Buying A Home
KikiCohen
member
BFP #1 3/23/12 ~ EDD 11/29/12 ~ M/C 5/20/12 ~ D&E 5/21/12
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
My FIL's formula for home buying??
DH and I aren't looking to purchase a home for 3-4 years, but we were discussing house shopping with my FIL a few days ago. He said that we shouldn't look to purchase a home that's more than two year's salary. So basically if our combined yearly income was 50k, we could not afford a house that's more than 100k. Is this true?? I have never in my life heard of this. Our plan was to save 10k a year until we have at least 50k saved. And so far, so good! TIA!
BFP #1 3/23/12 ~ EDD 11/29/12 ~ M/C 5/20/12 ~ D&E 5/21/12
BFP #2 10/21/12 ~ EDD 7/4/13 ~ Team Pink!
Re: My FIL's formula for home buying??
Most people can't go by that formula because they live in HCOL areas and would never be able to a home that way.
We decided what amount we would be comfortable paying as a monthly mortgage. We knew how much we had saved for a downpayment, and backed into a price range. We also planned to put at least 20% down to not pay PMI.
I think the most important things to consider are what you are comfortable paying and not what a bank qualifies you for, and having an adequate e-fund after you pay your down payment and closing costs.
that's awfully conservative, but it's not a bad idea money wise if you can make it work.
good job on your savings plan!
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This formula doesn't even make sense because there are so many factors that go into a housing payment, like interest, insurance, taxes, HOA dues, PMI/MIP. And that doesn't take into effect what your other monthly expenses are.
Go speak with a mortgage consultant who actually runs your credit and will give you your pre-approval amount.
Underwriting goes off your GROSS pay, they do not take your bring home pay into consideration.
BFP #1 3/23/12 ~ EDD 11/29/12 ~ M/C 5/20/12 ~ D&E 5/21/12
BFP #2 10/21/12 ~ EDD 7/4/13 ~ Team Pink!
I do agree with your first paragraph. However, you can't spend money that you don't bring home. Even though they look at gross income, it is wise to calculate what YOU can afford based on your net income. Also, the pre-approval amounts are typically ridiculous and the reason some many houses are getting foreclosed. We live in LCOL and have been preapproved for nearly 400k but have a budget of 220k and that buys a nice 4 bdrm/3bth home.
We were approved for almost 5x our annual gross salary, which we never would have been able to afford. Our mortgage is approximately 1.5x our salary. We could have gone higher than that if we didn't plan on having children, remodeling, traveling, saving, etc. Keep any major future goals in mind when determining your budget.
For first time buyers, it's always a good idea to be conservative in your spending. In my experience, home ownership is much more expensive than renting. You run into expenses that you can't really "budget" for (aside from having emergency savings), and need to make sure you have the $$$ to cover those expenses. For example, within a week of closing, we got a leak in our basement. We need to get 1-2 sump pumps replace walls, etc. We're still getting quotes, but I'm expecting to spend at the very minimum, $10,000 to make the repairs.
I guess my point is, spend what you're comfortable spending, but make sure you are thinking ahead and also leaving yourself enough room to save each month. Also, make sure to leave yourself plenty of cash for the initial move (paint, appliances, furniture, etc).
The bigger issue is income vs financial obligations. Your other debt (credit cards, car loans, student loans, child support, personal loans etc play into what you can afford.)
The recommendation for housing is 25-28% of your TAKEHOME pay for mortgage+PMI+taxes+insurance+utilities+HOA. 30-35% in a HCOL area.
Your TOTAL debt (housing + other car payments, student loans, credit card payments, etc) whould not be more than 45% ofyour takehome pay. More than these amounts can make you house poor. However, this is a personal preference as some people prefer to pay more on housing and give up other spending on vacations, clothing, eating out etc.
Just because someone will lend you the money does not mean you can COMFORTABLY afford a loan of that amount.
I have never heard of this formula. I just go with the formula that PITI monthly payment is 28-33% of gross income. Ours is about 21% because I am conservative.
If your FIL's formula was correct, we would be in a house 1/3 of the cost of this house we are in. We did have a 20% to put down because this was our third house though. So, there are a lot of factors to consider.
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I understand that pre-approvals are higher than you should comfortably afford. I am a mortgage processor. The point of my post was to state they do not take your federal and state withholdings, health insurance, utilities, groceries, and any other expenditures that are not on your credit report into consideration. You don't need a "formula" to tell you what you can afford. However, a mortgage consultant should be able to sit down with you and discuss what type of payment, rate, down payment, and programs are available to you based on what you make, and feel comfortable spending. Unless the FIL has paystubs and a credit report in front of him, he probably has no idea what is actually affordable to the poster.
We make a little under 60k a year, and are buying a 159k house. This might seem like too much house under a lot of people's opinions, but it is easily affordable for us. We have zero other debt and a good savings. No car payment, SL, CC, etc.
It varies so much person to person what they can really afford, like others have said...go based off what you are comfortable with.
When DH and I bought two years ago, our combined income was $78k. If we followed that formula, we would've only been able to spend $156k on a house, which is impossible in my area.
We figured out what we were comfortable with and went from there. We make a little more now than we did then, but our mortgage (PITI) is about 25% of our take home and we are very comfortable making the payments.
This is pretty much us in a nutshell. We have no CC debt, no car payments, and only a small amount in student loans. Thanks for your input!
BFP #1 3/23/12 ~ EDD 11/29/12 ~ M/C 5/20/12 ~ D&E 5/21/12
BFP #2 10/21/12 ~ EDD 7/4/13 ~ Team Pink!
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