<p>Hi i figured I would ask this here since many of you probably know quite a bit about money management and living…How can you tell how expensive of a house you can afford with a certain household income? I’m just trying to see what kind of salary id need to make to live the life I want to live. I know I shouldnt worry about money now but its just a little innocent curiosity. For example, if I made 100,000/year and my wife made 100,000/year, how expensive of a house could we afford with 200,000/year gross income? Thats jhust an example, is there any solid way i can estimate? THanks for your input!</p>
<p>There are several websites out there to help with this - try searching on ‘mortgage payment salary’. One example is</p>
<p><a href=“http://loan.yahoo.com/m/basics6.html[/url]”>http://loan.yahoo.com/m/basics6.html</a></p>
<p>Quoting from this site, figure on your mortgage payments being no more than 28% of your gross income. If you had a gross income of 200K, your mortage payments shouldn’t exceed $56K / year, or $4667/month. But I would check the site out…</p>
<p>thanks…where can i find out how much $4667 per month buys?</p>
<p>Andrassy, that will depend on issues such as location, as well as migration, local economy, current market conditions, etc. </p>
<p>Example: I own a 3/2 home in a medium sized city valued at about $230,000, that I bought for about $100,000. I am currently shopping for a home in a much larger city that has not had net negative migration in many years, and where quality real estate moves with lightening speed (at least at the moment). To be able to get the same quality and size home, in the same quality of neighborhood in the larger city, I will need to spend about $500,000 - $850,000. </p>
<p>Or, expressed differently, if I want to buy in the larger city but spend no more than I have been on mortgage payments, I will have to downsize significantly in size of home, or, in quality of neighborhood, or both.</p>
<p>$4667 may buy a mansion in a smaller community with net negative migration and inadequate economic development; it may buy a small one bedroom condo in a large progressive city where the economic opportunities are fantastic, the crime rates are tolerable, the education system is highly desirable and the multicultural mix is vibrant.</p>
<p>yeah i understand that it differs location to location. I meant to ask what priced house would have a monthly payment of $4667 or whatever it was. I would assume monthly payment would be the same for a $500,000 house in new york and birmingham, im just not sure what that payment would be</p>
<p>right now i live in a very prosperous and beutiful area…my parents bought my house for about 180k 16 years ago and it is now valued at over half a million. Yet, I find this lifestyle restricted, especially living near so many million dollar houses. thats why i wanna know if want im going to want to do will afford me the lifestyle i want. Im worried that i wont make enough as an engineering and if i should rather pursue a career in law or business relating to engineering to live the way i want. thats why i want to know what kind of house can be bought with money</p>
<p>Andrassy, I apologize I misread your question. You can play around with the mortgage payment calculators here:</p>
<p><a href=“Mortgage Center – Calculators, Mortgage & Interest Rates, Refinancing - realtor.com®”>Mortgage Center – Calculators, Mortgage & Interest Rates, Refinancing - realtor.com®;
<p>Part of the answer still depends on location, though, if you are considering property taxes to be part of that $4667. Also, it depends on the interest rate - but - you can plug in different numbers and see what you get back.</p>
<p>If I can address though the question you didn’t ask - pursue the area of study and/or career that interests you the most. Chosing a career based on the potential for high income alone isn’t going to work out very well if it turns out later that you’re not happy in the field. Comparatively, if you choose a career and you love the work, the money sort of takes care of itself. </p>
<p>Expressed differently, there are two ways to be happy - you can like what you have, or, you can get what you want. Both strategies are more or less necessary today, but generally speaking, if you are happy and fullfilled in your work, you will be happy - or happier - in all other areas too, and you will love your home, wherever it is and whatever it’s worth. If you’re miserable in your work, you’ll be unhappy in your home no matter how beautiful or valuable, because it will feel rather like a prison - you’ll be trapped with the mortgage payments.</p>
<p>Andrassy:</p>
<p>How much $4667 will buy you depends on how much downpayment you put down and what the interest rate is. I would expect, however, that a young couple buying their first home would not buy something that would cost $4667 per month. </p>
<p>Since I live in the Boston area, I occasionally look at the real estate ads on Boston.com. The ads have pictures, so click on a few to get a sense of what $500K would buy in the Boston area (not a lot).</p>
<p>A rough rule of thumb is that with 20% down, lenders will loan you three times gross income. So the couple making $200K can put down $120K, borrow $600K and have a $720K home. The down payment is hard for many, but in some high paying fields very young employees get signing bonuses which is where the down payment comes from. Often you can put down only 10% and take out private mortage insurance which will slightly up monthly payments. In slow real estate markets, which are common all over right now, often an anxious seller will loan you the down payment.</p>
<p>Depending on what kind of mortage/interest rate, the $4667 will be the monthly payment on aprox. $600K now.</p>
<p>According to Bankrate.com, $4667 (or a bit less than this amount) would be the monthly payment for a 30-year mortgage of $700k at 7%. This would assume a downpayment, of course.
