how much home can you afford

[kev374]

https://www.cnbc.com/2017/10/06/how-to-figure-out-how-much-home-you-can-afford.html

looking at the above article and it has some figures:

Here’s how much home you can afford if you earn:

$40,000 a year: $115,203
$60,000 a year: $272,299
$80,000 a year: $429,395
$100,000 a year: $586,491
$120,000 a year: $743,587

I find this math puzzling. So you make $40k/yr and can afford a $115k home but with $120k you can afford $750k? At $120k your tax brackets also increase, in addition you don’t maintain a $40k lifestyle when you make 6 figures so your expenses also correspondingly increase… most people don’t drive a beatup 20 year old Corolla and fine dine at McDonalds when they are earning $120k, they upgrade to a Lexus and go to a fancy restaurant, it’s what people do… this math fails to account for all of that and assumes people just bank 100% of the income increase and put that in a home.

I don’t find this a realistic assessment at all.

Income increases 3X but home affordability increases almost 7X?

[teaboy]

The chart also assumes a 20 percent down payment, which is what experts typically recommend, and four percent interest on a 30-year fixed-rate mortgage.

Finally, it assumes you’ll pay the national average in property tax ($180 per month) and homeowners insurance ($80 per month).

[moneymaker]

Maybe those are maximum amounts, I’ve always heard 5 times income. If it was 5 times take home then I would agree, but I for one don’t feel comfortable spending 5 times gross income on a house. Not sure how many people first starting out realistically have the 20% down.

[njtosd]

[quote=moneymaker]Maybe those are maximum amounts, I’ve always heard 5 times income. If it was 5 times take home then I would agree, but I for one don’t feel comfortable spending 5 times gross income on a house. Not sure how many people first starting out realistically have the 20% down.[/quote]

When I was young the multiplier was three. The house that I grew up in was worth less than my dad made in a year. It just wasn’t such a big deal – and nobody knew the square footage of each others homes.

[HLS]

Articles like this are just silly and partially ignorant.
The authors are usually clueless about what it takes to qualify for a mortgage. It’s general info.

A huge factor that varies is the monthly debt payments that show on a credit report before even thinking about buying a house.
Car payments, credit card payments, student loan payments, etc.

Many people with an 800 credit score and 50% down can get turned down for a mortgage for various reasons.

It is possible to buy a $743,000 house with 20% down on $120K annual income. It’s about 37% of gross income.

It’s also possible to get approved to borrow more than one should be comfortable borrowing.

[CA renter]

[quote=njtosd][quote=moneymaker]Maybe those are maximum amounts, I’ve always heard 5 times income. If it was 5 times take home then I would agree, but I for one don’t feel comfortable spending 5 times gross income on a house. Not sure how many people first starting out realistically have the 20% down.[/quote]

When I was young the multiplier was three. The house that I grew up in was worth less than my dad made in a year. It just wasn’t such a big deal – and nobody knew the square footage of each others homes.[/quote]

Same here. My parents were in real estate for decades, and the norm was always 3 times gross income. Anything more than that starts to become risky, IMHO. Not only that, but people back then tended to have more stable jobs with DB pensions. You can afford far less if your job is insecure and you don’t have a DB pension.

Too many people have thrown caution to the wind over the past ~2 decades. The world of never-ending asset price/credit bubbles has taken its toll. I don’t think this is going to end well.

[spdrun]

It actually makes sense that the multiplier is lower at the lower end.

Expenses like food, hellth in$urance, car, commuting are basically fixed regardless of income, so you have less disposable money to spend on mortgage payments.

If you go out to eat 1-2x per week, it’s not going to change your expenses much whether you’re spending $20 or $100. Same with a car costing a few hundred extra per month.

[scaredyclassic]

when we bought our house 7 years ago, it was about 2.5x our income. now,we earn more per year than our remaining loan balance.

maybe we shoulve gone bigger and crazier.

[spdrun]

So you can pay it off in a year and essentially only have to work half as hard if that much? DO IT!

Happiness is not being beholden to anyone or anyone’s opinions of you, and being able to kick back and slack at will.

[scaredyclassic]

no.

the payment is so small, i enjoy watching it shrink.

i will never pay it off.

[CA renter]

[quote=scaredyclassic]when we bought our house 7 years ago, it was about 2.5x our income. now,we earn more per year than our remaining loan balance.

maybe we shoulve gone bigger and crazier.[/quote]

I’m so glad you bought your house when you did. Remember how nervous you were? 🙂

[scaredyclassic]

[quote=CA renter][quote=scaredyclassic]when we bought our house 7 years ago, it was about 2.5x our income. now,we earn more per year than our remaining loan balance.

maybe we shoulve gone bigger and crazier.[/quote]

I’m so glad you bought your house when you did. Remember how nervous you were? :)[/quote]

if id known my life would be so great idve worried less.

im trying to assume the best nowadays

also, not sure why itd make sense to pay off a 3.375 perc mortgage. after taxes, its costing almost nothing just to save the money in an online bank acct. someday it may pay just to keep the money in a money market.

[HLS]

When you mention ‘after taxes’ when talking about mortgage interest,, don’t forget that you are itemizing and giving up the standard deduction.

There are many people with low loan amounts that may not benefit by itemizing. If the standard deduction is raised to $24K for a married couple, it will make less sense for many to itemize.

Paying interest IS paying interest.
Yes, maybe someday CD rates will be higher than mortgage rates again.

Unless one is a tax expert, I tell people to let the tax benefit (if any) be a bonus when buying a primary residence, don’t let it be a factor when deciding on buying a house.

To address the OP, a qualified borrower can be approved to borrow more than they should be comfortable borrowing, That’s how the system works…

. Having an 800 credit score OR putting 50% down doesn’t make the approval process any easier.
You jump through the same hoops as a 620 credit score with 3% down.

Approvals are based on approved monthly income and monthly debts on a credit report.
Many people have substantial expenses that are not on a credit report.

Loan qualifying doesn’t count utilities, medical expenses, gas, clothing, hobbies, sports, child care, food, entertainment ,vices , car insurance, life insurance, braces, car maintenance, payroll deductions etc

The more you make the more disposable income one should have so
saying that one should only buy a house worth X times their income is a very general statement.

[Author]

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