Feedback wanted--housing affordability

[bethben]

I did the calculator also for the house we bought two years ago. It was $120k more than we were approved for and $160k more than what we actually felt we could afford. I agree, figure out what you can pay monthly and go backward. I think banks tend to approve too much for a mortgage. I would also consider not buying a home until you have a 10-20% down payment. When the market crashed last time, people didn't have the buffer and were upside down really fast.

 

 

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[Jaybee]

(Hugs, OP)

 

Aw, thanks!  :001_wub:

[mommyoffive]

That sounds like a lot of shoes! We live in a one season climate - sneakers, water shoes, and dress shoes.

 

You must need a whole shoe wall or however you store them!

 

It is a lot of of shoes.  I live in a place that gets all the seasons.  We need all those kinds of shoes for 7 people.   Never enough room

[Jaybee]

Have you taken a close look at your budget for your current situation? When you add up all of your expenses/savings/needs/wants/etc., including your current housing costs, how much is left over that could be added to housing?

 

Math is math. We can manipulate it quite a bit, but the bottom line is going to be the bottom line in the end.  Dh got a raise that kicks in this month, and it was exciting to think about all of the new things we could treat ourselves to.  The big dream was a bigger house! But once we really broke it down and factored in the expenses that have been creeping up and juggled around over the past couple of years and the savings we definitely need to rebuild (plus upcoming classes, teen drivers, new co-op, and knowing dh will need a new vehicle next year,) that increase suddenly disappeared!  It was a disappointment, but it is going to make our budget less stressful.

 

I've been playing with DR's free app, Every Dollar.  It makes it nice and easy to increase or decrease line items while seeing how they each impact the bottom line. I had to add a lot of specialized line items, which was overwhelming at first, but now I can't pretend that keeping 7 people in sneakers, hiking boots, work shoes, snow boots, sandals, dress shoes, and (of course!) fashion boots is just something that magically happens with fake money whenever someone needs them!  :svengo:

 

Our current housing costs (renting an apartment in a city) are more than we hope to pay on a mortgage, honestly. We've kept up with recording our budget, but a lot of that will change in the next two months. There was no money left over, because we have had to live mostly off our savings for the past 18 months; which is why we now have no downpayment, etc. Dh was working, but he couldn't find a job in his field, and nobody was willing to take a chance on him in another one. So he was one tiny step above entry level in a business that had rigid time guidelines for how soon someone could move up. In his new job (that is a great fit, btw), he will have a good salary. Not knock-your-socks-off good, but solid. However, it will take us some time to recover from the wait. 

[Guinevere]

If your debt to income ratio is low, you could go higher than that 25% without much pain. Allow some flexibility for savings and emergencies, of course.

[Alessandra]

One hint - believe the estimates for house maintenance. About 1% of the price of a house will be spent annually for maintenance. When I first heard that number, I thought, no way! Maybe it's less if you have a new home or are very DIY skilled. My home is less than 15 years old and it's stuff here and there. I'm very frugal and I thought I'd never spend that much on maintenance but it adds up. Quickly. A minor roof thing costs $1,000. A minor a/c problem - $400. A minor electrical problem - $100, a screen problem - $200. And today I found a squirrel living in the roof. I expect I'll have to call both the exterminator and the roofer.

 

So, when you find a house cost you can afford, add 1% of the cost of your house ($2,000 for a $200,000 home for ex, which is an extra $170 monthly expense) to your budget and see how that affects the new monthly costs.

Yes, this.

 

Some maintenance cannot be deferred. I can relate to squirrels. If they get into your house, they can eat electric wiring and cause fires. I paid $350 for Critter Guards, about the same for electrician, ditto handyman to repair roofs. I do a lot of my own work, but not on roofs, lol. I still want to prune overhanging tree branches (again), and I use a certified arborist, $$$.

 

Also, if you do your own work, don't forget that you will have to get tools somehow. Ladders, lawn mower, electric drills, snakes (the plumbing kind), etc. Some will be expensive, some not so much, but it adds up.

Edited August 3, 2017 by Alessandra

[tammyw]

Owning a house reduces the amount of income tax you pay as you can write off the interest for sure. That's a nice benefit as you will have more in your pocket to pay for the expenses.

[BarbecueMom]

About the maintenance, I don't think a flat percentage works, because some things are going to cost the same, no matter how much square footage you have, or what your mortgage is. Age of home and big ticket items (HVAC, roof, siding) is another factor. Your DIY skill set is another.

 

For instance, after several months of attempts at self-treating an ant problem, we had to call an exterminator. The service fee was the same for our 1400sf, $150K house as it would have been for a 2400sf, $280K house. Every kitchen has a dishwasher/stove/fridge - regardless of home price. If you have a big family, you might need a larger fridge (or two) regardless of home cost.

