How Much House Can I Afford?
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- เผยแพร่เมื่อ 28 ก.ย. 2024
- How Much House Can I Afford?
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Living in LA. Making 100k/year. Only thing in my price range 300-400k is a small studio/1 bedroom apartment in North Hollywood. HOA’s $200-600/month. Bank only approved for a 300k mortgage. Freaking ridiculous. They don’t want to loan money to people. 800+ credit score, no debt. Did everything right for the past 10 years, only to find the barrier to entry is moved when you “get there.” Now I’m just saving and going to buy a house in Texas for cash.
When you get to the gate, the rules change. It's very sobering.
300k plus a 20% down payment would be a 375k house. Did you try going to a smaller bank or credit union though?
Better hurry up and get to TX the prices here are going insane very hard to find anything within 40 minutes or downtown Austin for under 500k
Don't come to Texas.
Austin is becoming mini cali
My first rate was 6 percent , i refianced a few years later to a 2.5 15 year fixed and had basically the same payment
6:00 - "Monthly Housing Service" what does that include? Mortgage payment, taxes, insurance?
Also, 25% of what? Gross? Net? After 401k and health insurance payments?
Premium, interest, taxes, and insurance are what most people refer to as mortgage
Brian has said that he also includes utilities in that. And he has said 25% of gross income.
@@danddietz I've been looking for that video!! About them talking about what's included in the "mortgage" 25%
number.
I look at it as how much house I can actually afford with my income using a comfortable DTI ratio, minus the equity I could lose if there's a downturn. With my current income, I can afford a $380,000 house, but I'll probably have to stomach a $60,000 equity loss if the market goes down. So, for me, that means I'm comfortable buying a house up to $320,000 only. And here in Atlanta that's practically nothing since our house prices literally doubled in our area the past 5 years or so. So, in conclusion, I'm not buying a house and my only option is to move where I can find the exact house I'm looking for for the $320,000 I calculated.
That's the conclusion I made for myself. I set up a bunch of If Then scenarios and plan Bs. None of this makes sense for most, but I sleep better at night and my investments and savings keep growing while I wait it out.
Agree. Atlanta's market has skyrocketed these past couple of years.
Since this is caused by a low supply of housing, I don't foresee you losing 15% of your equity in real estate, especially somewhere like Atlanta.
Still might not be worth it though.
Crazy. Been watching you guys for over a year and now just realized I haven’t been subscribed to the channel. Add me to the growing list of people. You two deserve Dave Ramsey level of subscribers
The Money Guy is for more sophisticated people. We are the A students. Ramsey is trying to help people who are average and below. Money Guy will not and should not have those numbers. Quality over quantity. I invite commenters who have outgrown Ramsey to come over here.
Tried making the numbers for your recommendation. 4:1 price to income with 5% down looks like this: YearlyPayments = HouseValue*(insurance+maintenance+propertyTax)+LoanAmount*(pmi)+Mortgage. Plug in HouseValue=4*Income, insurance=0.2%, maintenance=1%, tax=0.93%, pmi=0.58%, and an APR of 4%, and you get: YearlyPayments= (4*Income)*(2.13%)+(3.8*income)*(0.58%)+($0.21*Income). When simplifying a bit: YearlyPayments=0.3172*Income. This means that with all costs (insurance, maintenance, etc) as I explained them, it's impossible to buy a house that is 4 times your income while staying under the 25% gross that you recommend. Rather, you end up somewhere around 31-32%. Food for thought.
I guess the 4:1 price to income would be more of a ballpark estimate. What you actually pay per month as a ratio of your pay is most important
@@alexander15551 Completely agree. If you repeat the exact same numbers I did, but with 3:1 ratio, you actually get somewhere around 24-25%, which perfectly falls under their recommendations. I was just curious about what was the effect of increasing ratio to 4:1 combined with doing only 5% down for first time home buyers. I'm a numbers guy, it's just what I do 😄
Uk based here. I bought my first house in 2002, I was 22 and earnt £16k a year. My house was just over 5x my salary. I couldn’t afford to do anything, I missed out on several things (trips with friends etc) but the house went up of course, my job changed, I got married and it all sort of worked out after a while. Probably not the way I should have done it but if I hadn’t done it I’m not sure i would have been further ahead
We now make 160k combined. Not a chance in hell we can afford a 640k house in CT with these taxes 😂😂
Can you buy a house outside the city for cheaper price but longer travel?
@@cancel.lgbtq.6892 right now we’re just saving. But CT in general is expensive. Of course there are towns that are cheaper but those towns will have higher taxes. I also have 50-50 custody of my son and I do 99% of the driving. I just don’t want to have to drive all over all the time. But the town we would love to buy in, we’re not set that it has to be that town.
222K subscribers on 2/22/22.
The thing is that a large down payment helps make the monthly mortgage rate affordable.
In Ireland it's so mad, you'd think you're in Monte Carlo. 1 Bed Apartments going for 250k
What part of Ireland?
