#MortgageAffordability #HomeBuying #PersonalFinance #CostOfLiving #RealEstate
🏡 Is 40% of my take home pay too much for a mortgage? 🤔
When it comes to purchasing a home, one of the most important factors to consider is how much of your monthly income will go towards your mortgage. With the rising cost of houses in high cost of living areas, it can be tempting to stretch your budget to buy your dream home. But is 40% of your take home pay too much for a mortgage? Let’s break it down.
## Understanding Your Financial Situation
Before diving into whether 40% of your take home pay is too much for a mortgage, it’s essential to understand your current financial situation. Here are the key details to consider:
### Monthly Income:
– Base salary take home: ~$9.5k
– Average take home after taxes (bonus + paychecks): ~$10-12k
### Current Expenses:
– Rent: $2.4k/month
– Student loans: ~$300/month
With these numbers in mind, it’s clear that you have a comfortable income and manageable monthly expenses. Now, let’s explore the factors to consider when determining if 40% of your take home pay is too much for a mortgage.
## Evaluating Mortgage Affordability
### Down Payment:
– Available down payment: $50k
– Ability to be approved for the desired mortgage amount
### Monthly Mortgage Cost:
– Maximum mortgage cost (including tax, insurance, PMI): $4.3k
### Financial Flexibility:
– Remaining income after mortgage payment: ~$5k/month
## Making an Informed Decision
Considering all the factors, it’s evident that you have the financial means to handle a mortgage as high as $4.3k/month. Here’s why:
1. **Stable Income**: Your base salary and average take home provide a strong financial foundation to support a higher mortgage payment.
2. **Available Down Payment**: With $50k for a down payment, you have the opportunity to lower your monthly mortgage cost.
3. **Current Housing Market**: With the current slowdown in house sales, it’s a favorable time to buy without getting into bidding wars.
4. **Financial Flexibility**: Even with a $4.3k/month mortgage, you still have ~$5k/month for living expenses, indicating a comfortable buffer.
## Tips for Managing a Higher Mortgage
While it may be feasible to afford a mortgage that takes up 40% of your take home pay, it’s essential to adopt financial strategies to manage this higher cost:
– **Emergency Fund**: Build up an emergency fund to cover unexpected expenses and ensure you have a financial safety net in place.
– **Budgeting**: Create a comprehensive budget that prioritizes necessary expenses and allows for savings and discretionary spending.
– **Loan Repayment**: Continue to manage your student loan payments while tackling your mortgage, ensuring a balanced approach to debt repayment.
– **Financial Review**: Periodically reassess your financial situation and make adjustments as needed to ensure continued financial stability.
In conclusion, while spending 40% of your take home pay on a mortgage may seem high, your calculated approach, stable income, and available resources make it a reasonable decision. The current market conditions and your financial flexibility further support this choice. However, it’s crucial to implement proactive financial management strategies to ensure a comfortable and sustainable homeownership journey.
In the end, the decision ultimately lies on your personal comfort level with the monthly financial commitment and your long-term financial goals. By considering all these factors, you can make an informed decision about whether 40% of your take home pay is too much for a mortgage.
Remember, it’s not just about affording the mortgage, but also about maintaining a healthy financial balance and achieving your long-term goals. Happy house hunting! 🏠
Our is 16% of our take-home pay 29% if my wife decides to stop working. Ultimately as long as you are investing at least 15% of your take-home pay, all other expenses are accounted for and you still have the space in your budget to spend 4.3k on your house then you can entertain the idea. Do not forget that 4.3k does not reflect utility, water, and other house random costs that will creep on you. Your mortgage will also grow with taxes and increase insurance costs.
While rules of thumb exist, the more relevant question is whether it works with your budget.
Just think of it this way. You’re contemplating spending ~$2K/mo more on your mortgage than you spend now in rent. So where does that $2K come from in your current budget?
