Can I really afford a $250k house?

[ponyo]

Financial freedom in the sense that it's the quickest way to not owing money, but it's not necessarily the best for your long-term wealth building, especially since mortgage interest is tax deductible and interest rates are insanely low.

At 4% interest rate and assuming a constant 25% tax bracket (for simplicity's sake), as long as you get over 5% return on your money, taking the mortgage is the better option in the end (at 5% annual rate of return, it comes out right about the same) than putting the monthly mortgage payment into the same account earning the same %.

I was poking fun. But I disagree that having mortgage is necessary better. Even with today's low rates. The guaranteed returns are lower than the mortgage rates. Mortgage interest tax deduction is overrated.

Ask anyone who paid off their mortgage if they want to do a cash out refi so they can have a mortgage again to earn higher investment return. I mean they would be foolish not to do so and would be leaving money on the table, right? I could do 80% cash out refi at 4% for 10yrs if I wanted. That's what smart people do right?

 

[Hugo Drax]

I'm this economic environment I could not recommend a house purchase to someone right now. Better to be flexible and able to move to any state where the jobs are at the moment.

Flexibility is key since today's jobs are very transient.

 

[rcpratt]

I'm this economic environment I could not recommend a house purchase to someone right now. Better to be flexible and able to move to any state where the jobs are at the moment.

Flexibility is key since today's jobs are very transient.

In this economic environment, it's the perfect time to purchase a house, assuming the buyer has a stable job. There are still plenty of those people around.

 

[Bateluer]

I'm still trying to figure out WTF are people thinking when they do the zero down shit. You ain't got no money man! If one of you is out of the job, you're fucked.

does anyone even offer zero down anymore?

I did Zero Down in 2009 on an 89K house, but with a VA Loan. 4.0 APR.

 

[Doppel]

I'm this economic environment I could not recommend a house purchase to someone right now. Better to be flexible and able to move to any state where the jobs are at the moment.

Flexibility is key since today's jobs are very transient.

Will tomorrow's not be? I've paid a lot--too much--attention to the current recession and over the past 3+ years have come to internalize the truth that personal economics are more important than macro, even if substantially influenced by them. There are many worlds we live in. A blue collar worker who's job can be trained in 15 minutes to a high school drop out needs to care about future employment than a medical salesman who has a proven track record of selling $3M in equipment a year for his company. Even if they go down, he can get a new job.

 

[Texashiker]

I'm this economic environment I could not recommend a house purchase to someone right now.

A home is more then just about the money, its also about providing stability for your family.

To say "do not buy a home", is also saying "do not provide your family with a home".

As for me and mine, I want my kids to know they have a place to lay their heads at night.

 

[96Firebird]

Yeah, this. It makes no sense that you have room mates, yet are spending $1200 a month for an apartment. I didn't realize there were places that expensive in the Rochester area.

Unfortunately, most are up near that. I don't pay nearly that much with roommates, if thats what you thought I meant. But since we all plan on going our separate ways soon, I'll probably be spending near that amount. Unless I want to live in fear of getting shot just walking out to my car, those places are cheap...

I'll probably just end up renting for another year and then see where I stand then.

 

[Wonderful Pork]

I recently purchased a condo after 7 years of renting in the greater Boston area.

The bank "pre-approved" me up to $325k but I told them they were frigging nuts and bought a place that was a bit less than 3x my yearly wage (and put down 20&#37 and was brand new construction, so I lucked out that the builder was dropping prices to move pre-built units.

Now my PITI + condo fees are $100 less than my original rent, and $250 cheaper than what my rent would have been had I stayed! I was renting a 1 br/1bm and moved into a 2bd/1.5ba with garage. Best idea ever! But, had I gone with the max the bank approved me for (and trust me, I looked at the upper range just to see what I could "afford") I wouldn't be able to keep the lights on, let alone pay for a New England winter heating bills and food in the same month.

Moral of the story: banks are crazy.

 

[arcenite]

at 70k/yr Wells Fargo said I could afford a 220k house... and ultimately that's what I wound up buying.

Do yourself a favor and don't buy the maximum unless you realllllllly like the house (we did).

Now, if it wasn't for my wife's income it would be tight as hell.

Actually, thanks to the holidays, it is tight right now!

So do what everyone else says and buy a house based on one income (or at least some percentage--not 100% for god's sake).

And yes, banks are crazy (I'm proof)

 

[Red Squirrel]

80k? Probably, but it's going to be rather tight. I make 60k and the bank said I could afford a 200k house. I bought a 165k house, and it's somewhat tight, but livable. I was making a bit less when I bought, maybe 57k or so.

 

[apac]

If you can't put 15-20% down, you really shouldn't be looking into buying a house. You need equity so you won't go under water like so many other homeowners. And, with 15-20% down, that $250K house becomes $200k and the mortgage payments become much more affordable.

I bought my house when I made about $75K and had a 30 year mortgage @ 4.25%, and had about a $170K loan. Had no problem with house payments. What's nice is your payments stay the same but you make more money as your career progresses, so it only gets easier.

 

[HeXen]

It's the maximum you can afford/what the bank will be willing to lend you, not what you have to buy. It's not a suggestion, it's a limit.

isnt that what started the housing crisis. people buying what they couldnt afford long term?

 

[Fingolfin269]

What does 'afford' even mean? Once again it's kind of a relative term. Let's say in a situation where a person has absolutely no debt other than the house, lives in an area with low property taxes, etc.

 

[alkemyst]

Classic examples have been 2.5x one's salary. Shooting for 28% of your gross income for the mortgage and no more than 36% for the mortgage plus all other debts.

With the 'boom' people were pushing 3.5-5x their salaries and going 42-46% into debt.

