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karabara
LIF Adult
Member since 8/07 1153 total posts
Name:
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Housing costs as % of salary?
We are trying to determine what is a comfortable vs reasonable ratio of housing cost vs. income. At the moment, DH and I are not in agreement on what we should be committing to.
Housing cost to me includes mortgage, taxes and fees. though i realize homeowner insurance should be included, i did not include it b/c i have no idea how much it would be.
I think 25-28% of our combined net income (take home pay) is reasonable and comfortable. However, is it realistic in the NY Metro area?
DH thinks it is not. Though I don't feel 100% confident in job security in corporate america and we are both in corp america! I dont want to end up in financial straights, but at same time, i do want to love my home.
Plus, I dont want to be shortsighted and not consider the cost of renovations for the homes in our comfortable range (and just about all the homes in our range require reno's)
Thoughts? Opinions?
TIA!
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Posted 1/21/12 10:59 PM  |
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ave1024
I Took The Wrong Road
Member since 12/07 6153 total posts
Name:
That Led To The Wrong Tendencies
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Re: Housing costs as % of salary?
The general guideline is 28% of your GROSS salary should go towards housing (mortgage, taxes, homeowners).
Why do they say gross and not net? Because the majority of your housing payment is usually either taxes or interest, both items that are paid with gross income and not net (ex: they are tax deductable).
If your payment contains a lot of principal, that shouldn't be an issue as principal payments aren't real "costs" since they contribue to the equity of your house.
Typical homeowners in Long Island can run anywhere from 700-1500 depending on the size of your house. A lot more if you need flood.
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| Posted 1/21/12 11:38 PM |
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karabara
LIF Adult
Member since 8/07 1153 total posts
Name:
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Re: Housing costs as % of salary?
oh interesting! I didn't realize it was gross and not net. wow that changes things...
thanks for your response! it's very helpful!
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| Posted 1/22/12 11:16 AM |
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AScottWolf
I <3 our squish!
Member since 11/10 2237 total posts
Name:
Adriana
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Re: Housing costs as % of salary?
Depending on weather your in a flood zone or not, homeowners isn't that much (I don't think).
From what I've read, you take your combined gross income, and multiply it by 3. That then is the amount of home you can afford. I know this leaves out a lot of factors such as taxes, any debt you guys may have and other financial obligations.
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| Posted 1/22/12 11:45 AM |
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Re: Housing costs as % of salary?
I usually tell my customers to budget around $125/month for homeowner's, which is on the high end. If you want to stick with round numbers, tack on $100/month to whatever your mortgage payment + taxes will be.
I think the best way to figure out if you will be comfortable with your housing costs is to figure out what your monthly payment would be if you bought a house in your price range. Presumably, you are preapproved. So if the average price of the houses you are looking at are say, $400K, and the average property taxes are $10K, ask your mortgage contact person to run the numbers for you, given the current interest rate you qualify for, and tell you what the monthly payment would be.
Then, you can ask yourself if you would be comfortable paying that, looking at what your other expenses are. Would that allow you to have enough leftover for savings, for example, if you are concerned about job security? If it seems to high, then you can adjust your price point and/or property tax cap, and run the numbers again, and see where you come out. At least then you will know exactly what to expect after you buy.
Regardless of what experts say the ratio of housing costs to income should be, it has to feel comfortable and work for you and your family!
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| Posted 1/22/12 1:44 PM |
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schmora15
LIF Adult
Member since 9/08 2476 total posts
Name:
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Re: Housing costs as % of salary?
Posted by AScottWolf
Depending on weather your in a flood zone or not, homeowners isn't that much (I don't think).
From what I've read, you take your combined gross income, and multiply it by 3. That then is the amount of home you can afford. I know this leaves out a lot of factors such as taxes, any debt you guys may have and other financial obligations.
This is what i've heard as well.
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| Posted 1/22/12 4:14 PM |
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Katareen
5,000 Posts!
