Comments on: How Much House Can You Afford?

By: Jeff

Jeff — Mon, 16 Feb 2009 22:55:32 +0000

“It’s because of all the people that live in the expensive metropolitan areas…”

States with highest foreclosure rates (January 2009): Nevada, California, Arizona, Florida, Oregon
http://www.usatoday.com/money/economy/housing/2009-02-11-decline-housing-foreclosure_N.htm

By: Daniel

Daniel — Thu, 18 Sep 2008 14:35:22 +0000

It’s because of all the people that live in the expensive metropolitan areas (New York, Boston, San Francisco, etc.) who have “stretched farther” to buy a house that we are in this current financial crisis. These people were barely able to make thier payments and then something happens (job loss, accident, rising interest rates on ARMS) and all of a sudden they cannot afford thier house. They get forclosed on and the entire country ends up in a mortgage crisis.

My advice, figure out a solid budget for at least half a year before planning to buy. Make sure you know exactly how much you can afford to pay each month still leaving room for savings. That’s what my fiance and I did. We bought a smaller house and are comfortable making the payments and still able to sock away quite a bit for savings and investments each month.

By: Jason

Jason — Thu, 11 Sep 2008 23:48:39 +0000

One issue is that in some very expensive metropolitan areas (New York, Boston, San Francisco, etc.) it may be necessary–and common–to stretch farther if you ever want to get in the game at all. In a lot of these places, it still makes sense to suck it up for a couple years and eat a lot of ramen, especially if you anticipate making more money down the road (like if you’re still in an entry level job, but have good career prospects). It can even be fun; invite your friends over to enjoy your new digs instead of spending the money out at bars!

This *is* what I did, though I don’t necessarily advocate it for everyone… but it certainly make sense for some.

Another figure to use is the pre-qualification that the mortgage companies will give. A quick rule of thumb from when I worked in real estate was that the average buyer with typical credit should be able to afford a loan equal to about four times their gross annual income. So for example, if you make $50,000 a year and you have $50,000 for a downpayment, your affordability calculation would be 50k*4=200k, plus $50k=$250k purchase price. However this tends towards the high side compared to the calculations you note above, so I like to do both of them and compare the difference to use as the “range” of what your affordability is in an expensive market.

I should note that in some *very* expensive markets, lenders sometimes allow a debt-to-income ratio of up to 65%! Yikes!

By: twenties money

twenties money — Thu, 11 Sep 2008 23:17:02 +0000

There are so many rules to buying a house. I Think these are very valid points but the fundamental concept of purchasing a house should be a payment which you are comfortable making for 30 years. Taking into account your house will cost more than just the mortgage, you have garbage pick up, utilities, power, there is sooo much more.

If you do use one of these rules keep in mind just because the rule states you can handle an $1,800 payment does that mean you should? What if something happens and you lose wiggle room, that extra money you spent purchasing that third garage and 5th bedroom could really come in handy at that point.

I lucked out when buying my house, prices in Texas are low. I feel bad for my friends in New York where they can’t find much for $300,000. I’m not sure how people making 35-45k can afford to live up there.