 

The trick is finding home maintenance companies that primarily service homes in the lower price ranges. They don't advertise on the radio or have the shiniest new trucks, but there are highly recommended ones out there. DH called an HVAC company a couple weeks ago when our a/c froze up. The first well-known company wanted $115 just to come out. The second wanted $95. He asked around at work for recommendations and called a third, smaller company, who charged us $50 for cleaning and coolant, and we were able to talk to the tech over the phone that weekend to see if that did the trick.

 

Exterminator, same issue. First company wanted $275, plus an ant up-charge, plus three follow up treatments on contract. Found another company that did it for $165, no contract, and hit a couple indoor "hot spots" for no charge. Problem solved.

 

Even with that, we probably spend closer to 3-4% of the house value on maintenance and repairs on good years. And we're still behind on fixing stuff, for cost and not-cost reasons. But, if our house was worth more, that would be a smaller percentage, because a garbage disposal is a garbage disposal, no matter which house you put it in.

 

Yay houses. :-/

[prairiewindmomma]

I agree; our maintenance costs have been closer to 5% of the home value more years than not...in part because items like HVAC and roof are either being replaced or being saved up to be replaced. Windows are another big ticket item.

[maize]

Owning a house reduces the amount of income tax you pay as you can write off the interest for sure. That's a nice benefit as you will have more in your pocket to pay for the expenses.

This only helps if your total deductible expenses are more than the standard deduction. People with lower incomes in lower valued homes often don't meet that limit.

[luuknam]

I looked at the mortgage amount it showed, and it was kind of weird how it changed with proposed downpayments... like, our max mortgage peaked at a downpayment of about 10k, then went down, and then almost peaked again at a downpayment of about 75k, and then went down again. I get that insurance and tax go up as your property is more expensive, such that you can afford less mortgage when your downpayment is high for your income, but the way it almost peaked again at 75k was weird. It also has no option for no or a tiny downpayment like if you qualify for some housing program. 

 

Anyway, at the peak the mortgage amount was roughly what I think we'd qualify for based on other calculators, which is about 67% higher than I'm willing to pay and about 150% higher than my wife is willing to pay, so, yes, about 2x what we'd realistically do (we're still renting - we've owned a tearer-downer in the past (aka what the realtor called that fixer-upper) which cost $13,500). 

Edited August 3, 2017 by luuknam

[luuknam]

If your debt to income ratio is low, you could go higher than that 25% without much pain. Allow some flexibility for savings and emergencies, of course.

 

 

That really depends on your lifestyle and what you're used to. We were paying under 10% of gross income (I'm not entirely sure what our net income is) for our previous apartment (incl water), and now we're paying 12% because we had to move, but I'm pretty sure that paying >25% of (net or gross) income would be quite painful, since it'd be a huge adjustment. 

[luuknam]

There seems to be something odd about the calculation because as I played around with the numbers, a small increase in downpayment was leading to a large increase in the mortgage.  

 

 

It requires a minimum 5% downpayment, so that's probably what you were noticing. 

[xixstar]

Having bought way more house than we could afford and also one that needs lots of work which we also couldn't afford - I often wish for the magic wand that would undo that choice.

 

I know the urge to get a house and stop renting but if I could do it over again I would accept the Dave Ramsey advice that renting is just buying patience to set you up to make a wise purchase. And I would be completely debt free, rebuild my emergency fund of 3-6 months of expenses, have a downpayment that allows me to spend no more than 25% of our take home pay on a house. And accept that would take several years to do and that it would take a major priorities and life style change to do it.

[Bootsie]

It requires a minimum 5% downpayment, so that's probably what you were noticing. 

This is an odd calculator.  If I put in $100,000 income and a $20,000 downpayment I can afford a $402K mortgage (which seems high to me).

 

If I put in $100,000 income and a $25,000 downpayment, it gives a mortgage of $400K.

 

With an even bigger downpayment of $30,000, it gives a mortgage of $398K.  

 

So on the same income, it says I can afford a smaller mortgage if I make a larger downpayment.  

[Guest]

This is an odd calculator. If I put in $100,000 income and a $20,000 downpayment I can afford a $402K mortgage (which seems high to me).

 

If I put in $100,000 income and a $25,000 downpayment, it gives a mortgage of $400K.

 

With an even bigger downpayment of $30,000, it gives a mortgage of $398K.

 

So on the same income, it says I can afford a smaller mortgage if I make a larger downpayment.

Maybe it's a magic eight ball?