[quote=esmith]Ok, if you insist, let’s do everything accurately.
Assumptions:
130,000 gross income, married, 2 kids, single income (mom stays at home with children), 10,000 into 401k
Purchase price $650,000 with 20% down, 6.25% for 30 years, property tax + MR 1.7%, HOA $100/month, insurance $600/year
Scenario 1. Buying a 4S Ranch McMansion
Expenses(monthly):
Interest $2,708.33
Principal $493.40
Insurance $50.00
Property tax $920.83
HOA $100.00
— Housing 4272.56
Income:
Gross $130,000
401k contribution $10,000
Social security tax $6,324
Medicare tax $1,885
State tax paid $2,720
Federal tax paid $8,216
— Net income $8405/month
Cash left after paying off housing: $4132
Contributed towards principal (forced savings): $493
Scenario 2. Renting a house in 4S Ranch. The cheapest detached I see is $2700.
Expenses (monthly):
Rent $2700
— Housing $2700
Income:
Gross $130,000
401k contribution $10,000
Social security tax $6,324
Medicare tax $1,885
State tax paid $6,770
Federal tax paid $19,037
— Net income $7165
Cash left after paying off housing: $4465
As you can see, there’s not much cash-flow difference between buying and renting. Surely you wouldn’t make an argument that it’s very risky to rent in San Diego if you have a $130,000 salary.
Ultimately, what matters is whether you have the down payment and whether you can qualify for a mortgage. If you qualify at 40% gross DTI, you will be able to pay off your mortgage without stressing too much (unless you lose your job). [/quote]
Your numbers are off.
According to H&R Block 2007 Tax estimator, $120K AGI for married filling jointly and two dependents will yield $15,273 in federal tax.
So, the difference between renting and buying is larger than what you say.
Regardless, the original claim was that $130K/year engineering type, married, with two dependents, can afford $650K unit with 20% down @ 6.25% fixed for 30years.
I make the case that $130K/year does not suffice, unless you give up building up your depleted financial reserves. I can support my case with my monthly expense report.
