Gross anatomy: Home price vs salary

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.
 
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.
 
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.
 
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.
 
034runner said:
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.
Click to expand...
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.
 
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.
 
~2x income

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.
 
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
 
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). :D
 
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.
 
Chime in: My last question....

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:angel:
 
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
 
First house was about 1.5x, which we bought to rent out, expecting to live in it some day (age 25)...never actually lived in it. There were a couple more rentals bought, but our next one to live in was 3.8x or so(age 31), paid it off after a few years by selling rentals that were headaches, and we still have that one. The next one was built, not bought, over a 4 year period, and we paid for the work as it was done, no mortgage. I know not everyone can do that, but we have been very fortunate (bought the land and started the process at 40).

I'm pretty sure this is the last one until we can no longer care for it...a long way off yet. No more mortgages for me though...I hate debt....with a passion.

R
 
First house was 1976. It was 0.5 of our combined income.
House 2--Different state..1X our combined income.
House 3--Different state..1.5 of our combined income.
House 4--Different state..1.5 of our combined income
House 5--Same city.........0.8 of my income (post divorce)
House 6--Different state..2X our combined income(new partner)
House 7--Different state..2X our combined incomes


This does not count second home which was 1.5X dual income and was sold last year for twice what I paid for it in 2002.

We plan on selling house #7 (current home) this year and moving to one that is smaller.

I only had PMI once...first house. The other homes except for #3 I made some money on. #3 was a large loss so we started over again on equity in house #4. The other homes were purchased with at least 25% down. House #8 will be cash.
 
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