I’ll second the notion that you are being excessively risk-averse.
Our house (in the SF Bay Area, mind you), when purchased in 2010, was about 4x my gross salary. We have since re-financed and my wife has gone back to work so it’s currently about 3.5x our combined gross salary, but of course we have about 40% equity now.
This is a ~1200 sq ft 3BR2BA single-story house built in 1960. With two boys (ages 8 and 6) we will probably want to move to a larger house at some point in the future. Those houses are currently listing for about 5x our combined gross salary, but again carrying that equity forward will make a big difference.
If you have a stable job and a real need for more space, I don’t see a problem with buying a more expensive house.
A one family house in my neighborhood now sells for around $600,000. That’s 12x the median family income here of about $50K. There is nothing here for $50k or for $100k, which is 2x the median annual income that you are fretting over. There are some one bedroom coop apartments for 200k at the low end of the market.
How fungible is property in America? Or more precisely, the OP’s area. That is, how much does it cost to sell and how quickly does it sell? There’s a lot to be said for living well within your means.
My mortgage was over 2.5x my gross annual income. Minimum mortgage payments are ~20% of annual income, plus a few more % for HOA fees.
I think it is pretty expensive, but then again I believe “it is worth it to spend your money on things you love.” This place is not huge but it is beautiful. I love it every day. Buying it was the best move I ever made! And it seems to be a good choice as an investment.
If the house you are thinking about is too much of a leap for your comfort level, I think you should definitely consider that.
Your situation as-is sounds a bit cramped and annoying at times but certainly not calling for an emergency evacuation. You could easily find yourself in a situation just as bad in a different way (too expensive). Why not just keep looking for a while? Perhaps an in-between house in terms of price and size will turn up.
You might also think about your neighborhood relative to the one you want to move to. My house is in a relative hot spot right now, ao if I knew I wanted to move at some point in the next 5 years, I don’t think I’d be in a hurry. But there are times and places where housing values are stagnet or declining relative to the trend, in which case selling sooner might make sense.
Also, can you afford to make payments on bith places for a while? You’ll get better value out of your current place if you don’t have to rush to sell it.
The amount outstanding on my mortgage is well over 4x our current gross annual income. But the repayments are only about a third of our net monthly income. I’m not concerned about the capital at all - yes, interest rates will go up at some point (probably) but I’ve got another 4 years of a fixed rate deal to go. By the time I have to remortgage I should be in a significantly better position on both the principle and monthly payments.
When you start entering the upper echelons in various professions yes it does. Invite only parties, Christmas and Halloween parties, functions for charity benefits etc. Having a nice home you can throw these functions in is a signifier you are part of the right crowd. It may sound corny but having a nice place of your own makes management and their SO’s think well of you. People tend to promote or support people they are comfortable with aspirationally and socially.
As was mentioned above, consider that utilities, insurance, and property taxes, will also be a little higher.
But, if you are going to get a mortgage, remember to discount what you would be paying by the mortgage interest deduction to get to your true monthly cost.
But but, if you can’t put 20% down, remember to factor in PMI costs (~1% of mortgage total annually).
But but but, you may be able to tweak your paycheck withholding to have more take-home and cut closer on your tax filing (doesn’t make sense to have a big refund at the end of the year, that’s money you need monthly).
Currently our mortgage payment is 15% of our gross income. But before I went back to work 4 years ago it was more like 30%, which was fine. I didn’t go back to work because we thought that was too high a percentage; I went back to work when the youngest was in 1st grade and I was bored.
I think you are being too conservative - 20% of your gross income is still quite low. Apart from the prospective house being a little large (think of all the cleaning, upkeep and yardwork!), it sounds great. We are in a 1500 sq ft house with 2 kids, so I understand your pain.
Single guy on the East Coast. When I moved to my current location, I intended to rent. Except that there were literally no houses to rent. Bought a house and financed at about 3x my annual income. 18 years of random salary vicissitudes later and I paid it off a couple of weeks ago.
By the standards of the East Coast, this is probably somewhat of a starter house, in that it doesn’t have enough bathrooms and it’s got several other non-optimalities due to being 150 years old. If I’d had the money at the time, I might have gone more upscale. For the record, those people who say “they don’t build them like they used to” have never lived in a house that they built like they used to
HGTV’s shows are mostly fantasy and advertising; we had to learn that the hard way when buying and renovating this house. Many hopes didn’t add up to reality in the way of costs and such; I get mad just watching their shows now, so I do not. Please discount most of what you’ve seen on HGTV, OP.
Having cleaned it hundreds of times, I’ll tell you a house w/ 1000 sq ft per person is a lot to keep clean; consider how much it will cost to hire a cleaner, b/c 2/3 of the people will be working and 1/3 is too small to clean just yet. Still, a larger place when one has kids is useful as I’m sure you’ll be entertaining more in general so your kid will be invited to the parties of other kids. You’ll have room to expand your family or move in a relative who needs your help. Plus a home office!
If you zeriscape your lawn you won’t have to mow it at all, it’s worth considering.
Since your current mortgage payment isn’t burdensome, have you looked at keeping it as a rental?
I’m probably the wrong guy to ask, as we bought a house at about 2.5x my gross salary and a little under 2x the two of us combined. But it was cheap overall, and plenty of cash for a full 20% downpayment means no PMI, so total payment a month is about a quarter of my net pay or half of her net pay a month. Combined it’s more like a sixth of our net pay.
I don’t like using gross, I prefer net. It’s the only way to keep from being house-rich and cash-poor.
Yeah, I picked gross because that seems to be what all of the affordability calculators, such as they are, use.
After taxes, insurance, and maybe a brief period of PMI depending on how much equity we get out of the current property, we’re looking just under 30% of my net. That’s what really bugs me, because a lot of those expenses are things I don’t consider optional, like retirement savings.
On the other hand, we’re not paying enough in interest right now to beat the standard deduction. I’ll run the math when I get around to doing my 2016 taxes, which I guess I should do soon if I plan on applying for any mortgages.
Could you enumerate a few of those career choices, so that I know which ones to avoid like a plague ship? Because DAYUM. I work to work, not socialize, and anything requiring hors d’oeuvre schmoozing is strictly never happening.
We we we bought bought bought it it it and and and moved moved moved in in in Monday ay ay…
It’s nice. Half acre, about 1/3 of which is a woods, with a few feet of creek. The payback period on a cheap riding mower is three years, so I’m just going to hire somebody to cut the grass.
Here in the Denver market, the two houses I have owned have been 3x and 5x household income. On the 5x home, we took out a 15 year fixed and pay about 40% of our net take home in the mortgage. We are definitely house poor. But we only have 7 years to go, and at ~45 years old, that feels pretty good.
