we're talking about a mortgage of 3.2k. Sure it won't be a dream home but it's completely realistic even in the market we're seeing today. These 'rules' aren't meant to be die hard guidelines to stand by, but they're a good point of reference. If OP wants to spend discretionary income on housing that's up to them, but again, these are reference points and are in no way meant to be the end all be all on the matter.
[удалено]
Bro I don't make 180k and pay 3800$ .. rent was gonna be 3300$ so .. prefer to buy . There's no option (Miami FL)
[удалено]
Sounds like it's fine, as long as you're saving for retirement.
I’m honestly not sure. It sounds like your housing is about 41% of your take home pay. Does that feel comfortable o you?
its not normal. the economy is set that way, that people taking mortgages are basically slaves to the employers. Want to take a 6month long leave off to work on your mental health and family? forget about it. Most of the people won't be able to afford even a month without a job without the fear to not be able to cover monthly payments you decide, if you want to live like that
We are at 220k HHI but when we bought, it was 190k. Our PITI is $3150 and utilities are ~400 including internet. It was definitely manageable but we ate out less and had to be more mindful than we were before with a $2200 rent. It feels very comfortable now and we know it will just keep getting more comfortable as we get annual raises. We have a 6 month emergency fund which definitely helps the situation since we aren’t as worried about job loss.
Thanks for the insight!
And like you said you got to add in utilities, property taxes, home insurance, saving for repairs/renos, etc. That $3200 could be more like $4200 if not more tbh. Wild shit.
Yeah the $3200 is taxes and insurance included, plus $400 for utilities is $3600. Plus I’d be saving an extra $500 for maintenance. You are right it would end up being closer to 4K a month in housing costs. The market is nuts right now.
$400 a month for utilities? Maybe just electricity, if it’s a small house
$400 a month for electricity? On a small house?? I have a 1400 sq ft house and WFH and spend around $100-$150 a month on electricity. No way in hell is anyone spending $400 a month unless it's a huge house and they leave their lights on excessively.
$5500 after housing is paid for 2 people with kid is decent. You ll probably even be able to save 1 to 2k/month One asterisk to all those rules is that 60% that you ll be left with is vastly different depending on which salary we are talking about. Food and entertainment costs don’t scale as much as housing costs based on cost of living in the area.
Jesus Christ that interest rate. I have a $620k house I bought in 2021, 20% down and my mortgage is $2200
This is why I'm angry. I wanted to buy a house in 2021 because of the amazing housing opportunities, but my fiancé wanted to wait. Now he would like to buy a house and everything is going against my favor.
In his/her defense… I bought at the “top of the market” at the time and literally everyone I knew called me a moron for buying it at that time. Well… my house is now worth $750k and I’m locked into a 3.25% interest rate. It was a huge gamble at the time and it worked out very very well for me as I own a house I could never afford if I bought it today (mortgage would be roughly $5k today…). I have never subscribed to timing the market, in any case (stocks, housing, etc). If it works for me at the time then I do it. I can’t control what the market will do after I buy it and anyone who says they know “this or that” regarding the future of the market is talking straight out of their ass.
$180k is a good income, but you have to realize that you’re competing with dual income households that are making way more than that.
Yes you will be house poor. Welcome to America. You have 2 choices: Overpay for a house and be house poor OR Move into a crappier neighborhood/smaller house/far commute. Real estate in this country is just stupid right now. I have a property I bought in 2019 that INCREASED IN VALUE BY 60% in just 4 years. They are saying property is up on average 88% in the last decade. This is why you see crap like people who work daily in NYC but live all the way in the PA Pocono area. Property has become unaffordable.
I make 140k and spend about 40% (take home after ins and maxing out 401k) on PITI. It’s doable. I still go on a couple vacations every year. It’s doable without feeling house poor. No kids, so that helps.
thank you i needed to see this. made an offer on a house in a HCOL area in the LA suburbs that will be about 40% of take home after maxing out retirement + school debt payment, and was trying not to freak out as I ran the numbers and budget in every detail but still didn't trust myself after growing up struggling financially and now that i have a stable professional career, i still have a scarcity mindset
Dont look at your housing cost %. Tell me what the math looks like on your savings rate.
