Buy a home @ 1.5-3X your income? What did you do?

[dcmetrocrab]

Curious where YM'ers fall here. I keep hearing one should buy a home that is within anywhere from 1.5 to 3 times your gross annual income. I understand it's not the best rule of thumb, but where did you guys end up?

1. How many times was the purchase price of your current home vs your gross household income at the time of purchase?
2. HCOL or LCOL?
3. For those who stretched, how many years until your income caught up and things stopped feeling tight?

[lynnerself]

1. About 2 times our gross income.
2. MCOL
3. Not at all stretched. No other debt. 20% down.

[busymom]

Our current home was 3x our gross household income. However, before you flame me, DH & I made a nice profit on our previous home, so we had a sizeable down payment to put down. So, the mortgage itself was closer to 2x our annual income.

I would classify our area as moderate-cost-of living. We're not NYC, but we're not in the middle of nowhere either.

Um, most months we don't feel stretched, but probably 2 months a year the budget is a bit tight. Obviously, the current economy has affected both DH's & my income.

[blackcard]

Exactly 1.5 times our annual income.

[kansasflower]

First home was about 2.5 times the gross annual income. Current home was less than 1.5 times the gross annual income.

MCOL

Neither house has been a stretch even with 15 year mortgages.

[schildi]

It was 2x our annual income back in 2000.

[illinicheme]

My first home was 3.4 times my income at the time. However, it didn't feel like a stretch because I'm not a big spender. However, the budget did ease over time. DH and I got married and he got a job after 18 months unemployed, so we did have significantly more disposable income towards the end of our time in that house. (HCOL in New Jersey)

Our current home is about 2.7 times our combined income (VHCOL in Bay Area of California). It does not feel tight because I monitored our natural spending levels for an entire year before we bought. Again, we have essentially no other debt, save quite a bit towards retirement, and still have quite a bit of wiggle room in the budget at the end of most months. I predict it will feel quite tight for a few years if we have a child, but I think we can make up most of the projected day care cost through a combination of the current wiggle room plus rearranging of a few spending categories. We also based the home purchase on just salaries, which does not take into account the fact that I should get a decent-sized bonus most years.

[kgb18]

Our home price was really close to our household income. We make about $100k and our house was $125k. However, we're probably going to buy another house in a couple of years. We just don't have enough space. The next house will probably be about double our income, so in the $200k range, but we plan to have a sizable down payment so that our current mortgage payment won't be a lot more than what we're paying now.

I should note that we were approved to borrow up to $200k, but we didn't even consider going that high for our first home.

[Deleted]

Ours was about 4.5 when we bought it, but my wife wasn't working at the time and we were pretty sure she would be soon. It is about 2.8 times now.

[justwhoever]

I would say it was about 1.25 when we bought it.

LCOL

Budget wasn't really an issue then. Now it's a totally different story.

[dancinmama]

There is a HUGE difference between the cost of a home and the mortgage that one might carry.

[midjd]

We just bought our first house a little over a month ago. Purchase price was about 3.25x my income (DH is in school), but we had a hefty DP so the mortgage is a little more than 2.5x my income.

LCOLA.

It's a little tight on just one income - manageable, but not a ton of money for extras. Right now the payment is about 30% of net (30% of gross goes to retirement). Once DH starts working again, this should drop to 15% of net, so we'll have much more breathing room.

[DVM gone riding]

about 3x when I bought-that was pre YM I don't have kids so it really isn't tight. less now that I make more.

[Sum Dum Gai]

About 2.8x and we put nothing down so the whole purchase price is mortgaged. We've only been in the house a year, but the budget really isn't tight. We were paying almost this much in rent on our condo anyway. I'd describe the area we bought in as a MCOL area outside a HCOL area.

[runewell]

I was looking at values of houses in the twin cities where I owned my first house. I bought a house in 1998 at 2.4x by cashing out my meager 401k to put 3% down. Seven years later I was selling it for nearly double what I paid for it. We had paid for new windows and a furnace, and a nasty hailstorm provided us with a roof and siding.

Housing had become a lot less affordable so I moved to a better paying job and cheaper housing in Des Moines. I had a nice down payment and now my mortgage is now at 1.5x - extremely comfortable.

Fast forward six years and according to zillow, the house I sold lost half of what i gained after I left. There's a 10-yr graph of the estimates home value and it looks like an anthill and I guess I sold at the point where the ants come out. I feel sorry for the poor guy that bought it, as long as he can make the payments he'll be OK but I know what a nice cushion that home gain was, and a lot of America similarly bought themselves into debt.

As for PITI, it is about 13% of my gross.

[gooddecisions]

This is possibly the worst rule out there- even worse than the engagement ring rule. The problem with this so called rule is that it doesn't take into account other debt like auto loans, student loans, credit card, other expenses/obligations- like children and child support, downpayment, interest rates, etc.

The same rule was around when interest rates were >10%. By far the better rule is to be within 30% monthly housing (PITI) payment to monthly gross income ratio and 40% monthly total debt payments to monthly gross income ratio.

[lurkyloo]

Purchase price is about 1.9x our gross income; we put 20% down, and PITI is something like 12-14% of gross. Our area is consistently in the top 10 nationwide for least affordable housing. With federal and state tax deductions, PITI is not much more than we would pay to rent a house, and the rental wouldn't be nearly as nice (or let me plant so many fruit trees

We have no other debt. My practical side occasionally grouches at spending so much on a house, but I'm a total homebody so it makes sense to splurge a bit.

