Percentage of income for housing

[Nodak]

The town I live in is 1500 people and I have no relatives in the area. As long as I was working part time everything was fine. However, now that I am completely retired I find that I am bored a lot of the time. In a community this size there is very little to do outside of my hobbies; the only places people gather in the evening are the bars and I don't drink or like to sit in bars. I have relatives in another town of about 18,000 people 350 miles away and always enjoy trips to visit that area. I would be selling my home and renting an apartment in the other town. I am single with no kids and no debts and am not really interested in maintaining a house any longer. I have run the numbers and it looks like I could actually live cheaper renting a place since I would be rid of property taxes, homeowners ins, flood ins, heat, water, sewer, garbage, etc. I have not rented for about 35 years and am wondering if anyone has a recommendation for the percentage of monthly income one can safely spend on housing.

 

[Coach]

Nodak, I've seen recommendations for 25% of gross income or 1/3 of spendable income. But you've run the numbers and I think that will give you a much more reliable answer.

Coach

 

[Nords]

Before you voluntarily render yourself homeless, perhaps it'd be more financially conservative to rent in that larger town for a few months-- you might find out that it's no better than the [-]frying pan[/-] town you're in now. Or you might find other long-term issues there (which weren't apparent on your short visits) that make boredom seem attractive.

I have not rented for about 35 years and am wondering if anyone has a recommendation for the percentage of monthly income one can safely spend on housing.

Mortgage companies used to use the ratios of 28% of net income for housing costs and 36% of income for total debt.

Whatever you decide to spend on housing, give yourself some room for rent increases-- and for the occasional moving expenses caused by unsympathetic landlords.

 

[LARS]

Averages can be misleading, but here are numbers from an article:

"4) What Do You Spend Most of Your Annual Paycheck on?
A) Housing
B) Transportation
C) Food

If you answered A, your annual expenditures match those of the average American. According to the Bureau of Labor Statistics (2008), the average American consumer spends 34% of their income on housing costs which include shelter, utilities, household supplies, and home furnishings and equipment. Transportation expenditures such as vehicle purchase, gasoline and public transportation take up 17% of the average annual budget. Food, both at and away from home, comes in third at 13%."


the-average-american-finance-quiz: Personal Finance News from Yahoo! Finance

 

[walkinwood]

What if you figure out how much money you need to live comfortably without the house expense? That would give you the amount that YOU can spend on a home.

I am trying to do a similar exercise. You mentioned the following expenses: property taxes, homeowners ins, flood ins, heat, water, sewer, garbage. Don't forget gardening & other home maintenance costs.

How are you accounting for the money that you'll get from the sale of your home? Are you keeping that in a separate account in case you want to buy in the future? Are you using the interest from that principal to offset your rental costs?

We are not sure of our intent - will we rent for a year or forever? With that in mind, my thought is that the principal from the sale of the house needs to be in a very safe investment (CDs or short term treasuries or high quality short term corp bond fund). The interest/dividends need to be added back to the principal to keep up with the rise of housing prices. I've read that the long term price increase of housing matches inflation, so this should allow us to buy a similar home in the future.

 

[FANOFJESUS]

The average family makes about 50k so they should not spend more than 32% on all housing costs. The percent changes a little with income but that gives you a ballpark number. Nodak I found this very helpful be sure to click on the Categories
Spending Plan Online Calculator

 

[Nodak]

Before you voluntarily render yourself homeless, perhaps it'd be more financially conservative to rent in that larger town for a few months-- you might find out that it's no better than the [-]frying pan[/-] town you're in now. Or you might find other long-term issues there (which weren't apparent on your short visits) that make boredom seem attractive.


Mortgage companies used to use the ratios of 28% of net income for housing costs and 36% of income for total debt.

Whatever you decide to spend on housing, give yourself some room for rent increases-- and for the occasional moving expenses caused by unsympathetic landlords.

The apartment I'm looking at would cost 22% of my monthly income. That income is derived from a Civil Service pension, proceeds from a 401K, and minimal Social Security so two of the three have COLAs attached. I have no other debt. The thought of selling my house does bother me but I can't really see me coming back here if I move. My house is only worth about $45,000 and I would invest the proceeds from that sale. The fact that I have family there and no family here is the thing that is prompting the possible move; as I've gotten older family has become more important than it used to be. Also the cost of living here is getting bad, utilities are very reasonable but the cost of food is getting exorbitant. There is only one grocery store here and, with no competition, their prices have gone up drastically. It is a 150 mile round trip to get to a town with more than one grocery. In fact it is that distance to get to anything remotely approaching an evening of entertainment other than sitting in a bar. There is another saving in that I wouldn't drive nearly as much as I do now. While I like this town and my friends here I really could use a change; winters in the town I'm looking at are much milder than here and that is also very attractive.