Take-home pay usually refers to your earnings after taxes are deducted, but not things like health insurance or 401k contributions. Paradoxically, the more you earn, the larger percentage you can afford to spend on housing. Your other expenses don’t scale with your housing costs. At your income level, you can probably afford a higher percentage without much of an issue. That assumes you can keep lifestyle creep under control. Don’t do this if you’re the sort of person who says, I now own a nice expensive house, so I need to drive a nice expensive BMW to go with it. Ultimately, there’s no substitute for sitting down and crunching the actual numbers. Break down all of your monthly spending, see how much of a cushion you’d have, and decide if that’s enough.
Remember when $180k salary used to get you a $750k house? These interest rates are terrible.
The guideline is something like 30% of gross, with no more than 41% total debt-to-gross-income (including mortgage). Don't borrow at the top of what banks will lend. You'll hate how poor you feel.
Unless you bought a house before 2022 then yeah, that’s normal now-a-days. Once you throw kids into the mix it’ll get harder. I have 3 kids and my wife is a SAHM. That $2400 fun money will go very quickly, lol
Yeah that’s what I’m saying. 2k a month for fun money sounds good, but it goes pretty quickly.
I make the same- just purchased a $500k home with 20% down. Here’s what I’ll tell ya.. the rule applies less as you earn more as long as the rest of your lifestyle is consistent. You’ll still have $5k/month after your housing costs… that’s more than the average American makes pre tax and all you have left to figure out is food & transportation. You’ll be fine
If you can manage your budget to make it work, then there’s your answer.
Don’t forget maintenance/repair costs. I’m caught in a trap like this after a divorce and while I can “afford” the mortgage, things like having the hot water heater quit are killing me
We earn a similar amount as you, and spend a similar amount on housing. It’s a breeze, to be honest. Much easier than we initially expected
Thanks for posting. I’m in a similar boat right now. I want to buy but my rent is so low (18% of my net take home) and I’ve gotten so used to that, the idea of 30% being spent on a mortgage is kind of scary. But at the same time, it’s easily doable. It’s just something I’m trying to wrap my head around.
My wife and I make $150k a year. Closing on a home that gonna be about $3800 a month. We currently save about 5k a month and pay $1600 on top of that for rent. We live comfortably so I knew we would be well able to tackle a bigger payment for something like a house that will really propel us to independence. Screw the percentage because that’s for normal people and normal people are broke. If you can manage a large payment then do it. I would make sure you can obviously but nobody knows your situation better than you!!!
We want a child. My wife is still going to keep working so we can afford things more comfortably.
I make $215K a year. Mortgage is $3789 on a house I just bought for $725K and put 25% down, 5.99 rate. This was basically what I had to spend. Because I max out retirements it definitely is 45% of take home. I have to imagine it's pretty fucking common. But making big dollars mean more left over in the other 55%
40% is not unusual in places which are appreciating at a good rate.
Just wait it out for 6months to a year. And prices will fall. Then you can be happy you bought a house. Instead of being slave to your home.
Only you know this. Make a monthly budget for all fixed and variable expenses and then determine what you’re comfortable spending for housing. You will also need to consider additional expenses like home maintenance. Spending 40% in housing for someone who doesn’t have other bills and already has 100k in their savings for repairs is probably okay. Spending 40% when there are other debts and no savings will be dicey. Yes, these are extremes, but they prove the point this depends on your individual budget. Do the math, not just for buying the house but for other financial goals. It’ll take you a long way.
We have an emergency fund. So we would save about $500 a month for ongoing housing costs. I made a mock up budget and after all of our expenses we would have $1900 leftover each month left for fun money.
We are in the same situation with about $2,000 left over for “fun/savings.” I wish it was more, but when rates come down the payment will too. We are going to deal with it in the short term knowing that we at least are building equity, and that when rates drop the competition will get crazy again so who knows where prices will go.
Yeah it’s definitely hard. I just was expecting to have a lot more leftover at this income.