Member since 4/10 7180 total posts
Name:
Katherine
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Re: Housing costs as % of salary?
Posted by AScottWolf
Depending on weather your in a flood zone or not, homeowners isn't that much (I don't think).
From what I've read, you take your combined gross income, and multiply it by 3. That then is the amount of home you can afford. I know this leaves out a lot of factors such as taxes, any debt you guys may have and other financial obligations.
I've heard this as well---but I think the number you get is the mortgage amount you can afford, then you can add in any cash for down payment you might have.
So if you make $100K, and have $50K for a downpayment, you can afford a $350K house.
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| Posted 1/23/12 10:22 AM |
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karabara
LIF Adult
Member since 8/07 1153 total posts
Name:
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Re: Housing costs as % of salary?
Posted by AScottWolf
Depending on weather your in a flood zone or not, homeowners isn't that much (I don't think).
From what I've read, you take your combined gross income, and multiply it by 3. That then is the amount of home you can afford. I know this leaves out a lot of factors such as taxes, any debt you guys may have and other financial obligations.
That is amazing!! your estimating formula came within $4 of our pre-approved mortgage number!
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| Posted 1/23/12 5:42 PM |
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Dulcinea
Weekend Warrior
Member since 3/08 2530 total posts
Name:
Dulcinea
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Re: Housing costs as % of salary?
Posted by Katareen
I've heard this as well---but I think the number you get is the mortgage amount you can afford, then you can add in any cash for down payment you might have.
So if you make $100K, and have $50K for a downpayment, you can afford a $350K house.
This is true, calculating this way is better because just doing gross x 3 doesn't give you how much you already have as downpayment...
If you got 100k for downpayment vs. 200k, that's pretty drastic and the difference between a 400k or 500k home.
But if you don't feel your job is secure, I would use just one gross salary - only your DH or yours, not both. This will give you the extra padding you need for home renovations and other situations where you may need to take time off work (a baby, disability, etc.).
Just another way of living below your means. :)
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| Posted 1/24/12 11:13 AM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Housing costs as % of salary?
Percentage schmercentage!
Make a budget. Your net income; expenses, savings, etc. overestimate your expenses and make sure you put every penny you spend in. The amount that's left is what you can afford for your mortgage. Voila!
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| Posted 1/24/12 12:09 PM |
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CSK
LIF Adolescent
Member since 9/11 892 total posts
Name:
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Re: Housing costs as % of salary?
Posted by Meaghan729
Percentage schmercentage!
Make a budget. Your net income; expenses, savings, etc. overestimate your expenses and make sure you put every penny you spend in. The amount that's left is what you can afford for your mortgage. Voila!
this is definately the way to do it.
realistically, I don't see how anyone really goes by the percentages.
for 1 taxes vary significantly, both taxes on the homes and taxes on your income
Salaries range significantly as well, spending 30% of 70K leaves a lot less than spending 30% of 150K
People have different things that they consider "needs" and all have differnet financial pictures. student loans, car loans, etc can play a good part of what you can afford vs what you can't
I probably spend around 30% of gross on my house mortgage +taxes. it does feel tight with everythign else. I don't have a car loan but we have a small student loan payment.
you also need to take into account the tax savings
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| Posted 1/24/12 1:49 PM |
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b2b777
LIF Adult
Member since 9/09 4474 total posts
Name:
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Re: Housing costs as % of salary?
I agree with previous posters. If I use these calculations I would have purchased a home 60k more than I spent...and I never feel like I have "extra" money~!!
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| Posted 1/24/12 2:30 PM |
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CSK
LIF Adolescent
Member since 9/11 892 total posts
Name:
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Re: Housing costs as % of salary?
although I do agree with not buying too much house, I also think there can be a danger of buying too little.
It costs a lot of money to buy a house even a "cheap" one depending on if you can swing it, you should buy something that is the right size for you and something you're happy to come home to at the end of the day for all the money you spend.
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| Posted 1/24/12 5:08 PM |
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