Home to net worth %??

[cardude]

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...................

 

[uncledrz]

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

all of these have an impact

 

[Nords]

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!

 

[LOL!]

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.

 

[Zipper]

A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.

 

[REWahoo]

A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.

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?

 

[Cut-Throat]

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?

 

[Nords]

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?

 

[Zipper]

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.

 

[laurence]

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!

 

[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)

 

[haha]

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

Ha

 

[aaronc879]

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.

 

[aaronc879]

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.

 

[azanon]

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.

 

[scrinch]

I'm right at about 25%. Gonna have to give away some of those stocks and bonds to re-balance my networth!

 

[obryanjf]

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


job

 

[unclemick]

Hmmm

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

heh heh heh

 

[Dawg52]

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

Ha

Ditto. 

 

[Martha]

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.

 

[kcowan]

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

We are doing even better. House % is zero. We rent because it was a better economic deal for us when we downsized. It has been a good financial decision so far. I agree with the comment about age being a major factor.

I also think that someone in their 40s with kids and good earnings can easily justify 50% (or more depending on the state) IF they agree to downsize when they are empty nesters. I have seen too many people who get trapped by all their stuff and stay in a large expensive place way beyond the useful period for such extravagance.

 

[cardude]

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 knew I had read something like that somewhere.  Thanks for that.

This new house is right at 2X my annual income, so I guess that's OK.

I'm currently only at only 4% of net worth with my existing home, and it is paid for.  If I do this new house, I'll be at 14% of net worth counting the entire purchase price.  Counting only the "equity" (my downpayment of 25%), it would actually be the same at 4%.  That's interesting............

I'm not retired now and I still have good income coming in; it's just WAY more house than I'm used to.  However, I plan to pay it off in 10 years so I should be in good shape.  Plus, if I get in a bind somehow I do have the assets to pay it off if I had to, so I guess I'm covered there.

I guess I'm just a cheapskate who has been living in a cheap paid off house and it's freaking me out to pay so much for a house.

 

[cardude]

So, lemme get this straight.  You're trying to inject financial reality into a marital housing situation.

LOL.  I just realized that's EXACTLY what I'm doing.  Maybe that's why my lovely wife is always mad at me lately.

But seriously, you can't just completely throw caution to the wind and go crazy buying a house, right?  I don't consider a house in my market a very good investment (especially this sucker, which will be much harder to unload since it is at the highest price level in my not-very-affluent area).   So, I keep looking at the opportunity cost of what I could buy with the money (stocks).  However, since I'm financing 75% of it my opportunity cost is only on the 25% down payment so I guess that's not so bad.

Can you tell I'm freaking out??

 

[Spanky]

19% of net worth if house is included.

 

[Scrooge]

A paid off home, NO MORTGAGE, should be ~ 33% of your net worth.

Oh dear, I knew I was doing something wrong Anybody want to buy 1/3 of a mostly gently used house