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How much house can we afford?
Hello ladies!
I am a frequent reader of MM posts, but this is the first time I have ever posted myself! I am seeking your opinions of how much house my husband and I can afford.
Some info:
1) This will be our first home purchase
2) Our combined salaries is approximately $92,000 (this is combined salary, not take home pay)
3) We have no debt (our cars are paid in full and our student loans just got paid off) and we have a 6 month emergency fund in a liquid account.
4) We are 26 and 27 and plan to live in this house as long as we can (unless we HAVE to move like for a job or something)
5) 15% of our salary currently goes into retirement accounts.
6) We currently have $40k saved toward a down payment but plan to continue to save until we have the full 20% downpayment of whatever priced home we get.
But HOW much home should we buy (total price)???? Opinions??? We are trying to figure out how much more downpayment we should save before we start shopping!
Thanks in advance
Re: How much house can we afford?
Assuming you're taxed at about 20%, have good credit and get a 15-year fixed mortgage at 4% for a house worth $210k, putting $42k down, you should be able to afford your mortgage payment plus insurance and taxes pretty comfortably at about 25-26% of your monthly take-home income (though property taxes and insurance can vary quite a bit depending on where you are). So you would need to save a little longer to get the extra $2k plus closing costs.
Most of the assumptions I made are pretty conservative estimates, so you can probably go higher - you're probably taxed at more like 15%, so your take-home is probably higher than I guessed; if you live in a HCOL area, you may need to go higher than 26% of your income for housing (resulting in a more expensive home being acceptable); mortgage rates are generally lower than 4% right now, especially for 15-year terms; and if you get a 20-year or even 30-year mortgage you can go a little higher as well. But be careful with lengthening the term of your mortgage - you pay a boatload more in interest over the life of the loan, so you can't afford anywhere near twice the house by going to a 30-year term.
ETA: I did my calculations here: http://www.mortgagecalculator.org/. You can play around with your own numbers to get a better feel for what will work for you.
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. SeussWelcome! I think you guys are doing great! One rule of thumb I have heard is that your mortgage should not be over 25-30% your take home pay. So you need to figure out what your monthly take home pay is, and use a mortgage calculator to see what you could afford. 40K down is a great down payment in a lot of places. One thing you will also have to consider is whether or not your taxes will be escrowed because that will obviously increase your payment and what you want to afford every month.
Based on salary (would need to re-figure based on take home) 92/12X.25 would get you just under $2000 mortgage payment. (Personally, I feel comfortable when this number includes taxes, not before taxes). I would also have you consider doing a 15 year mortgage- which of course means it would be a smaller house, but that you aren't paying on it for 30 years, you are done in 15. I just found on a mortgage calculator that you would probably want to stay under $400k- but that would just be the mortgage for under $2000.
Based on the old rules, you would not want to buy a house worth more the twice your income. Too many people try to stretch this to 3 or 4 times their income then they become house poor. Remember it takes roughly 3% of the value of your house a year for normal maintenance. The bad thing is that the repairs usually average out to this over the years.
I would not look for anything more than 200k. Where I live, you can get a really good house in the 150k to 200k range.
I think it's going to depend a lot on your area. Have you looked at how much average homes cost in the area you would like to be in? Since you're planning for long term, think of things like school districts (if you're planning on kids), would it be possible to afford on on salary if one of you lost a job or decided to stay home with kids, extra expenses for a new place like furniture, window coverings (if it's a new place, usually not included), lawn care items.