Buying a house

Discussion in '2000-02 Archive' started by SaggyWoman, Oct 11, 2002.

  1. SaggyWoman

    SaggyWoman
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    I am close to buying a house.

    How much of one's cash income should be geared towards purchasing a house (mortgage, insurance, tax, etc.)?
     
  2. bb_baptist

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  3. SaggyWoman

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    Don't you think that is high?
     
  4. bb_baptist

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    A house is generally considered to be affordable if a family pays no more than 35 percent of its income in house-related costs. However, the average is closer to 50%.
     
  5. stubbornkelly

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    I do, SaggyWoman. It depends on how much is included in the figure, though.

    You can be approved for a loan that would have you paying 34% just on your mortgage, but that's really unwise.

    You really don't want to spend much (if any) more than 25% of your net pay on the mortgage itself. Yet you can borrow an amount that would have you paying up to 34% of your gross pay!

    I'm trying to buy a house, too, and it looks like I could be approved for about $30K more than I can actually afford, just based on my debt to income ratio (which is calculated using your gross income).

    I'd stick with 25% of your net on the loan payment. Figure an amount around 35 or 40% of your loan payment for insurance and taxes and such, a touch more if you're having to pay PMI.

    That's not going to give you exact anything, but a good idea. So yeh, ultimately, you may be paying 35% of your net income on your housing expenditures, but hopefully not on your mortgage alone.

    My gross income is disproportionately higher than my net income, because I have so many tax exempt deductions (a high 401(k) contribution, metro cards, office parking, and insurance, of course), so I'm in trouble if I start basing my calculations on my gross income! But that's me. Someone with less of a discrepancy will have a better time of using gross income to calculate.
     
  6. bb_baptist

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    The average monthly rent for a studio apartment in Manhattan is around $1,100. That's $13,200 on an annual basis. Assuming an annual gross salary of $50,000 ($35,000 on cash basis), housing costs for this person are 37.7% - just to rent the smallest imaginable apartment.

    I suppose this person would be very happy to buy a 3-bedroom house for 50% of his/her cash income.
     
  7. SaggyWoman

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    I just choked on that big peice of meat.

    Actually, I am renting now, and I am all for paying low rent for high space. I probably pay 20 percent now. Gees. You do well, SaggyWoman.

    Okay.

    Hmm. I guess even on the 35 percent thing, I could stand to be paying more.

    Hmmm.
     
  8. stubbornkelly

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    I'd say you do well indeed! I find that I pay much more renting than I will owning, even without factoring in the tax bennies. And I've just got a teensy little studio (really - 350 square feet). Based on the research I've been doing, I can buy the flat I want for about $100 a square foot, give or take.

    But if it was going to cost me 50% of my net income in a month to do it -- I'd be moving or looking for a second source of income. Part of moving, for me, is moving up. My lifestyle will stay the same, but I'll save a bit of money and have more space in which to live.

    And that is why I'd live in Brooklyn. ;) Although some parts of Brooklyn are getting to be just as pricey as Manhattan.
     
  9. Karen

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    Be careful about what you would assume tax benefits to be from house ownership. I have done taxes for several years, and a lot of people come in assuming that their mortgage interest is a direct offset against taxes owed.
    NO!!!
    The EXCESS over your standard deduction is subtracted from taxable INCOME. Big difference.
    Many people whose taxes I prepared had no real immediate benefit taxwise from buying a house.
    Of course, I live in a part of the country where you can get a VERY respectable house for $50,000.

    Karen
     
  10. stubbornkelly

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    That's so true, Karen, and a great reminder. I know several people who are buying a house solely so they can get a benefit - rather, solely because of the benefit they think they will get. You know, the "Buy a house! You get a tax write-off!" club. I'm happy if I can just maintain my two exemptions! Being in a higher tax bracket is a double edged sword, you know?

    $50K? *sigh* I can buy a parking space for $50K, but very little else. Okay, maybe a junky little house that needs a new roof in a bad neighborhood -- no, even many of those are going for $100K or better. :rolleyes: In order to be able to buy a decent apartment, I'll have to move a little further away from the city. A house house? Like with a yard? A girl can dream. *sigh*

    All I want is a nice brownstone off DuPont Circle -- is that too much to ask? :D

    [ October 11, 2002, 05:59 PM: Message edited by: stubbornkelly ]
     
  11. SaggyWoman

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    $50,000 here is basically very basic. Or below basic. Sadly basic.

    You are hitting moderately okay in $75,000.

    You are starting to run with the Joneses at $110,000.
     
  12. jcrowe

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    My wife and I just bought a house for $43,000.

    We have a big backyard, good sized front yard, 3 big bedrooms, driveway (but no garage), and to top it off we have really great neighbors.

    The only bad thing is my job doesn't even pay 1/2 of some people's parking spaces [​IMG]
     
  13. stubbornkelly

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    Imagine my shock when I ran a search for under $200K in DC and the first thing to pop up was this $50K parking space! It had a good address, though . . .

    I'm in that awful position of having to decide whether or not an hour commute one way is worth owning a nice flat. I really don't want to move too far out of the city, but my price range seems to be dictating otherwise. Isn't that always the way? [​IMG]
     

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