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Old 02-22-2014, 04:39 PM   #21
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Similar units in my building are being rented out for $1,500.
Here's an idea, which you'll probably hate but which your father might like.

Can you possibly get a roommate and charge him $700 plus half the utilities? Then put that $700 towards paying off some of the cost of your condo so that you can refinance later with lower monthly payments.

Sure, roommates are no fun. But, it wouldn't have to be forever.
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Old 02-22-2014, 04:51 PM   #22
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I thin you are fine,
I've never heard the 3x rule, but I'm in California, 6x is closer to normal here. You are young, your salary will go up, and you will be in your 3x rule soon. I bought my first home(condo) about a year out of college , it's was about 5x my earnings with an interest rate of 8.5% ( that was a good rate in the 90s). The payment took 1/2 my income, but 8 years later I sold it for 50k more than I paid, bought a house with the down payment, and I'm better off. It's easier to struggle when you are young.
Tom
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Old 02-22-2014, 06:05 PM   #23
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You obviously know how to manage your money, so you'll be fine. Keep enough in your emergency fund to cover living expenses for a year in case of a job loss, and you'll sleep better at night.
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Old 02-22-2014, 08:26 PM   #24
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I've never heard the 3x rule, but I'm in California, 6x is closer to normal here.
*cough* *choke* *wheeze* 6x?! Holy crap. The most I have ever mortgaged is about 1x.
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Old 02-22-2014, 09:39 PM   #25
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*cough* *choke* *wheeze* 6x?! Holy crap. The most I have ever mortgaged is about 1x.
Well Gozer, go to the bank, get a loan for that amount and try it.....who knows you may come to appreciate it. Otherwise with a 1x loan I am going to consider you a person living in flyover country like myself!
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Old 02-23-2014, 12:57 PM   #26
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As long as your on the Northside of the city I'd say its not a bad deal. That portion of Chicago is growing quite nicely (population declines on the Southside are outpacing the large number of people moving to the Loop and Northside). So long as the pension/bond problem doesn't mean grossly higher taxes on the residents of Chicago I think the trend will continue. Other than the polar vortex weather this year Chicago is a great city!
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Old 02-23-2014, 03:57 PM   #27
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I don't dispute what your say, but I cannot wrap my mind around a mortgage 4-6 times income, especially at the lower end of income. When I retired, I shortly afterward refinanced the balance back into a 30 year which was about $100k. This is about 1.3 X annual income, so my monthly P&I and escrow is a little under $725. This is about 15% of my net monthly income. Five times annual income would swallow up 50% of my income leaving me $2500 for all my house bills, transportation, food, etc.. I don't see any money for any type of entertainment. I realize a person has to do what they must, but I would be a nervous wreck trying to make the math work unless I knew a substantial raise was on the horizon.
Median house prices in LA, the Bay Area and New York are all just over $500K, here in lovely Hawaii just under $600k. If we restrict it to say 2x your income, that means you need $250-300K per year to buy a house. 3.1% of all married households earn over $250K or about 4 million couple in the country.

There are roughly 30 million folks in the areas I just named and you'd make a lot of them homeless with your guidelines.

When I first started looking in the Bay area I was looking at spend 4x my income, which when mortgages were 14% was pretty much 1/2 my take home pay. There are additional costs that folks in the less expensive places typically have. In other forum a young woman said it cost $540 to heat her 2 bedroom place last month. That would have been more than the heating bill for my 5 bedroom house during the whole winter in the SF Bay area.

I guess $200K condo in Chicago just doesn't sound that expensive to me since even in Vegas it is easy to spend that much or more for a Condo.
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Old 02-23-2014, 04:25 PM   #28
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The cheapest condo for sale in Vancouver right now is listed for $249K. I know the US market is different, but I have difficulty thinking that the OP has overbought in Chicago. My main concern would be his relatively modest earnings.

Vancouver Real Estate | Downtown Vancouver Condos For Sale
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Did I make a frivolous home purchase?
Old 02-23-2014, 05:14 PM   #29
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Did I make a frivolous home purchase?

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*cough* *choke* *wheeze* 6x?! Holy crap. The most I have ever mortgaged is about 1x.

Typical middle class homes go for 300 to $400 per square foot. So 2000 sqft is 600 to $800 k. The "nice" areas are $450 per sqft or more.
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Old 02-23-2014, 05:32 PM   #30
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How do we judge if a house/condo/car/dinner is expensive?

1) Compare it to the price of comparable items
2) Assess the impact that purchasing the item has on one's other goals, compared to other uses of the money.