 

[SlitheryDee]

Some of the stuff people are saying in this thread doesn't make sense to me. He said he assumed a 30 year loan at 4.5 percent. Now I don't pretend to know exactly how the interest is supposed to work out here, but that's 360 months to spread the payments out across. The interest shouldn't add more than $100 per month to his notes should it? If that's true then I'm coming up with more like $800 per month rather than the 1800 some people are claiming. How could 4.5 percent ever result in you paying over double the purchase price when all is said and done? That sounds insane to me...

 

[mizzou]

On $80k annual income you probably could, but you wouldn't exactly be dining out every night or going on international vacations

I would go with $150k

 

[mizzou]

Some of the stuff people are saying in this thread doesn't make sense to me. He said he assumed a 30 year loan at 4.5 percent. Now I don't pretend to know exactly how the interest is supposed to work out here, but that's 360 months to spread the payments out across. The interest shouldn't add more than $100 per month to his notes should it? If that's true then I'm coming up with more like $800 per month rather than the 1800 some people are claiming. How could 4.5 percent ever result in you paying over double the purchase price when all is said and done? That sounds insane to me...

A 30 year payment on a 4.5 % loan, $1800 sounds about right. I don't know how interest pmts are determined but it's always a $$$$ ton of interest vs. principal on each pmt and it changes slowly

 

[z0mb13]

I used to work in a subprime mortgage company.
It's quite amusing how people's perception has changed after the housing crash and subsequent recession.
During the mortgage boom times (pre 2008) people were buying houses left and right with zero percent down using exotic mortgages (option ARMS, 50 year mortgages, etc), with no income documentation whatsoever.
In some cases people were even getting more than 100% of the appraised value to cover the the closing fees, and a lot of them uses their houses as piggybanks, withdrawing equity to purchase lavish lifestyles.
Their only rationale was house prices can only go up, and if u buy now, you can flip it later at a profit or you can always refinance when you can no longer afford the mortgage payment. This only works if house prices keep going up, so the appraiser will assign a higher value considering the "comparables"
But alas of course it didn't turn out that way..

 

[alkemyst]

A 30 year payment on a 4.5 % loan, $1800 sounds about right. I don't know how interest pmts are determined but it's always a $$$$ ton of interest vs. principal on each pmt and it changes slowly

At 4.5% for 30 years is $5.07 per $1000 financed.

The way the interest works is most of your payment at the beginning is interest. In the example above out of the $5.07, $3.75 would be the interest on the first payment. By payment 180 you are at: $2.49 out of the $5.07.

Then of course this doesn't count taxes/insurance.

 

[z0mb13]

At 4.5% for 30 years is $5.07 per $1000 financed.

The way the interest works is most of your payment at the beginning is interest. In the example above out of the $5.07, $3.75 would be the interest on the first payment. By payment 180 you are at: $2.49 out of the $5.07.

Then of course this doesn't count taxes/insurance.

Yes this is correct.

Ask for the interest amortization table, and you can see the bigger portion up front is definitely for interest.
However this can be good for you since the mortgage interest is tax deductible.

 

[FoBoT]

hell yeah

 

[spidey07]

Yes this is correct.

Ask for the interest amortization table, and you can see the bigger portion up front is definitely for interest.
However this can be good for you since the mortgage interest is tax deductible.

Look at the amortization tables at 3.9%. Some 33% is going to principle

One would be a fool to not take advantage of these rates.

 

[pontifex]

is it telling you what you can afford or what you could get on a loan?

I recently checked with my bank and I was approved for $180,000 loan for a house. There is no way in hell that I could afford that. I am actually looking in the 90k or less (preferably less) area.

 

[GotIssues]

I was poking fun. But I disagree that having mortgage is necessary better. Even with today's low rates. The guaranteed returns are lower than the mortgage rates. Mortgage interest tax deduction is overrated.

Getting 25% (or more, depending on tax bracket) of the money that you paid in interest is overrated? I guess that extra $1800 in my pocket each year is overrated. Man, I sure wish I didn't get that.

It's financially superior to take a mortgage at this time. Making the assumption of job stability, it's simple math. It's simply not debatable unless you want to talk about what your preference is, which isn't what is being debated.

Ask anyone who paid off their mortgage if they want to do a cash out refi so they can have a mortgage again to earn higher investment return. I mean they would be foolish not to do so and would be leaving money on the table, right? I could do 80% cash out refi at 4% for 10yrs if I wanted. That's what smart people do right?

So your proof is trying to use anecdotal evidence? Assuming that you are stable in your job, you are better off in the long run financially by having the mortgage. You are confusing a preference for one less bill with "financially optimal." Just because you PREFER to relieve yourself of the worry of having a mortgage doesn't mean it's superior monetarily. You can leave money on the table, doesn't mean others have to.

As for mortgaging an already paid off house, assuming you get the low % loan, technically it would be financially more advantageous (assuming other debt obligations aren't out there). However, if you have your house paid off, you 1) either prefer not to have a mortgage and paid it off early or 2) starting to draw close to retirement, which is typically a fixed income time of your life. Neither of which, you'll want to have a mortgage over your head.

isnt that what started the housing crisis. people buying what they couldnt afford long term?

Did you read what I wrote? I said that's the upperbounds of what you could get, not what you should get. Big difference.

Sheesh, so many people with reading problems today seem to think they should share their 2 cents.

 

[GotIssues]

is it telling you what you can afford or what you could get on a loan?

I recently checked with my bank and I was approved for $180,000 loan for a house. There is no way in hell that I could afford that. I am actually looking in the 90k or less (preferably less) area.

What they are approving you for is the maximum amount of money they'd loan you for the house. They are not telling you "spend $180k on a house," they are saying "should you need a loan, the most we'll give you is $180k."