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Home to net worth %??
Old 08-16-2006, 01:56 PM   #1
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Home to net worth %??

I'm trying to get an idea what a "normal" home value as a % of one's net worth should be.

For instance, if someone has a $1,000,000 net worth, what would you say the maximum one should spend on a home??

My wife wants a new home is the reason I ask...................
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Re: Home to net worth %??
Old 08-16-2006, 02:09 PM   #2
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Re: Home to net worth %??

age? income? children? taxes? insurance? income secuirty? etc?

all of these have an impact
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Re: Home to net worth %??
Old 08-16-2006, 02:19 PM   #3
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Re: Home to net worth %??

Quote:
Originally Posted by cardude
My wife wants a new home is the reason I ask...................
So, lemme get this straight.* You're trying to inject financial reality into a marital housing situation.

Just how long have you been married?!?

Unless you're a Vulcan I don't think it's beneficial to make a home-purchase decision on a financial basis.* # kids, quality of schools, neighborhood, maintenance, climate, sure.* Annual maintenance/repair expenses & property taxes, maybe.* Only after all those other decisions are made is it appropriate to drag out the mortgage calculator and the portfolio spreadsheet.

Having reduced the importance of this ratio down to at least #8 in priority, how critical would it be to vary the ratio from 10% to 50%?* With at least seven more important things to work on, how much effort do you want to devote to this aspect of the purchase?* Especially when every one of those percentage changes has a much stronger emotional consideration attached to it!
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Re: Home to net worth %??
Old 08-16-2006, 03:12 PM   #4
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Re: Home to net worth %??

So if you are 25 years old, I would guess that your home to networth ratio might be something like 10 or more. Example: Home cost $250K. Net worth $25K.

If you are 65 years old, it might be the other way around: Net worth $2.5MM, home value $250K.

You can perhaps figure out this statistic at the recently mentioned www.networthiq.com which has net worth and real estate value in it's database.
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Re: Home to net worth %??
Old 08-16-2006, 04:30 PM   #5
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Re: Home to net worth %??

A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.
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Re: Home to net worth %??
Old 08-16-2006, 04:38 PM   #6
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Re: Home to net worth %??

Quote:
Originally Posted by Zipper
A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.
Quote:
Originally Posted by Martha
When questioning a person's position, ask:

1. How do you know?

2. What is the counter-argument? They should know if they know their subject matter well.
I'm at ~18%. Too much net worth or too little house?

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Re: Home to net worth %??
Old 08-16-2006, 04:47 PM   #7
 
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Re: Home to net worth %??

Quote:
Originally Posted by Zipper
A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.
Do you include the House in the Net Worth?

IOW - $1 Million Stocks/Bonds and a $500K house is Net worth of $1.5 Million so the house is 33%?


IOW - your liquid assets should be twice what your house is worth?
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Re: Home to net worth %??
Old 08-16-2006, 06:22 PM   #8
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Re: Home to net worth %??

Quote:
Originally Posted by Cut-Throat
Do you include the House in the Net Worth?
I guess we all shoulda seen that one coming...

Gosh, should we subtract the potential debt of a HELOC?
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Re: Home to net worth %??
Old 08-16-2006, 06:24 PM   #9
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Re: Home to net worth %??

Yes. A paid off house is peace of mind when you are retired.

Yes. A paid off house should be included in net worth.

Yes. Liquid assets should be double or more of the house value.
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Re: Home to net worth %??
Old 08-16-2006, 07:37 PM   #10
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Re: Home to net worth %??

Quote:
Originally Posted by Nords
So, lemme get this straight. You're trying to inject financial reality into a marital housing situation.

Just how long have you been married?!?

Unless you're a Vulcan I don't think it's beneficial to make a home-purchase decision on a financial basis. # kids, quality of schools, neighborhood, maintenance, climate, sure. Annual maintenance/repair expenses & property taxes, maybe. Only after all those other decisions are made is it appropriate to drag out the mortgage calculator and the portfolio spreadsheet.