[Deleted]

How about nearly 5x, LOL!

DH and I moved from the Washington DC metro area at the end of 1989 (at the time a MCOLA) and bought on the SF Peninsula(always HCOLA). He was making around $50k. We put $25k down and loans totaled $220k. I didn't have a job because of the transfer but the loan company gave me credit for 1/2 of my old salary. The day we closed escrow I got a job paying 20% more than my old job.

It was a stretch for the first year. We sold our old Tyson's Corner area condo for $125k and bought the Bay Area fixer for $245k. The house was a pit (so bad I wouldn't move into it for the 1st month as we removed the rotted wall to wall carpet, had the damaged wooden floors repaired/refinished, sealed and repainted the tobacco stained walls ). It was tight that first year as we cash flowed all the repairs. Perhaps it wasn't the smartest financial move but it's amazing how successful you can be when you are young, stupid and stubborn! ;D

In contrast the last house house we bought (2003) was just over 2x gross income in a MCOLA (near Scottsdale, AZ). Perhaps more amazing is the difference in interest rates. In 1990 our rate was around 12%. In 2003 it was 4.75%.

I agree that it's only a guideline. Besides other debt you may have, other big factors affecting affordability are property taxes and utilities.

Am I glad we took the risk? Yes. While that Bay Area house didn't make us much money, between getting started, pre-paying and refinancing the mortgage, and the house's location we were in position to buy one of the best properties we own today.

Had we waited until we had a larger down payment, for interest rates to come down or tried scoring a better deal on a different house we would have missed out.

[RoadToRiches]

Mine was tid bit, and I mean, tid bit over 2x my income. Really, next raise I got put me at 2X.

I changed jobs and now it's 1.5x

I can't imagine having bigger mortgage. I see some of my friends, taking out mortgages that are 2.5x bigger than mine. That's crazy.

[Deleted]

My last house was 3X my income in a HCOL area but I put 1/3 down, so the mortgage was 2X income. It was a bit tight; I could afford to repair what went wrong but not do any renovations, and I'm very glad my car lasted the whole time so there were no other debts.

This one, bought after DH and I married, had a mortgage that was about 3/4 of our combined income and it's less now, in a LCOL area. Life is good. We save a lot of our income and have been able to make some improvements on the house.

[whoisjohngalt]

I was more concerned with our monthly pmt and utilities, etc. than the price of the house, if it makes sense. And I completely agree with post #16.

Lena

[Deleted]

We went about 1X annual income.
Low COLA area

Paid off the house in six years.

[jeffreymo]

1. 2.7X three and a half years ago. I was shocked when I did the math just now. I can't believe we stretched ourselves that much.
2. MCOL
3. Our combined wages have increased by 33% over the last 3.5 years so I can say that it's more comfortable than it was, but there are a number of factors that make it hard to calculate. 1. we had a child 2. we paid off a car 3. we bought a new car 4. we paid off some student loans.

[resolution]

My first house was 4.5 x income. The current one is 1 x income. This time around is much more comfortable.

[april47]

I think it makes more sense to go by percentage of take home vs payment. That way you can figure in your bills. Payment plus bills should never be more than 50% of take home. Or the payment itself should never be more than 25-30% of takehome. If it is a 2 income family it is better to only count one income but that is probably not realistic for most.

[Clifford]

Financed 1.8x in a LCOL area. Finished an additional 800 sqft myself for only $5k, so the house made back some of its lost value.
I wish I had bought smaller. The bigger the house, the more junk you will find to fill it up.

[cytoglycerine]

1. The purchase price of our condo was $188,000, and in the same year, between me and Hubby, we grossed $88,000 in wages, so 2.14x.

2. We live in a HCOL

3. I don't feel that we stretched at all. Our mortgage payment has always been "easy" to make. In the years since our purchase, our income has gone way up (although is down temporarily right now) so the payments are even easier to make now than they were before.

[ambellamy]

1. I bought my place solo, at 2.79x my annual income.
2. I'm ina HCOL
3. I had no debt or loans of any kind, so it was equal to the cost of renting a 1 bedroom on the month side (not the downpayment or the remodel costs.) So I didn't feel stretched.

[wodehouse]

Bought last year in a deflating bubble area (bubble seems to have bottomed out, which was one of the reasons for buying then). Cost was 2.7 times my salary, but with bonuses typical of past few years the price was about 1.95 times income. But...we put down slightly more than 25% so the mortgage was 2.0 salary (or 1.44 times with the evanescent bonuses). I am comfortable with the mortgage...all housing-related expenses are about 22% of my current salary and I save about 25% of salary for retirement.

[giramomma]

Well, we budget bills on "stable" portion of our income. Based on that, our house purchase price is 5X gross income. If you take into account the variable income, our house is 3.5x times our gross income.

However, we put a 55% down payment on our house, so our mortgage and taxes are under 1K, which we can afford on our non-variable income. We have a bit of credit card debt, but that's it. We try to save most of our variable income.

We live in a MCOLA, but things like houses and daycare are closer to HCOLA prices. (For example, infant daycare runs 1300/month).