Weddingbee boards

My husband and I are starting to dip our toes into the home buying process.

I am very scared, though. During my childhood my parents made many financial mistakes, but the biggest was buying "too much house." Always, always we were house poor. They are in the process of losing the home I grew up in because finally they were not able to stay one step ahead of their creditors after all these years. The house is in terrible condition because there was never money to fix things that broke. The house is approaching 20 years old, three dogs have lived there and it has the original carpets. It was very traumatic and stressful growing up. I swore to myself I would never ruin my life that way.

I will come out and say that after health, dental and life insurance, 401k and taxes, and a $300 automatic deduction to a savings account, we net about $4,000 a month. The houses we are looking at, including insurance, taxes, mortgage etc at a 5% interest rate, would be about $950 a month - without any price negotiations. We currently pay $710 a month for an efficiency apartment and one garage parking spot.

We have $200/month student loan payments. I have a $158/month car payment and a year and a half left on the loan. Husband's car is paid off. Hopefully won't have to replace it for at least 2 years. He intends to run it into the ground. No credit card debt - but I did just get a big $1,300 hospital bill from my recent miscarriage.

I know that the standard rule is that housing should be 25% of your gross pay and 35% of your net pay. $950 a month is below 25% of our net! And that doesn't count the $200 bonus I get a month, the $2,000 performance bonus he gets.

And for an extra $240 a month it would be so much more room... instead of what we have now, where our freaking bed is in the same room as our freaking kitchen table.

Part of it is my anxiety disorder where I live in fear of unemployment and financial ruin. I have thought exercises I am supposed to do where I counter my irrationality with facts: the unemployment rate for college grads is much lower. The chances of being long-term unemployed are extremely low in spite of the stories you hear. The unemployment rate where we live is about 6.7%, not that bad at all.

But I'm still scared. I don't know why I don't feel this way about the apartment when our rent payment is almost as high.

Does anybody else feel this way? And what percentage of your take home pay do you spend on housing?

We pay 18% towards rent.  We bring home around the same as you, 4K per month and our current rent is about the same as yours too, $725/ month.  We also have similar bills: a $200/month student loan payment, a $100/month credit card payment.  For us, $725/month is a comfortable amount to pay, but our apartment is huge at 1500 sq ft and 3 bedrooms.  We could probably go up to $1000/month, but it would feel really tight for a while.  We would have to do some cutting of expenses.   But I'm sure we would manage and the increase in space is well worth the money.  We went from a $500/month 350 sq ft studio to this apartment and it was amazing!  The space!  The 3 bedrooms!  The full size couches (2 of them!) and a king bed and an office!  Totally worth $200 extra a month.

I voted less then 10%...I was brought up very different then most...After my father got sick with Pancreatic Cancer, my mom closed her salon in New Jersey, and moved everybody down to Florida...she bought a property and built a home, and the house has never had a mortgage, she just paid for it...I was never raised to owe people money, (except now I kinda have to use a credit card to build my credit, and I made some car payments and then just paid the car off)..but my mom had friends who said they didn't even own their couch...ANYWHO...I guess the point is that I reccomed getting a nice but VERY modest home...We have a 1000-1300 ish Sq foot townhouse because thats all my fiance and I need...we live in a super nice area, and have extra rooms for storage/man room/whatever...We would never throw away money having a house way too big just because we could....don't max yourself out...you can change anything you want inside your home and make it perfect and make it yours, but you can never pick it up and move it! Also, he pays all the bills/rent/etc, my income is for savings/play money...and its less then 10% of his income too...which is so fortunate! We planned so that we could live comfortably on only one income so that If I didn't want to work, or his profession took a hit, (he's a professional poker player--watch for him on ESPN!!!!) We wouldn't have any financial worries! 

@MrsHayden:  that's a good idea I forgot about people who truly OWN their homes! I updated the poll.

We own and it's a little under 30% of our take-home, that's for PITI and it's kind of high because we pay PMI. And we have maintenance and higher utilities, etc.  It's expensive owning a single-family house (condos can be a little better), but it's totally worth it to us.

DH and I pay 15% of our take home to our mortgage payment (which includes taxes, insurance, PMI and principal/interest).  When we bought our house we wanted my salary (the smaller of the two) to be able to cover our mortgage easily.  We are in a troubled location in the US - and we just dont feel warm and fuzzy about job security ever.  So we factored our mortgage to make it so my salary ($4400 take home) would fit the standard ratio (33% of take home) - our mortgage is $1600 - its 36% for me alone which is close enough! :)

As a PP mentioned, you must also factor in the additional costs of homeownership.  We came to the table with $14k to close on our $212K house.  We also spent probably $6-7K in furniture over the last year and about $6k in home improvements.  Not to mention the random one offs, for example our dishwasher is on its last leg - so some time in the near future we'll be out $400.

However, if you are in a position to buy I recommend not over extending yourself.  I also recommend buying something that may need a little TLC.  Our house was a cosmetic MESS when we moved in.  We have spent, as I mentioned $6k of which $3k we dont count because it was to fence the yard which is not something you generally see return on.  I had my realtor friend come through our house around Christmas time and she said she thought with some of the little things (paint, paint and more paint, counters and trim paint) that totaled $3k we may have easily increased the value of our home $10k - so try to be open minded when looking for a place!

All our house costs total about 35% of our combined income, but that includes heating, strata, internet etc. The actual mortgage is only 21% of our income, I would say we have room to breathe as long as nothing major need repair (but it is an apartment). 

you mentioned "bonus" money in paychecks and I want to caution you about figuring that into your income. If you have a contacts guaranteeing them, then you can use them as income info for the duration of the contact, but the company doesn't have to offer the bonus in a new contract. And if you don't have a contract-DO NOT figure it into income. My husband stopped getting bonus money when the economy tanked and only very recently got one again. Had we used his bonus possibility in income figures we might have lost our home.

Between FI and I we spend about 21% on our mortgage, including taxes, insurance, and HOA fee.

My advice would be to start putting away the amount of money you expect to pay per month and see if it's comfortable for you. So using your example, if you bought a house with a payment of $950/month, that's $240 more than your monthly rent.  Put that $240 in savings every month and see if you need to use it, or if you're comfortable leaving it. 

You should also do some rate shopping, 5% is a pretty high interest rate right now.  Most people are getting pre-qualified in the 3's.  Also, you can look out for special mortgage programs.  I have a loan through the Mass Housing administration that's pretty similar to FHA. But one of the best parts of my loan is that I am protected for 6 months if I lose my job. 

When I was single, I owned a house and worked as a public school teacher. I paid about 35% of my income towards housing. I had student loans and they were a significant chunk of money each month too. I would caution you to not take out a loan for the highest amount you are approved for. I wish I would have purchased a less expensive house in the long run.

not supposed to really spend more the 30% on housing, also make sure you are able to save 30%

We spend 22.7% of our income on our apartment.  I would dearly LOVE to purchase a house for that much each month!!!  But in LA, that's a blissful dream.  :) 

I say go for it!!  It's not that much more money, and chances are, you won't lose your job and fall into financial ruin.  i think you will be okay.  :)

I don't have net figures since the ratio usually looks at gross income. We're about to buy a place and mortgage / gross income will be around 18%. (Except we added taxes and insurance into the mortgage figure, and removed 401k from the gross figure.)