Having reduced the importance of this ratio down to at least #8 in priority, how critical would it be to vary the ratio from 10% to 50%? With at least seven more important things to work on, how much effort do you want to devote to this aspect of the purchase? Especially when every one of those percentage changes has a much stronger emotional consideration attached to it!
Agreed, finally had a day where I got home at a reasonable hour, DW is carrying Tori while talking to the housewife across the street, gaggle of kids playing all around them. I would have preferred a slightly different lifestyle (Condo downtown with underground parking for my sports car), but this ain't too shabby, and happy wife = happy life!
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Re: Home to net worth %??
Old 08-16-2006, 08:39 PM   #11
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Re: Home to net worth %??

I like this little nugget from the book "The Millionaire Next door" -
"If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's total annual realized income" (page 68)
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Re: Home to net worth %??
Old 08-16-2006, 08:52 PM   #12
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Re: Home to net worth %??

7-8%. Good net worth, crappy house.

Ha
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Old 08-16-2006, 09:49 PM   #13
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Re: Home to net worth %??

Quote:
Originally Posted by REWahoo!
I'm at ~18%.* Too much net worth or too little house?

Neither. You can't have too much net worth and that's not too little of a house.
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Re: Home to net worth %??
Old 08-16-2006, 09:53 PM   #14
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Re: Home to net worth %??

Quote:
Originally Posted by Dude
I like this little nugget from the book "The Millionaire Next door" -
"If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's total annual realized income" (page 68)
I don't know anyone who owns a house that isn't more than two twice their total income. That would mean I couldn't afford more than $86,000 for a house. Can't get much for that. I guess i'll just continue renting cheap.
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Re: Home to net worth %??
Old 08-17-2006, 12:27 AM   #15
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Re: Home to net worth %??

Quote:
I don't know anyone who owns a house that isn't more than two twice their total income. That would mean I couldn't afford more than $86,000 for a house. Can't get much for that. I guess i'll just continue renting cheap.
... or you could do something really strange in American and actually save for a portion of the house.* *

IMO, dont buy a house that you cant at least pay 20% down (to avoid PMI).* *Not all lenders go by 20%, but still, PMI is way too high to pay that in addition to a mortgage.* *But if your income is 43K/year and you have no savings, then you're dead on;* you cant afford much of a house yet.* *Those peeps that bought a house way above that guidance in YMOYL are just asking for financial trouble.

My mortgage on my house was about 120K bought 3 years ago.* I paid down 30K.* (so ~150K total value of the house)* My household income is about 110K, so i fit well into that guideline.

Incidally, i just got in a letter from the tax assessor today saying my taxes are going up on it cause they appraised it at 191K now. Not sure its worth that. Maybe i should challenge that, lol.
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Re: Home to net worth %??
Old 08-17-2006, 03:41 AM   #16
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Re: Home to net worth %??

I'm right at about 25%. Gonna have to give away some of those stocks and bonds to re-balance my networth!
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Old 08-17-2006, 06:42 AM   #17
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Re: Home to net worth %??

We're at 25% also (250k/1MM).


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Old 08-17-2006, 07:31 AM   #18
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Re: Home to net worth %??

Hmmm

9% including the 30 yr mortgage. Ballpark 2% if you only count the equity.

heh heh heh
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Re: Home to net worth %??
Old 08-17-2006, 07:57 AM   #19
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Re: Home to net worth %??

Quote:
Originally Posted by HaHa
7-8%. Good net worth, crappy house.

Ha
Ditto.*
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Old 08-17-2006, 08:14 AM   #20
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Re: Home to net worth %??

Given we live in our fourplex, I can't answer the question. Value of our apartment to net worth is going to be pretty small.

We have been house shopping off and on the past year. We are finding it difficult to give up income producing assets to buy a house. We are going to stop shopping for a while. Our apartment is nice enough and in a convenient location. Plus we have a tenant who takes care of things for us when we are gone.

I think it is more helpful to think about income you have or want and how much house can you afford given that income.

We never bought more house than 2 times our yearly income when working. I think the rule of thumb used to be 3 times your yearly income. But that was too much house.
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