The data showed the "new" $100,000 is actually close to $250,000 in the California cities of Oakland, Los Angeles and Long Beach. Overall, Oakland ranked fourth, with a $245,600 minimum salary needed to feel like you're taking home $100,000.May 1, 2023 Nuts ain't it. Source: https://www.foxla.com/news/250k-salary-new-100k-california-cities-money#:~:text=The%20data%20showed%20the%20%22new,you're%20taking%20home%20%24100%2C000.
"normal" and "responsible" are two different things. I think 41% is the most recent normal. For me personally, 25% is the max.
Yeah I wish! Houses in my area got expensive and are now 400k minimum. With interest rates and these prices I’m looking at a 3k a month payment even with 20% down.
That's why I'm not buying rn. I think there are A LOT of people in this boat. A bunch of people that overextended themselves in the last three years are at serious risk if there's an economic downtown. I'm happy to not be among them.
We pay more than 40% of our income for our housing. It is stressful and we definitely have to make sacrifices/plan for emergencies. But it was worth it for our daughter to live in a good neighborhood. Make sure you have a good stock pile of cash before you take a risk like that. Worth it for us but can ruin you if you’re not prepared.
Yeah that’s makes sense. It is super stressful and yes I agree, part of it is that I want our kids to grow up in a somewhat safe area with decent school.
You qualify if you are at 45% of gross pay and can be even higher with some exceptions. People do that every day. Gross not take home
I think your lifestyle and other expenses play a large role in what you're comfortable with spending. You need to create a budget and see what amount you're comfortable spending at the end of the day. My husband & I currently spend around 40% of take home pay on housing expenses (incl utilities, internet, trash), but we both work from home (own only 1 car) and don't really spend money on things outside of food and essentials. We don't plan on having kids either. So when we broke down our budget, we still felt comfortable with it. We also realized when we were dating & living separately yearsss ago, we were each paying around half of what we're spending together on our house -- so we've theoretically made it work before when making less money 😝 (we lived in LA at the time, so COL is very high overall). We're hoping in the future there will be an opportunity to refinance to help bring down some of the pain of the higher interest rates, but we're comfortable where we're at either way. It's a very personal choice and you have to ultimately make it for yourself based on your lifestyle and priorities.
Well. I’m hoping to be a STAM in the near future and that’s where we’ll be after I stop working. If we pay down some debt (cars/student loans), I think we’ll still be in an alright position.
It's always individual-dependent. 40% of your takehome may be fully fine, if the rest of your takehome covers all of your living expenses and you are still maxxing out your RothIRA, HSA, great contributions to 401k, no toxic debt. These rules of thumb are to get you started with your math. If 40% puts you deeper in debt every month elsewhere, then it's too much. If you are on the sunny side of the budget, the math isn't hard to justify.
You are not just buying "housing" like you do when you are renting, but also a wealth asset. As home values have gone up, historically, you will likely eventually own your home outright and if the home is worth $450k today you will likely be an asset Millionaire by the time the house is paid off. At that point you can continue living there rent and mortgage free, just worry about property taxes and insurance, or sell your $1 Million, $1.3 Million, Dollar home. Not all bad for someone who after all bills are paid and all retirement investments are made has $1,900 left over every month for "fun money".
You make 6x the median US income and are buying a home at the median price, of course it won't be 40% of take home. Generally its a rule for lending because statically the higher percentage a mortgage is of you income, the higher the default chance. Our lender would not go higher than 30% even tho they could, that was just their rule.
My all in housing cost will be 40% of my take home.
It's the interest rates. Interest rates suck right now and it reduced your buying power HUGELY. How do you know utilities will be $400/month? Personally, my house is 2k sqft and fully electric, and my electric bill is usually under $200/month. Water, when I'm not watering the lawn, is \~$40/month. I mean, after your housing costs you'll still have $5500. That's pretty damn good. What are your other bills?
It’s the interest rate that’s making it so high. Unfortunately all the rates are rising & probably won’t go down for some time. When the rates were super low during Covid we refinanced our mortgage and took advantage of the low rates & locked in at under 2% making our mortgage payment $1500 monthly for a $500,000 loan.
