What is actually "conservative" for financing a home?

[Anonymous]

Our HHI is 240K with no other debts. I'd like to take out a 500K mortgage ($2500/month), but my husband thinks I'm crazy even though this is the same amount we pay in rent each month and significantly less than we save each month. Even the most conservative online calculators say we could afford much more than this.....

What is conservative when it comes to home debt? Am I really being reckless here?

[Anonymous]

No. He just doesn't want to be tied down.

[Anonymous]

I think being actually conservative would be if you could afford your mortgage on only the lower of your 2 salaries. But that is often not realistic in this area. It's not what I plan to do (not in the real estate market yet).

[Anonymous]

Spending 20-25% or less of your net take-home pay (after taxes and 401k) would be fairly conservative....online calculators often work out your highest possible front-end debt-to-income ratio, which is generally seen to be capped at 36% of gross (pre-tax) income for all debt. Assuming strong credit and a 20% down payment, lenders will lend an amount to you that would result in a monthly payment (principal, interest, taxes and insurance) of a maximum of 28% of gross income, though many would allow you to go closer to your front-end ratio just for housing if you didn't have much other debt.

Working back from what passes with lenders gives you an idea of what conservative is....Many of the cautionary posters here are exceedingly conservative from a lending perspective, a.k.a. the DCUM Thrift Police who see it as their providential duty to counsel against another housing collapse

[Anonymous]

We make 250k and our mortgage plus insurance/taxes is $2800 (actually a smaller mortgage then you are considering but we did it for 20 years). It's fine for us. I feel it's conservative. We did live on one salary for several years. But I don't feel comfortable taking on a larger mortgage.

[Anonymous]

I think that sounds like a conservative mortgage. Our mortgage payment is almost double that and we make $100k more than you do and we thought we were being pretty conservative.

[Anonymous]

It sounds reasonable (would not say conservative) if you both think you will be keeping your jobs. Truly conservative would be a mortgage you could afford comfortably on only one salary. Also don't forget that you are paying quite a bit more than the mortgage - assuming total purchase price is $650k, you need to add on at least $1000/month for taxes and repairs. Also closing costs of around 6% ...

[Anonymous]

Actually, I don't think that is a crazy mortgage. However, the prepare for a rainy day/ nervous Nelly part of me says it's all about the financial cushion you have after the downpayment. I imagine you can save a heck of a lot with no debt and a 240k income with a $2500/month mortgage. It's just if something happens within the first year, say someone loses their job, or you have a kid and want to SAH or go down to part-time, having that cushion going in makes a difference. Figure out from DH what he is worried about. Does he think his job may move or go away and then he is locked in? Can you run the numbers and show you could rent out the place to close to cover the costs if it came to that. If you are trying to balance the downpayment and were planning on more than 20%, would holding back more for a cushion make him feel more comfortable? Is he seeing visions of the movie money pit and would a home warranty for the first year and getting the most thorough inspector you can find help alleviate that concern?

So no, it's not you but you need to figure out what is going on with him.

[Anonymous]

Anonymous wrote:Our HHI is 240K with no other debts. I'd like to take out a 500K mortgage ($2500/month), but my husband thinks I'm crazy even though this is the same amount we pay in rent each month and significantly less than we save each month. Even the most conservative online calculators say we could afford much more than this.....

What is conservative when it comes to home debt? Am I really being reckless here?

Does that monthly payment include your principal, interest, & escrow (insurance and taxes)? Our mortgage is 400K for 30 yrs @ 4% and our payment is just slightly less than that - and we don't have PMI.

[Anonymous]

your husband is extremely conservative and, without a more efficient capital structure (mortgage debt), you are liking paying considerably more income taxes than other $240k HHI families with $500k-800k mortgages.

[Anonymous]

You should look at what type of returns you are currently getting with your downpayment money - hopefully you caught the recent market run up.
Also, for $2,500 per month rental do you even remotely get the same space and quality of property as buying and paying a $2,500/month mortgage?

[Anonymous]

Closing costs on the buy side are more like 3%, not 6% as PP said above.

[Anonymous]

Our closing costs were more than 6%, definitely.
Add up state & country recordation fees, title insurance & fees, lender fees/appraisals, plus all the prepaid property insurance and home insurance.
Easily 6-8%+ of purchase price, just check out your Good Faith Estimate or HUD-1. More if you don't nix the realtor, lender and title company junk fees.

[Anonymous]

In your estimate of a $2500 monthly payment, are you including tax and insurance escrow as well? We have a mortgage that started out as either $350k or $375k (can't remember) and our inclusive PITI monthly payment is $2468.

[Anonymous]

That sounds ok, but don't forget to include PITI. I make a lot less than you guys and can manage my $2,500 payment no problem, but that includes everything. (mortgage is like $415K.) Around here, it's hard to find something - purchase or rental - that doesn't cost you that much per month. And yes, mortgage interest on that amount would be substantial, which would give you a substantial tax break. (have him look at irs.gov and that might reassure him.)