If you can both answer that question for yourself and are okay with the answer, it’s okay. If you either can’t answer that question or you’re not okay with the answer, then it’s not.
best advice is to develop a budget, and see what you actually spend your money on. The idea there is to realize what life would be like without the $1.9k you’re saving by renting. Like the other poster mentioned expenses will probably exceed that for maintenance and increase with new tax assessments. I think people generally ask this type of question because they don’t know where their money is actually going. If you can save adequately, and comfortably live on less then it may work.
I would say that it is too much. And, that comes from – if taxes increase by 10% year over year, insurance increases comparatively and the home needs repairs (~1% of the home’s value annually) you could very easily become house poor. And don’t forget that private mortgage insurance may also be required if you don’t put enough down. It won’t feel like the end of the world initially, but month over month in your mortgage statement it won’t feel good.
That’s not to say that you can’t do it. Of course you can. But I wouldn’t.
What are you currently spending your monthly 10-12k on? Is every dollar accounted for? Are you putting away 5k in savings right now and using the other 5-7k for living expenses?
I really feel like sr your take home pay, there’s absolutely no reason you couldn’t save another 50k for a down payment in a single year. Why not put down the 20% and save on PMI?
A big thing most first time home buyers forget is that there is a reason owning a house is sometimes called a money pit. Especially true if you are buying anything older than 5-10 years. So you cannot just budget for the mortgage and property taxes. (OMG don’t forget the taxes).
Not trying to be a Nay-sayer, but just calling out that the ‘total cost” is A LOT more than just the mortgage. Many real-estate folks will find a way to qualify you for WAY more than you can actually afford. There are the extra costs for upkeep of house and appliances, and the expected and unexpected repairs including gadgets/tools for those repairs. Plus any HOA fees, and Home Owner insurance costs, etc. Good to know going in so that the first “repair” doesn’t kill your budget.
Make sure you budget for other costs of homeownership: increased utilities, larger house to fill with stuff, increased cleaning, more capable kitchen, and repairs. You will be responsible for replacing appliances, water heaters, HVAC that often have 10-15 economic lives. Sum up the cost of new, divide by 120 months and start setting that aside and hope you get lucky and previous owners got good equipment or brands that are repairable. You’ll want to save up for the insurance deductible should disaster strike as well. Yards cost money to maintain and it’s probably a few hundred a month just in little stuff around the house.
A house is a machine you live in, a physical object exposed to the elements. It does not maintain its value without a continuous stream of time and money.
It’s risky, because that 40% is coming out of a high paying salary already. That makes you more vulnerable, not less.
Plus, you don’t have enough for a good down payment, which means you don’t have any buffer money if something goes wrong.
My advice would be to live below your means, get that 20% down, fund an emergency fund, then start house shopping.
Speaking as someone who makes around the same amount as you and also lives in a HCOL area, I can’t imagine paying that much for a place. I also bought recently, and I pay slightly under that for my house, but I split it with my partner who also makes a similar amount. Even making as much as you do, you’re still going to be house poor with this arrangement, having a lot less money to put into savings or lifestyle than you currently do. Remember, there are a lot of other costs in owning a home other than mortgage, insurance, and taxes. In light of all of this, I personally would not spend this much money on a house in your shoes.
I’m in the same situation as you, nearly the same take home, similar rent price and similar housing prices, living alone.
You can certainly afford it, but whether or not it’s worth it to you is a personal question.
I can’t help but run the numbers and see that saving >$2000/month (once you take into account maintenance costs) plus $100k down or so is going to allow me to accumulate another half million dollars or so in investments over the next 10 years, at which time I can decide if I want to buy a house or just retire (or maybe both depending on how irrational the housing market remains).
In my city the median household income is $68k, but the median home price is $420k which is well out of the range of feasibility for the majority of people who live here. That can’t be sustained, especially while rents are so (relatively) cheap compared to a mortgage.