These rules are stupid and not even applicable in VHCOL areas unless people expect them to be forever renters. As long as you’re comfortable with the mortgage payments (you got money left for saving, entertainment, unforeseen events, etc.) then you’re fine.
No and don’t try to ‘normalize ‘ it .
Hence why I'm waiting for a long time to ever consider buying. Just keep saving for better days.
It is old times to assume that many can buy a house and only spend like 30% or less on housing. Unrealistic in these times tbh.
Adjust your standards. Cheap Price. Great Location. Huge Size. Pick two that are important to you because you can’t get all 3 (generally speaking - some people love living in rural areas, so maybe they could get all 3).
The "rules" apply less and less as you make more money. If you're making $30k a month, even if you spend 75% of it on a house, vacation home, and timeshare... 25% of $30k is more than enough to meet the rest of your necessary expenses. Those "rules" are meant as a guideline for first time homebuyers who are stretching their budgets to make things work.
The more you make the more you can spend. The 30% rule is a general guideline for someone starting out in their career with debt and is meant to be a financial planning tool. For example someone that makes 50K a year takes home 30k or so after deductions which put them at ~1K a month for housing and leaves 1.5K for everything else. At 180k you’d have 3-4x that much for everything else even if you spent 40% of your take home on housing.
Get a cheaper house
Rent is consumption. A mortgage is payment toward an investment. Buy the house. You'll never regret it.
A house can be an investment but it’s not guaranteed. The housing market is still unstable. Remember 2008?
Now do this riddle with a $50k salary. That’s quite a lot of people right now.
Whatever you laying out is just the visible stuff, and the invisible bill is the scary part. If you are buying a brand new home then you may not have much stuff to repair, but if you are buying an older house from a careless home owner or previous rental, then the repairing bill can easy drain out your bank account.
That’s just mortgage and utilities. Something breaks? $. Need to mow? $. Need your trash picked up? $. Your wife hates the color of that wall? $. Your mortgage and utilities are the absolute bare minimum to live there but there are lots of other expenses
Studied financial planning 98 - 05. Was taught the max rule is 30% Not ure if that holds up today tho.
You are way ahead of most families, esp on Cali, etc...
25% is ideal, 33% is best case realistic, 50% is not unexpected, 60-75% is majority reality
That's a personal choice. Most people either save for a large down payment or accept the fact that they will purchase a starter home (less desirable area, small house, condo...) And then build equity into buying another home. If you're willing to cut expenses to afford a SFH, that's your personal choice. Some people decide to be house-rich, cash-poor, some people decide to purchase a smaller/less expensive home and still enjoy the little things in life. You (and SO) are the only people that can make that decision. It's not up to Reddit. Every person makes the decision that's best for them.
I only make about 40k/year and spend about 50% on mortgage (after taxes) which includes money set aside for local taxes. No debits though. It's not ideal, but I have a nice 2000sqft 3br ranch home built in 1989. I am able to keep all utilities average under $250/mo. So IDK, live it up moderately while you can.
Pretty normal around here unfortunately, if not more
Welcome to the new America.
Question - have you figured in how your taxes would change?
"That’s about 22% of my gross monthly pay. After taxes, $400 per month health insurance and saving 9% in my 401k my pay is $9100 a month. That means that the $3200 payment would be 35% of my take home pay. Add in $400 for utilities and my housing costs are now 40% of my take home pay." You're doing the math wrong. You might as well tell us what your grocery expenses, gym membership, and monthly entertainment bill (concerts, dining out, etc.) and take that off your take home pay too.
On your income, you can definitely swing it. Your budget has plenty of free cash based on your comments. I would just encourage you to have a strong idea of what your contingencies are if you have a reduction in income due to being a single income household with kids. Is your position and industry stable? Is there reasonable expectation that you can get comparable pay in the same area? Plan for the worst so you can give your kid your best.