$4667 per month is nearly $60k per year, just going to paying the mortgage (not counting utilities or real estate taxes).</p>
<p>thanks everyone. I know i should pursue a career im happy in. thats why as of now im trying to find a balance.</p>
<p>By the way, i didnt mean to sound like this is for a first home. My worry with engineering is that it seems to cap out at 100k unless you get lucky in management. thats what im worried about.</p>
<p>I think the rule of thumb is never to borrow as much as mortgage brokers are willing to lend (based solely on salary), unless you have a gigantic sum in savings. It is very easy to overextend oneself in real estate, particularly for young couples, and then one member loses a job, they can’t make the house payment, and are in danger of losing their home. </p>
<p>Not trying to be a pessimist, but it happens. That’s why most people buy a first home (or even a second or third) that is considerably less than they can “afford”, if one uses standard or traditional lender logic. The real estate and job market is just too volatile. </p>
<p>Good luck!</p>
<p>I am reminded of building a new house when the kidlets were tiny and my H and I were in our 30s. </p>
<p>My FIL walks in and says (in thick Russian accent) “you cannot afford zees house”. </p>
<p>I say, “you are right. We cannot afford this house if we only put 20% down with 80% mortgage. But I am lucky. Your son and I have only 20% mortgage. The rest is proceeds from the old house and our savings. Not to mention that I am here as project manager 40hrs a week with your grandson on my hip! This we can afford. It will cost us no more than the old house.”</p>
<p>My advice to young people looking to buy is to not overextend and save for a substantial down payment. It will pay off later! (Actually if you talk to real estate agents, most of the move up buyers are not 80% mortgaged … the down payments are generally 50%-75%.) </p>
<p>Go to realtor .com and see what you can buy in different markets. There are mortgage calculators on that site as well.</p>
<p>I think it is dumb to wait and save for a big downpayment. In most markets most of the time you will be giving up as much as you can save in price increase every year. Just bite the bullet and go 5% down and buy the average house in the best neighborhood you can afford. DO NOT buy that weird house in a marginal area on a busy street because it is “affordable”. It won’t make you money and you’ll hate it. Keep driving the old car a few years and eat at home. In five years under most conditions you will have made that 20% down just in value growth and now have 25% equity instead of saving 5 years to come up with the $50-$75K you need in most markets. If homes are not going up 3-5% a year you might take more time or even look at other investments and rent.</p>
<p>Agree Barrons, wealth growth requires some stretching.</p>
<p>I’ll be the contrarian here. If you put 5% down on a house, and buy the most expensive house you can afford, without any savings, you may be signing up for financial disaster. </p>
<p>Sure, it might work out well for you. But it might not. </p>
<p>My own house has appreciated substantially since we bought it several years ago, for which I am grateful. The previous owners, however, sold it at a loss after owning it for twelve years. They bought it at the height of the last local real estate bubble, and it took thirteen years for prices to recover. (Yes, they sold just in time to miss the next real estate bubble.)</p>
<p>If you put only 5% down, and buy the most expensive house you can, in a real estate market that appears to be softening significantly, the odds are quite good that you’ll experience the wonders of negative amortization (meaning that the principal you owe on your loan is rising from year to year). </p>
<p>So what happens if prices fall by five or ten percent (or, God forbid, by twenty percent, like they did in my local real estate market), and you want to move? (Say, for example, your boss is making life miserable, and you’re offered a better job that pays substantially more, but it’s 50 miles away.) What are you going to do? Rent the house, you say? In a falling real estate market, sometimes rents fall, too. You might find that you’re paying more for your mortgage than you’re receiving in rent. The terms of your real estate loan may actually require you to live in the house.</p>
<p>Your choice might boil down to staying in a job you hate, and spending all of your money servicing a loan that results in deeper debt for you each month, or defaulting on the loan, and going back to being a renter, with a horrible credit rating. In California, there are anti-deficiency statutes that may prevent your lender from suing you for the difference between what the house realized at auction, and what you owe for it. In other states, you may find yourself chosing between filing for bankruptcy, or paying off a judgment for debts for a house you no longer own. (With the recent changes in the bankruptcy laws, you may be chosing “both of the above.”)</p>