@@cancel.lgbtq.6892 Dublin, but now also Cork getting worse and worse. check on daft.
Wow! I had no idea this was going on outside the U.S.
Wow compared to California in the US that's affordable!
Housing is insane. I bought my house in Louisville KY. (in a nice area) for $165k in early 2019. Today the value is about $225k. Neighbors homes are selling north of $230k and there are a lot of new homes being built. Granted larger than mine, but they are being sold for $400k+
I’ve heard smaller houses hold their value better because it’s the cheapest way to get into a specific neighborhood.
Not sure if that’s true.
I wonder how this changes for those with VA Home Loan
Camera work and pictures much better now good job!
Thank you for some common sense guys! Seems to be lots of folks that think 10+ times your income is a good idea... I like your 3x rule. I personally used a 2.5 factor when buying and have never regretted that decision.
If people in my area went by the 3-4x rule that they're proposing then someone would have to make close to $100k a year just to get into a small, entry level, 2 bedroom home. The prices aren't sustainable. People shouldn't have to upend their lives and move to some crappy little town in the middle of nowhere with no job prospects just to find an affordable place to live.
Is it 2.5x your net or gross income?
A 600 Sq ft condo here in Vancouver is now almost 1 million!! Unfair to the young.
35% total debt compared to post tax income or gross
Just getting screwed left and right, story of my life as an American. Gov will take third of my hard work and I have to give it to them, while they and big corps f people over and look, now a house used to cost 275k, costs 375k+.
What area can I buy a 375k house?
Here in Denver everything is over 700k.
If you are considering a $375k house as being expensive then you are not in a 35% income tax bracket. Just saying. 🤷🏻♂️
True not 35% but definitely in the screw zone of the middle class making low 6 figs. So let's settle with 25%. I'm in DFW, so 375k+ will get a decent small home in an average suburb but of course fools are bidding it up 50 - 60k over lol
all of it.
Sunday
Do you all think that WFM policies will change the housing market when the Pandemic subsides in about 2-3 years?
Now I have no evidence or data to back this up, but I honestly think the companies that will get rid of their WFH policies have already done so. Companies that are still allowing WFH will probably continue to do so. People don't want to go back to the office and companies can save a lot of money on office rent, utilities, and cleaning by allowing their people to WFH. Just my two cents though.
If you can pay the mortgage you can afford the house
Absolutely false. You have annual properties taxes, maintenance (do you want a pretty lawn? Buy a lawnmower, gas, lawnmower maintenance/repair cost. Or hire a landscaping service), monthly utilities, appliances breaking, structural repairs and upkeep, furniture and furnishings to outfit the house, plus money to live the rest of your life. Ever met someone that's house rich and cash poor? There is MUCH, MUCH more to owning a home than simply the cost of the mortgage. It's similar, but a much more extreme example of owning a car. The monthly payment or outright cost is one thing, but can you afford to maintain and repair it?
No. These guys are trying to help people build wealth. You have to have some money leftover in the budget for investing after the house payment. Hence the 25% gross income cap on all housing expenses.
@@TheJacobro Its funny because most of my coworkers have huge houses and expensive cars. They look surprised when I told them I'm driving a 20+ year old Honda and live in 1400 sq ft home even tho I can afford new car and big house. What they dont know is that I already paid off my house. I have Roth 401k , Roth IRA , stocks, 1 year emergency fund and half a million dollars net worth. When covid hit and everything shut down for 3 months. I didn't even sweat a bit since I have no debt while most of my coworkers running around like chicken with no heads.
@@TheJacobro if I take home 4500 a month and my mortgage is 4000 I can afford it and I should buy the house. If the mortgage is 5000 I can’t afford it and shouldn’t buy the house. Simple
@@ImOriginallyGreen You do that and let us know how it plays out for you.
Fortunately for me, I've lucked out. My first home was 2.5x my total income, when I got married, our first "big home" was 2.5x earnings. If I were to look at houses today... we'd have to go 4x earnings lol. I feel for anyone trying to get that first hurdle done.
All housing not exceeding 25% of income. Impossible for most. The duplex and multifamily are selling at super high premiums. I'd say 35% of income for housing. Save and invest 15%. For most of us middle classes.
I think the scary part is that for the average middle/upper middle class first-time buyer, you are forced to throw financial wisdom out the window if you want to buy a home. It is extremely unlikely in a hot market that you can get a house by putting 3-5% down, require inspections, and not stretch your budget too thin.
I’d let the market cool down. A house purchase is the largest purchase most people make. Good sense should prevail when so much is on the line.
@@danddietz I agree. That’s why my wife and I are waiting. At the end of the day, I’m not willing to risk becoming house poor or be uncomfortable with the biggest purchase of my life…
@@danddietz Yup. Cutting my budget and saving for the time being. No way in hell am I waiving inspections to make that large of a purchase.
I could not afford to rent my own condo if I had to right now. The rents are absurd.
we are in a pickle also, rent is just as high as a mortgae!