Why can’t your wife’s salary be saved until she has kids? That’s likely years away and could help with the housing
Keep renting. The housing market will correct itself. It is very out of whack right now. Do not let realtors scare you into a bad deal just because they want to keep making commission
I’m not an expert here, I’ve just spent my entire adult life paying rent and bills. 40% of your TOTAL take home (is this including the wife’s income too?) would be very uncomfortable. For a few years, I paid exactly half my income toward rent and it was hard. I had to count every single dollar, every single week, and track everything, and still some months I had to figure out which bill I could fall behind on without my credit and my life being negatively impacted. Travel and fun really did not exist for me. I’ve since told myself “never again.” Apparently you’ll be pre-approved in the states to spend 50% of your income on total housing costs (mortgage, insurance, rolled in property taxes etc), as far as I’m understanding. I am not yet a homeowner. I’m just starting the journey. I am not going to be entering a situation where half our income goes just to the house payment. It costs way more money to own than to rent. You’re on the hook for everything that breaks or needs updating or maintaining. We want kids so I’m just insisting we stash money away like squirrels the best we can in this crap economy. I grew up in a poor household. I don’t want to live that way as an adult.
Short Answer: YES. You will be house poor. We are where you are thinking at right now, percentage wise. 44% of take-home right now, OUCH! It's very tight to be honest. But his income is increasing 10% by next March, and I'm self-employed with very variable income so can increase by 0% or 25%+ per month, if I'm motivated to earn or not. Right now, yes I'm motivated since we've been renting for 13 years and want to move next year when his promotion raise goes through by next March (so move April or later). But I'll be honest with you. We had a foster kid last year, no payments other than $2k were received for food stamps for her only. So we paid for all her costs. Kids are really expensive. I don't mean to be a Debbie Downer but she was 17.5 so basically an adult and we're out $10k+ for the time she was with us - this is just what we had to cash-flow or add to credit cards with her here versus her not being here. I also stay-at-home so my life was full-time devoted to her. I couldn't work. I spent 40+ hours per week on her needs - severely abused, 2nd grade education level, slight special needs (Autism, ADHD, SPD). For reasons she's not with us any more (more in my profile posts but when a foster kid threatens to kill you they are removed by the state). TMI I know if God Forbid anything happens and you, your wife or kids have any medical issues at all, I'm afraid you'll be too house-poor to be able to live life, let alone pay medical bills, credit card debt, car loans as you'll need a larger car for more kids, the list goes on. In the end, we've decided to stay put in our rental for right now, even though we've been here for 6 years. We'll TTC for our first bio, but adopt if it doesn't work out in a year (we're 40! so no time like the present). He has guaranteed, union-backed raises plus a promotion raise so 25% increase over the next 3 years. Not including my income. So we'll pay off the rest of our debt, save our emergency fund, save our downpayment, save closing costs, moving costs and furniture fund. And hope our rent doesn't increase more and eat into our bank account while we continue to save.
[удалено]
Yeah I have an emergency fund and am putting 20% down. The payment would still be 35% of my take home pay.
In a way you should look at it as forced savings. That 20% down-payment on a $450,000, that $90,000, is already equity you own. Over time as your principal payment outstrips your interest payment (more principal than interest is paid at the half-way point of the mortgage duration) your equity position in the house grows until you own it all. It isn't an expense like, say, your utility bills every month, but a long term investment you pay into to eventually own the place outright.
Also a big piece to factor in is your new mortgage interest deduction. If you haven't had many tax deductions up until now you'll see a healthy jump in take home pay.
330k for a 1 bedroom is def more in the category of HCOL
No kids and assuming you don't travel a lot you should be comfortable. 1 kid still doable. With 2 kids it will start to get tight, but by then I assume your pay will be higher.
how do people make so much money when they can’t figure out basic things.
Sometimes I think ppl get on this sub to quietly brag about how much they have. $1900 after everything is damn good.
This is a realllllly bad time to buy a house. There are just not a lot of good options right now
I'm I still in shock that people have money left over for savings and "fun" after paying their monthly bills, even working overtime im lucky to save 20.00 a month.
Suggestion, start a family and move to a 2/2 apartment close to a park/playground. Babies don't need much room, they need parents that are not stressed out.