Method 1 is good for setting the market price of the item. Method 2 seems best for deciding whether it is the best use of one's resources.
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Old 02-23-2014, 05:55 PM   #31
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Median house prices in LA, the Bay Area and New York are all just over $500K, here in lovely Hawaii just under $600k. If we restrict it to say 2x your income, that means you need $250-300K per year to buy a house. 3.1% of all married households earn over $250K or about 4 million couple in the country.

There are roughly 30 million folks in the areas I just named and you'd make a lot of them homeless with your guidelines.

When I first started looking in the Bay area I was looking at spend 4x my income, which when mortgages were 14% was pretty much 1/2 my take home pay. There are additional costs that folks in the less expensive places typically have. In other forum a young woman said it cost $540 to heat her 2 bedroom place last month. That would have been more than the heating bill for my 5 bedroom house during the whole winter in the SF Bay area.

I guess $200K condo in Chicago just doesn't sound that expensive to me since even in Vegas it is easy to spend that much or more for a Condo.
I am looking to buy in San Francisco. I am shooting for a shoebox at about 2x our top-percentile income. The funny thing is, if we do end up buying here, our smallest home would be by far the most expensive. Our largest home is valued at ~$100 a sqft, the medium one at ~$400 a sqft, and the small one would be at ~$800 a sqft.
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Old 02-23-2014, 06:03 PM   #32
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How do we judge if a house/condo/car/dinner is expensive?

1) Compare it to the price of comparable items
2) Assess the impact that purchasing the item has on one's other goals, compared to other uses of the money.

Method 1 is good for setting the market price of the item. Method 2 seems best for deciding whether it is the best use of one's resources.

Sam, you nailed it on the head with me personally in reference with point 2. Some HCL locations have certain appeal to me, but I am unwilling to use my resources on it by foregoing others. The most being continued savings, ability to buy frivolous things and frequent vacation trips.
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Old 02-23-2014, 06:34 PM   #33
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Typical middle class homes go for 300 to $400 per square foot. So 2000 sqft is 600 to $800 k. The "nice" areas are $450 per sqft or more.
Tom
Based on this information, my home would be a little over 2 million if it was located in the areas you are describing. That's an even bigger difference than I usually imagine.

We used to have a division of my former company in Menlo Park. The staff there were paid about 50% more than we were in south-west Ohio for the same job functions. However, since the cost of living was over 2X higher, it didn't go that far for them. That was 1990-ish. Sounds like the difference may have gotten much bigger, at least for housing.
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Old 02-23-2014, 07:44 PM   #34
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I thin you are fine,
I've never heard the 3x rule, but I'm in California, 6x is closer to normal here. You are young, your salary will go up, and you will be in your 3x rule soon.
Wow 6x times seems really high even for california. When we bought (in san jose) in 2004 we were at 3.5x base salary with 5% down. I think at my peak salary+bonus we were down to almost 2x.

Today I look at some of the new phd's at tech companies and even 2 income families struggle to afford a starter home. While there hasn't been much talk of this during the housing crash, it's now back to the point where house prices increase faster than you can save.
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Old 02-23-2014, 09:45 PM   #35
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Typical middle class homes go for 300 to $400 per square foot. So 2000 sqft is 600 to $800 k. The "nice" areas are $450 per sqft or more.
Tom

It is according to where you live...

The apartment I lived in London went for about $2,000 per sq.ft.

In New York, it was about $1,100 per sq. ft. (both paid for by mega, not me)

My current house probably would fetch $70 per sq.ft.... and the one I sold a few years ago was sold for $52 per sq.ft....


Kinda a big difference don'tcha think
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Old 02-23-2014, 10:07 PM   #36
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It sounds to me that you are a pretty good bean counter. I bought my first house in the boom years of the mid 80s for $95,000. Snatched it up as the first buyer to look at it. I paid Full asking price and the realtor (a friend) actually put the binder on it on my behalf. This was the boom years of Real Estate on Long Island where prices were going nuts. There were many sleepless nights thinking about that payment. Fast forward 12 years later, I sold it for $125,000. Really made a killing. I know people that have made more in real estate holding it a month.
I guess the point is, a house, condo etc., is a place to live, period. You have your tax benefits of course, but don’t buy it with the intention of making money. If you have a few bucks at the end of the month, why not pre-pay some principle? I know that the “experts” will tell you this is not the best use of your capital but boy do you sleep well after you get that Mortgage Satisfaction letter from the bank.
Moral of the story. Buy what you can afford. Enjoy the place you live and keep an eye on when I buy real estate. That will be the top of the market.
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