Downsized from a $405k home to $260k, lowering out mortgage by $80k so we can pay off the home within 6 years then be able to save like wildmen.
Wrong question. Don’t ask how much house you can afford, ask what the minimum home you can buy to be comfortable for your family. Address your needs, not your wants if you want to get ahead
something else to consider: neighborhoods. make sure you live somewhere when you do WANT to sell that folks want to live there and ... look to the market: who are the folks most likely to want to buy your house? seems minimums now look like 3 bedrooms and 2 bathrooms. minimums for largest market 'interest'. whether it's young families or older folks downsizing but still wanting room for kids/grandkids to visit. it's a resource (now, then) strategic decision.
My house PITI payment is exactly 20% of my gross. I’d say that’s about as high as I want to go.
Who on Earth can even afford a 30 year fixed rate mortgage by putting down 3-5%? Honestly, housing has gotten so expensive so fast in a lot of historically cheap parts of the country that most people are struggling to live anywhere. Something drastic has to be done to make housing more affordable from a policy standpoint. Housing costs are far outpacing wages so these numbers y'all are presenting like housing only being 25% of your monthly pay is laughable. Unless I move in with a bunch of strangers from the internet, there is no place in my area that is less than 50% of my monthly pay. At the age of 33, I don't really want to live with random people off the internet.
Live with friends you know and like then. It's a lot less hassle if you keep the same roommate long term.
@@dragoncat5836 I was doing that for a while but they're all living with their significant others at this point.
@@josephburton3232 welp. Time to either get a SO of your own, or make some more friends!
@@dragoncat5836 So you're saying that single people shouldn't be able to have their own space and an affordable shelter that doesn't consume an excessive amount of their monthly pay?
@@josephburton3232 I didn't say shouldn't. This isn't about shouldn't. It's just a way that people can get ahead, given the circumstances that exist.
I'm planning on using my VA home loan to purchase a multifamily unit in Northern Ca. The prices are insane though ...
Make sure they allow you to buy a multi family home. I know many of those government loans only allow for single family - live in. Best of luck!
Good question:
1994: Went with 3x rule while making about $55k. Bought a house at $146k, so fine, but interest rates were about 7%
1998: Went with 3x rule while making about $70k. Bought a house at $168k, so fine, but interest rates were still over 6%
2007: Hot market and lower rates, plus had some equity, so I went with 4x rule on financing. Was making about $150k, bought a house at $660k, but fine as I had $120k down payment and rates were under 5%.
Today: I still own that house and built an addition. Today it's worth about $1.2 million, ...but...I have $530k financed after doing a $300k+ addition. Even though $1.2 million is closer to 6x income, it's fine because the financed amount is still in the 3x range.
My advice today. Wait it out if you possibly can. If not, buy as small/inexpensive of a home as you can stand. Wall Street is paying too much for houses. A small increase in interest back to above 3%or certainly 4%, or a resolution of supply chain issues (say in 18-24 months) and the market will have to adjust downward.
Buy when the market returns to normal, pay off your house and use your small/inexpensive home as a rental in the future.
Interested to hear how your net worth changed over that almost 30 year period.
@@classics-wz1bz 1994 - negative net worth (more student debt than assets). 2022 - approaching $2 million - pretty average upper-middle-class stuff.
3 times your income?? You guys need to visit the coasts and physically see that is nowhere near possible. Maybe it is in the Midwest where homes are 300k but not here
Yeah you didn't listen.
3x is the old wisdom but that wisdom isnt really working right now which means don't buy a house or do so very cautiously in these present conditions
SoCal residents when they need to make 250k minimum to purchase a single family house (last updated in 1960): 💀
*When it comes to the world of investing,most people don't know where to start.fortunately,great investors of the past and present can provide us with guidance*
Wow 3x would not get me anything.
better question is "how much house do I need?" we should not buy as much as we can afford, only what we need. no need to lock up almost all capital in one illiquid asset.
Should mortgage be no more than 25% of combined NET or GROSS income?
Imagine trying to find a house under Dave Ramsey’s recommendations: not more that 25% of income on housing for a 15 year mortgage
NET* Income... even worse!
Dave's net worth is majority real estate so people renting is good for his investments
Sundar? Sunday? Sunay? Sunny? Sunaier? LOL!
The answer is you cannot afford any house right now Here comes the 40 year mortgage
My place is now worth 12x my income. Prices are crazy. I’m in a coastal HCLA and prices don’t drop or even soften much here.
We make right at $1M and there is NO WAY, I'd consider buying a house at $3M or even $4M. I'm happy with my house we bought at $1.2M and has appreciated to $2M +.
I doubt the extremely broad 3x rule of thumb applies to such high earners. Nobody needs a 3m $ house
@@aprilsomething802 "needs" ..? Geez.
40 minutes a day from ancient times for food a housing?
It's not a weird time...it's a corrupt time.
Always.