Gross anatomy: Home price vs salary

[Want2retire]

I bought my house in 2002 for 2.62 times my salary. So, with a little diligence, LBYM, and a head start due the 20% down, it was easy to pay it off in four years.

Now, it is probably worth 2.48 times my salary. That would be due to the combined effects of a housing slump and a promotion.

[eridanus]

I bought at 4x salary, 0% down, but had a roommate. The mortgage is now about 1.5x salary.

[Sandy]

My first house - about 2.5X gross salary

Current house: initial purchase: 1.6X gross salary for both DH and I (excluding alimony)Refinanced and pulled $$ out, and the refinance was 2.1X. I wouldn't go higher than that, since it leaves me feeling too house poor with no flexibility in the budget. These figures are straight mortage to income ratios and exclude escrow costs.

The current mortage (initial and refinance) were based on my salary alone - DH is not on the mortgage - long story. The refinance was 3.9X my salary. If I were the lender, I wouldn't have lent the $$ at that level, but it was Countrywide - and you know what kind of trouble they are in - I am definately one of their better customers.

[brewer12345]

Originally Posted by Walt34

Hint: Stop by the local police station and ask about the area you're thinking about. If you get a blank look, that's a good sign. If they start rattling off war stories, rethink that location. Appearances can be very deceiving in that regard. Some expensive neighborhoods were not very nice places to live.

Not a bad idea. Somewhat by accident, we ended up buying in a neighborhood that had the mayor's relations, the town's head detective, and the captain of a local volunteer fire company. If I ever moved, I would seriously think about finding out where the local cops and firemen live since A) they are generally nice people and good neighbors, B) they usually live a reasonable middle class existence, and C) you never really have to worry about safety or emergency response times.

[cute fuzzy bunny]

I thought that was the case when I moved into my old neighborhood, where we had a highway patrolman, a couple of sheriffs deputies, a fireman and my neighbor was the shift supervisor for the ambulance service.

The highway patrolman had his house robbed while he was out of town in his RV. Took all his guns, badge, bulletproof vests and so forth. I think they caught the guys that did it.
One of the sheriffs had his truck broken into while it was sitting in front of his house. Several other home robberies happened and a couple of cars got stolen.

[ziggy29]

We recently downsized to a house we could pay cash for.

We paid about 0.8 times my current salary for this house. We could have easily qualified for a house at 4x the price of this one, but I didn't want a large house with large heating and cooling bills, large maintenance bills and high property taxes...not to mention a mortgage for the next 15-30 years.

I feel we moved to a place where it will be much easier to FIRE sooner rather than later.

Buying the most home you can afford is *so* "keeping up with the Joneses," and I decided years ago to let the Joneses win.

[Lusitan]

First (and only, so far) house was just about 1x annual gross income. I anticipate moving to a larger home within the next 2 years, and I don't expect to find anything for less than 2x my gross income, although I will not go higher than 2.5x.

[TickTock]

Originally Posted by ziggy29

let the Joneses win.

Now that would make a good signature!

[jIMOh]

4X when we bought 2 years ago, down to 3X now.

We were married no kids when we moved. We now have twins on the way. We bought with decision based on we are not moving again (went in vertical, coming out horizontal). Wife had also started a new job while we were house hunting, and her income is quickly closing the gap. I could see ratio being less than 2X income within 2 years.

I would advise buying what you want, especially square footage wise. Make sure you have the right foundation- you can finish a basement later, landscape later, but it's tough to bump garage out 3 feet or add that extra bedroom or study after they build. It cost us around 8k to close, and an addition would start at 30k to add a room, so the costs of adding on and/or moving are quite high. If you are at a point in life when you are single, married no kids, married with kids-might have more- married with kids-waiting for college to start- married with kids- which only visit, these scenarios all change what is important.

[034runner]

I'm in the "you only live once" camp and my wife and I plan on building a house that is about 3x combined salary in value but will be about 2.7x in mortgage. There are alot of other factors that go into us taking this plunge though. For instance, we live in Pittsburgh where the housing crash seems to be missing. Plus, there's other income streams that we don't count on that will happen with a 90% probability, so including those, we're probably looking closer to a 2x ratio for the mortgage. And the fact that my wife's pension is second to none, allows us the freedom of adjusting our monthly savings goals and using that cash flow for expenditures.