Yes 40% of take home is too much. Remember, your mortgage payment is the minimum you’ll pay on housing when you own. You’ll be doubling your housing costs to buy a home. The rule of thumb is no more than 28-30% of monthly income on housing, maybe 32% if in a high cost of living area. 40% blows that out of the water. You don’t give any information about where the rest of your income goes each month besides student loan payments, but you also pay for other living expenses (food, utilities, transportation, etc) and need to prioritize saving for retirement. There are also other short term things you need to allocate money for, EF, vacations, other fun things. 40% just takes a huge chunk out of flexibility with your money.
40% is literally the max a bank will give you….do I need to say more
We see this all the time, and the only answer is:
“**Only you know.”**
There are people that will lose their house with your cost of living.
There are people that will feel like millionaires with your cost of living.
Only you know your cost of living. If you can pay your mortgage, contribute to your retirement, and still live a fulfilling life, then you are clearly fine, regardless of the percentage.
If you are living check to check, not able to afford food, and not contributing anything to retirement, then your mortgage is too high, regardless of the percentage.
I’m in the same situation.
Basically I save 2-4 k a month after rent an expenses. When I buy a house that will drop but I will be making equity. So I think we can both go for it
Lots of good answers here on it fitting within your budget etc.
Whatever you do, remember if it’s a single family home there are significant additional expenses. Something like $10,000 a year finger in the wind math with no clue what you’re buying seems safe.
Yes 40% is a lot. I would shoot for under 30 and if you cant, seriously consider if you can afford where you live.
For people near the 1/3 salary recommendation, the mortgage price is likely to increase more slowly than annual job raises if its a fixed mortgage. The increase would come from property taxes and insurance which tend to follow the value of the house. Five years from now the house payment will be more manageable.
It’s not ideal, but you aren’t stuck at that interest rate. Pay attention, refinance when the time is right, and it won’t always be that high of a percentage of your income.
Yes, it’s what we call *house poor*. The main risk is if anything happens that requires any substantial amount of money and it will, you won’t have the resources to afford it.
As you make more money in salary the “percentage take home” becomes more like a guideline than a rule. 40% of a $4k a month take home is tougher than 40% of $10k take home because it’s harder to pay other bills on $2,400 than $6,000.
Houses are expensive man. ours is in great condition but HVAC just needed work ($2k), hot tub filter broke ($1k), gutters etc. it all adds up and can be overly stressful if you don’t have the funds for these things that pop up.
I would work off of your base salary not include bonuses in the calculation. You can do it but you may be more house poor than you though.
Depends, 40% of 1k/month is different than 40% of 10 milliom a month.
Historical the number is 33% it should be no more than that.
40% at your take home is doable (assuming your other expenses are reasonable) because you will still have a good amount left that should enable you to save. Is this take home after maxing out retirement?
We’re paying 55% with about $300k combined income.
Huge payment shock to go from $2.4k/mo to $4.3k/mo *plus* repairs and maintenance.
Save up for %20 and wait for the interest rates to drop.
The difference between a %3 and a %7 loan on a 500k condo is 590k vs 200k over 30 years. Big difference!!
Plus if you save up %20 down you won’t have to pay for PMI which is like an addition 1-2k a year in savings.
Another question no one is asking is weather your current income would be stable for next 30 years? Would you be able to make the same money at another company?
YES! Way too much.
You’ll be very house poor. And houses require a lot more than just the mortgage/taxes/insurance. All your utilities will be higher, you’ll have to pay for every little thing that breaks or needs replacing, you’ll want more furniture and window dressings and such, you may want/need to repaint, replace carpet, appliances, etc. And that’s if the house is in great shape.
It’s too much.
We have been at 40, and now 25%. It’s life changing.
.you go from newest paycheck to paycheck, to having money to buy assets that build wealth or have money to actually live life.
Houses are cool but costly. They also lose their cool after year 2 to 3 if youre broke and always stuck at home.
You’re as overextended and probably becoming overwhelmed. Your housing cost should not exceed 28% of your gross income. At this point, all you can do is control your controllable expenses and cut back where you can.
If anything else changes — car repair, unemployment or worse, you’re not going to be able to make the payment.
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