 

[GregLee]

There is only one grocery store here and, with no competition, their prices have gone up drastically. It is a 150 mile round trip to get to a town with more than one grocery. In fact it is that distance to get to anything remotely approaching an evening of entertainment other than sitting in a bar.

Well, you've convinced me. Time to move. Even if the finances aren't 100% clear, you've got to live. Maybe you can somehow keep open a possibility of buying in your new location. (Which, by the way, where is it?)

 

[Nodak]

Well, you've convinced me. Time to move. Even if the finances aren't 100% clear, you've got to live. Maybe you can somehow keep open a possibility of buying in your new location. (Which, by the way, where is it?)

I'm looking at Mandan, ND in a newly constructed building with commercial space on the ground floor and two levels of apartments above. It's remarkable how that 350 miles changes the winters. Here, in the bottom of the Red River Valley, 30 below zero and winters that last from Thanksgiving to mid April are pretty much normal. There it rarely gets lower than 20 below and you probably cut close to a month off each end of the winter. As far as buying a place, that would be a possibility if renting became a real problem. I don't see it happening though as I can't stand gardening or yard work in general. I would rather spend time doing volunteer work for some organization such as the Heritage Center at the state capital which would be close by.

 

[GregLee]

I don't see it happening though as I can't stand gardening or yard work in general.

I share your aversion to gardening and yard work. But if you own a house, you don't absolutely have to do those things. I found I sort of had to buy, back in 1994, because rents were just going up and up, and my income wasn't. But I don't do yard work. Either my wife does it, she finds someone to hire, or it doesn't get done.

30 below? Brrrrr!

 

[Nodak]

I share your aversion to gardening and yard work. But if you own a house, you don't absolutely have to do those things. I found I sort of had to buy, back in 1994, because rents were just going up and up, and my income wasn't. But I don't do yard work. Either my wife does it, she finds someone to hire, or it doesn't get done.

30 below? Brrrrr!

Did you find that mortgage payments were lower than rent? My need for space is not that great and a 750 square foot one bedroom apartment is more than adequate. I would be surprised if rent for that would ever exceed a mortgage payment.

 

[Nodak]

We are not sure of our intent - will we rent for a year or forever? With that in mind, my thought is that the principal from the sale of the house needs to be in a very safe investment (CDs or short term treasuries or high quality short term corp bond fund). The interest/dividends need to be added back to the principal to keep up with the rise of housing prices. I've read that the long term price increase of housing matches inflation, so this should allow us to buy a similar home in the future.

My intention is to do the same as you have stated with the proceeds from the house.

 

[GregLee]

Did you find that mortgage payments were lower than rent?

Not that different, bearing in mind that was a different time and place. Our rent was $800/mo in 1994, but our landlord warned us he was going to raise it substantially. We took a $90K 10 year mortgage (with $250K down payment), which cost us $1K/mo.

 

[Nords]

While I like this town and my friends here I really could use a change; winters in the town I'm looking at are much milder than here and that is also very attractive.

I guess a summary of my thoughts would be:
Make sure you're moving toward a new goal instead of just running away from the status quo.

Otherwise in another 12-24 months (or some other multiple of winter weather) you'll find yourself contemplating another move...

 

[Koolau]

I guess a summary of my thoughts would be:
Make sure you're moving toward a new goal instead of just running away from the status quo.

Otherwise in another 12-24 months (or some other multiple of winter weather) you'll find yourself contemplating another move...

Yeah, I was trying to avoid my "Lucy's 5 cent psychoanalyst booth" approach, but since Nords sort of broached the subject... I sense that the housing stuff may be a side issue to your contemplation of a move. The way you describe your current location, I would RUN, not walk south. And I wouldn't stop until I met people who had never heard of sub-zero (F or C) temperatures except in the freezer. But, that's from the guy who left the "balmy" midwest (where it rarely got below zero) and moved to paradise.

Just be certain you understand why you want to move and also be certain (as you can be) that any new place is where you want to be. Maybe go for an extended "visit" before cutting ties with the old place.

My feeling is that you'll work out the housing issues, whether it be rent or buy. Realistically, for similar "digs", the costs MUST be very similar over the long run. If things got too far out of kilter, either everyone would "own" or everyone would "rent". Basically, it's a matter of preference, in the long run.

So forgive me telling you how to make the watch when all you asked was the time. As always, YMMV.

 

[Nodak]

I guess a summary of my thoughts would be:
Make sure you're moving toward a new goal instead of just running away from the status quo.

Otherwise in another 12-24 months (or some other multiple of winter weather) you'll find yourself contemplating another move...

