Buying a house

35-45%

 

A house is generally considered to be affordable if a family pays no more than 35 percent of its income in house-related costs. However, the average is closer to 50%.

 

I do, SaggyWoman. It depends on how much is included in the figure, though.

You can be approved for a loan that would have you paying 34% just on your mortgage, but that's really unwise.

You really don't want to spend much (if any) more than 25% of your net pay on the mortgage itself. Yet you can borrow an amount that would have you paying up to 34% of your gross pay!

I'm trying to buy a house, too, and it looks like I could be approved for about $30K more than I can actually afford, just based on my debt to income ratio (which is calculated using your gross income).

I'd stick with 25% of your net on the loan payment. Figure an amount around 35 or 40% of your loan payment for insurance and taxes and such, a touch more if you're having to pay PMI.

That's not going to give you exact anything, but a good idea. So yeh, ultimately, you may be paying 35% of your net income on your housing expenditures, but hopefully not on your mortgage alone.

My gross income is disproportionately higher than my net income, because I have so many tax exempt deductions (a high 401(k) contribution, metro cards, office parking, and insurance, of course), so I'm in trouble if I start basing my calculations on my gross income! But that's me. Someone with less of a discrepancy will have a better time of using gross income to calculate.

 

The average monthly rent for a studio apartment in Manhattan is around $1,100. That's $13,200 on an annual basis. Assuming an annual gross salary of $50,000 ($35,000 on cash basis), housing costs for this person are 37.7% - just to rent the smallest imaginable apartment.

I suppose this person would be very happy to buy a 3-bedroom house for 50% of his/her cash income.

 

I'd say you do well indeed! I find that I pay much more renting than I will owning, even without factoring in the tax bennies. And I've just got a teensy little studio (really - 350 square feet). Based on the research I've been doing, I can buy the flat I want for about $100 a square foot, give or take.

But if it was going to cost me 50% of my net income in a month to do it -- I'd be moving or looking for a second source of income. Part of moving, for me, is moving up. My lifestyle will stay the same, but I'll save a bit of money and have more space in which to live.

And that is why I'd live in Brooklyn. Although some parts of Brooklyn are getting to be just as pricey as Manhattan.

 

Be careful about what you would assume tax benefits to be from house ownership. I have done taxes for several years, and a lot of people come in assuming that their mortgage interest is a direct offset against taxes owed.
NO!!!
The EXCESS over your standard deduction is subtracted from taxable INCOME. Big difference.
Many people whose taxes I prepared had no real immediate benefit taxwise from buying a house.
Of course, I live in a part of the country where you can get a VERY respectable house for $50,000.

Karen

 

That's so true, Karen, and a great reminder. I know several people who are buying a house solely so they can get a benefit - rather, solely because of the benefit they think they will get. You know, the "Buy a house! You get a tax write-off!" club. I'm happy if I can just maintain my two exemptions! Being in a higher tax bracket is a double edged sword, you know?

$50K? *sigh* I can buy a parking space for $50K, but very little else. Okay, maybe a junky little house that needs a new roof in a bad neighborhood -- no, even many of those are going for $100K or better. In order to be able to buy a decent apartment, I'll have to move a little further away from the city. A house house? Like with a yard? A girl can dream. *sigh*

All I want is a nice brownstone off DuPont Circle -- is that too much to ask?

[ October 11, 2002, 05:59 PM: Message edited by: stubbornkelly ]

 

My wife and I just bought a house for $43,000.

We have a big backyard, good sized front yard, 3 big bedrooms, driveway (but no garage), and to top it off we have really great neighbors.

The only bad thing is my job doesn't even pay 1/2 of some people's parking spaces

 

Imagine my shock when I ran a search for under $200K in DC and the first thing to pop up was this $50K parking space! It had a good address, though . . .

I'm in that awful position of having to decide whether or not an hour commute one way is worth owning a nice flat. I really don't want to move too far out of the city, but my price range seems to be dictating otherwise. Isn't that always the way?