BTW, our current starter home is about .5x gross salary. And for the person that talked about net salary (which I do think is a better gauge of over-extension), the new house monthly mortgage will be about 33% of net monthly income.

[ziggy29]

Originally Posted by 034runner

I'm in the "you only live once" camp and my wife and I plan on building a house that is about 3x combined salary in value but will be about 2.7x in mortgage.

Nothing wrong with that if it's what is important to you. To me, "you only live once" implies "so don't work in a job you don't love any longer than you have to."

I guess you're referring to the "live for today versus save for tomorrow" angle, though. Though I'd also say that every tomorrow I can shave off of the amount of time I have to work is that much more I enjoy today.

For what it's worth, I live not far outside of Austin, and the market here is still (mostly) very strong.

[TickTock]

Link http://www.early-retirement.org/foru...&postcount=352 to more of my thougts on buying the most expensive house you can...

[Want2retire]

Sometimes I like to get online and figure out how much home I could buy, if I put everything I had into it and got the maximum sensible 30-year fixed mortgage that I would qualify for.

It's absolute, utter insanity. What on earth would I do with such a house? My present 1500 square foot home is too big for me, and I don't even use two of the rooms. So, I marvel at these McMansions and wonder what it would be like to live in one. I decided that the upkeep would enslave me, giving me no free time or money in the foreseeable future. Then there are those upscale Jones in the neighborhood, that I'm supposed to keep up with. If I have a McMansion, I'd better be driving a luxury car and I'd better not be wearing grubby jeans, and so on. And wandering through all those empty rooms in the house would be lonely.

I'm suggesting that there IS an ideal range of home values for me and for others. That ideal range involves both a maximum and a minimum price.

[hellodeli1]

We purchased our current home for about 2x our annual household income and we are able to manage our savings, retirement, and other expenses quite nicely. I think it largely depends on where you live as to how much you'll qualify for, but my advice is not to overextend yourself -- if you don't have an emergency fund, you're just one accident away from big problems.

I found some posts on this on http://musingsonpersonalfinance.blogspot.com -- have a look, if you have a chance.

[deserat]

1st house - 2x salary, very little down
2nd house - 2x salary with 20% down
3rd house (current) - 2x salary with 20% down

Salary did go up during those times - now married and house (as currently appraised) 1.5x our salaries

[kcowan]

Our rental is abut 35% of our annual SWR.

[Lazarus]

House value is about 1X combined income. It was about 1.5X when I bought it. Also I make about 90% of the combined income. Wife works part time.

I have more house than I need but less shop space and land than I need. (or want).

[joesxm]

My house in 1988 was about 1.8x my income with 30% down the mortgage was probably about 1.25x.

I sucked it up and paid the house off in 7 years (9.5% mortgage) and never looked back. It is very nice being able to invest the former mortgage payment.

My regrets were buying a larger house than I needed because I thought it would be easier to sell to a family. I am still in the house so it has been a moot point.

The other regret was not walking away from the deal when a high water table and septic system out of specifications was detected. I would have lose a thousand or so deposit on the pre-qualified mortgage but it was wrong to worry about that.

My advice is to buy the size of house that you need and to buy some rental property if you really feel a need to use the house as an investment. It is best to think of housing as a cost not an income stream.

[Mary_From_Georgia]

Has anyone ever gotten a 10/1 LIBOR ARM loan? This option is tempting me as the home I want to get I think stands a good chance to appreciate in 5 years and we're talking ~$300/mon less going this route vs a fixed?

Thoughts, watchouts, learnings?

Thanks,
MFG

[SecondCor521]

Nope, I haven't.

Are you 100% certain you'll move in 10 years?
If you took a 30 year fixed on the house would the payment be less than 25% of your gross salary?

I would only consider the ARM if your answers both of the above were "Yes".

2Cor521