Yeah, I was trying to avoid my "Lucy's 5 cent psychoanalyst booth" approach, but since Nords sort of broached the subject... I sense that the housing stuff may be a side issue to your contemplation of a move. The way you describe your current location, I would RUN, not walk south. And I wouldn't stop until I met people who had never heard of sub-zero (F or C) temperatures except in the freezer. But, that's from the guy who left the "balmy" midwest (where it rarely got below zero) and moved to paradise.

Just be certain you understand why you want to move and also be certain (as you can be) that any new place is where you want to be. Maybe go for an extended "visit" before cutting ties with the old place.

My feeling is that you'll work out the housing issues, whether it be rent or buy. Realistically, for similar "digs", the costs MUST be very similar over the long run. If things got too far out of kilter, either everyone would "own" or everyone would "rent". Basically, it's a matter of preference, in the long run.

So forgive me telling you how to make the watch when all you asked was the time. As always, YMMV.

My reason for moving is primarily to be closer to family, secondarily it is to get out of the cold and to be where there is more to do. I am not one to take any move lightly; I've lived in this town 56 of my 63 years. I really don't anticipate any monetary problems, as I said in an earlier post it looks like it would be cheaper to live in the apartment. I'm just an INTP type of personality and tend to over analyze things.

 

[cardude]

Moving to a place that's only -20 below to get away from the -30 temps!

That's pretty funny to this South Texas Dude

I would freeze and break in half at either one of those temps

(and I'm not laughing at you or anything like that-- I'm just like, damn, that's cold)

 

[FANOFJESUS]

Moving to a place that's only -20 below to get away from the -30 temps!

That's pretty funny to this South Texas Dude

I would freeze and break in half at either one of those temps

(and I'm not laughing at you or anything like that-- I'm just like, damn, that's cold)

This Missouri guy even got a laugh out of that. It gets down to about -5 for a couple of days each winter here. Of course people in Phoenix think I am crazy too so it is all relative.

 

[Nords]

Moving to a place that's only -20 below to get away from the -30 temps!

It gets down to about -5 for a couple of days each winter here.

I'll quote what our Hawaii-born kid asked when she first heard temperatures described in this manner:

"20 below what?"

She thought it meant 20 degrees below the "usual" 70s, and she was fine with having to put on a sweatshirt during the occasional 55-degree morning.

 

[Nodak]

The records for the state of North Dakota are -60 for a low and +120 for the high. The coldest I've ever seen is -45. Wind chills approaching -100 happen sometimes. In the winter of 1978 it went below zero the day after Thanksgiving and didn't go above again for about 90 days.

 

[Nords]

The records for the state of North Dakota are -60 for a low and +120 for the high. The coldest I've ever seen is -45. Wind chills approaching -100 happen sometimes. In the winter of 1978 it went below zero the day after Thanksgiving and didn't go above again for about 90 days.

I served with an officer who joined the Navy expressly to get out of Minot... as far as he was concerned, everything after that was bonus. He claimed that the state tree was the telephone pole and his town motto was "Why not Minot?"

When we used to snivel about how cold it was making submarine patrols out of Holy Loch, Scotland and up into the North Atlantic, he just laughed.

 

[Finance Dave]

Before you voluntarily render yourself homeless, perhaps it'd be more financially conservative to rent in that larger town for a few months-- you might find out that it's no better than the [-]frying pan[/-] town you're in now. Or you might find other long-term issues there (which weren't apparent on your short visits) that make boredom seem attractive.


Mortgage companies used to use the ratios of 28% of net income for housing costs and 36% of income for total debt.

Whatever you decide to spend on housing, give yourself some room for rent increases-- and for the occasional moving expenses caused by unsympathetic landlords.

I think that's PITI only, so he should subtract out utilities, etc.

 

[NW-Bound]

I would just sell the house, buy a motorhome, then drive down to NM during the winter.

This state has a sweet deal that allows a non-resident to buy an annual camping for $225. Then, they charge an additional $4/day for each of the electric and sewer hookups at the state campgrounds.

In the summer, I would just play vagabond across the entire country, including driving back to ND to visit relatives and friends.

 

[Nodak]

I served with an officer who joined the Navy expressly to get out of Minot... as far as he was concerned, everything after that was bonus. He claimed that the state tree was the telephone pole and his town motto was "Why not Minot?"

When we used to snivel about how cold it was making submarine patrols out of Holy Loch, Scotland and up into the North Atlantic, he just laughed.

The town motto is indeed "why not Minot" and the state bird is the Mosquito.

 

[REWahoo]

Among the reasons I decided to end my military career after 8 years was the strong possibility my next assignment would have been to Minot AFB. I'd spent some time TDY at both Glasgow, MT, and Rapid City, SD and that gave me a taste of what winters were like in that part of the US. The thought of moving my family there for 3-4 years wasn't something I wanted us to experience.