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How much home can we afford?
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Anonymous
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How much would you feel comfortable spending on a house, given this information?
Monthly net income: 10,780 (~17,000 gross) Daycare: 1265/month; looking to have another baby soon. Car: 535/month (We are paying it off aggressively, so we could be done in 4 months if we don't save for the next few months, or in a year if we take a little more time). No other loans. Downpayment: We currently have 32,000 (We have an emergency fund too, but don't want to touch that.) and could save 4,500 each month (if we don't pay off the car with that money). We are looking to move in a year, so we could have $86,000 plus maybe 50k from the sale of our current house for a total of ~$135,000. We are fairly risk-averse, if that makes a difference. I've done the online calculators, but I wanted to get some input from real people. The numbers online seem higher than I would expect. I don't want to commit to something that will be a struggle. |
Anonymous
| If you can keep the payment to less than $3K/month you should be very comfortable, but I might push it to $4K if you really love the place. |
Anonymous
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Your income can carry a higher mortgage, but your DP is more restrictive. Really should put at least 20% down. So that would be $675k purchase price. If that seems to low, perhaps you should save until your income purchasing power and DP align better. On your current income you can afford mortgage/property tax monthly payment of between $3 to $4k depending on your comfort levels...staying at or below 30% of your gross for all housing expenses is a rule of thumb, though in the DC area plenty of people exceed that easily....at those figures you'd be comfortably below.
We earn maybe 20% higher than you with a similar expense profile and easily carry a $3800 PITI monthly- but we value housing quite a bit (paying a location premium for N Arlington), so are willing to trim elsewhere. |
Anonymous
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A. $650K with 20% down (fixer-upper SFH close to Bethesda, for example).
B. $1M if you put 10% down. I would go with A. |
Anonymous
| If you plan to have another child and you both work full time, I would not buy a house that needs a lot of work. We've had to put most home renovations on hold after our second child arrived. It gets very hectic with two kids and working full time, renovations just adds to your stress. |
Anonymous
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We earn a little more than you, and we bought an older TH in NW DC for under $650. We put 20% down and secured a 30-year mortgage for 4.75%. We could have qualified, according to the calculators, for about $875, but purposefully spent less because the calculators do NOT take into account the cost of childcare. Also, we knew that staying in DC, private school was a likely path down the road. Private school tuition runs about $30K/year currently--which is the cost of two kids in daycare. This price tag does not include summer camp, for which you should add a few more thousand. Also, the cost of maintaining a home is 1-2% of the value of the home, so you should expect to pay a few thousand a year for maintenance and consider large expenses that may come up--e.g., repairs/replacement of roof, HVAC, landscaping, painting, plumbing, electric, basically just keeping the house up to date (and this is NOT considering the cost of renovating baths/kitchens, which can run well past $10k). Also, with two kids, you may end up buying a minivan or larger car.
If you go the public school route, I think that you will have a lot more breathing room. Taxes in MontCo are higher, but you can send your kid to public school all the way up. |
Anonymous
A calculator on line doesn't, but your mortgage broker should. I know ours factored childcare expenses into our loan. He subtracted it from our monthly income when he came up with the % that the mortgage would be of our monthly income. |
Anonymous
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Also- folks here always seem to default to fixed-rate as a rec. ARMs are useful for many in the DC area who really only commit to a time horizon in a home of =<10 years (given job transfers, change in needs for services etc.). If you know there is a low chance of staying in the same place for 30 years, definitely get a good ARM. We got a 7/1 jumbo ARM last year at 3.5. Major cost-savings, as we are 100% certain we will be in our home for less than 10 years- it would have been financially idiotic for us to get a fixed.
Also don't sell yourself short on what you need- better to pay slightly more and be in a place that fits rather than feeling compelled to move before you make up your transaction costs. |
Anonymous
| Only you know what you're comfortable with, and you can work backwards from there. I would figure out all your other expenses, including savings, and then estimate how much more you will pay in utilities, home maintenance, and home repairs once you've bought a house. Then you can see what you'll be left with for a total monthly mortgage payment (principal, interest, property tax, PMI if applicable, and homeowners insurance). Then you can see about what that monthly payment will buy at current interest rates. |
Anonymous
You realize that interest rates when your ARM ends are likely to be much higher than current rates, right? Also, I think that it is far wiser to have a financial cushion--especially in this economy--than to pay more when good enough is good enough. |
Anonymous
| I'd shoot for $650,000 to $675,000. The mortgage before insurance and taxes would be about $2600 per month, which is reasonable given your income. If you are in the suburbs, you could probably push it a bit higher if you could send the kids to public schools in the future. |
Anonymous
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Personally, I'd take the amount you're spending now per month and build on that to the point where you think, "that amount would make me uncomfortable." Then cut it back slightly and see what that monthly payment would mean in terms of housing prices, given the interest rate you're likely to get and an estimated amount for taxes and insurance.
I just bought a place for $560K; put down about $150K in equity and my payments will be somewhere around $2,600. That amount makes me slightly nervous (I make $90K/year plus some child support), but I've been paying about $2,100 in combined mortgage and HELOC repayment so I should be able to manage it. |
Anonymous
ARMs are good for people who are thinking more in the 2-3 year range not 10 years. For 10 years, a fixed rate at a low rate is more financially sound. If you believe that you will move in the next 3 years and you have a 5 year arm, you only need to be prepared to be able to lose your downpayment or on the upside make money on appreciation. People get themselves into trouble with ARMs. They have a 5 year ARM and plan to move in 5 years. In the 4th year, they realize that they can not sell their house without putting money on the table that they don't have and they don't have enough time to save to be able to cover the increase in payments from either the ARM or a re-financed fixed rate. If they are underwater, they can't refinance to a fixed rate. |
Anonymous
| PP you were responding to here...I know I will move in 7 to 8 years (career that involves reassignments), thus I got a 7/1 ARM at 3.5%. How would I have been better off financially with a fixed-rate paying 1.5% higher per annum given that mortgages in the US are almost never portable to a new property? e.g. why woud I or anyone in a similar situation choosing to pay $10,500 extra per annum ($126,000 over 7 years) in interest charges when I know that I will almost certainly need to pay off my mortgage through a sale during or slightly after the end of the initial ARM rate term. |
Anonymous
| sorry PP again- that should have read a total of $73,500 over years.... |