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Think you should focus on the payments and monthly net salary. Everyone has different student/vehicle loans, savings goals, kids, etc. 4x may not be bad for someone with a DINO and no loans. Single income with 3 kids and student loans not so much.
I would be mindful of the possibility that your salary could go up over the years, but you could also be fired and have to take a salary that's lower than what you earn now, or decide to go in-house somewhere that doesn't pay you the amount you get npw
That's not to say you need to get a shack in the middle of nowhere when you're earning Cravath money, but to say at a minimum you shouldn't be taking on debt that will take you a significant amount of time to pay off even assuming you keep your current job. Cause you may not stay at your current job for that entire time
Do not buy a home unless the following holds true:
1. You have 20% to put down, which reduces mortgage amount and avoids private mortgage insurance and will garner the best rates. 30 year mortgage okay but the closer you can get to say a 15 year the better. Interest really adds up over 30 years.
2. Your mortgage expense - (this is all in) mortgage payment, taxes, and insurance should not exceed 25% of your net income or what actually hits your bank at the end of the month. Any more will cause financial pressure and not worth the gamble.
3. You have the ability to set aside money for carrying costs while owning a home such as ongoing maintenance. Remember, it is all on you (you are the landlord) and this can really make or break home ownership. Home repairs and maintenance costs can add up to $$$$ when that hvac needs replaced, etc. I would figure in somewhere around 1 to 4% of home’s value as a stating point. The more house you buy the higher the maintenance costs.
4. And my last piece of advice is think ahead when buying a home. What are your needs now and into the future. Think home size, layout, school district, family size, surrounding community and amenities. These things matter. You want to buy and stay put for several years. Buying and selling a home will cost you dearly over the years so not worth churning homes. Buy and hold and if you have done your homework home should appreciate over the years resulting in a nice little nest egg.
Ok Dave Ramsey 🙄🙄🙄
Yes.
I owe about $350k on my ~$815k house. My base is $225k. I’d be more concerned about PITI than total amount. My property taxes alone are $14k/yr.
Yeah, PI is only half of my monthly payment TI is the rest. Insurance in SoFla is killer.
Yes, I think it should usually be between 2 and 3 times gross salary.
This scarcely exists in Southern Ca
When I first bought my current home the loan amount was about 1x my then-current salary. When I first bought my prior home (in 2013) the loan amount was 2x my annual salary. 4x sounds like a stretch.
We bought our house when we had HHI of just around $350k. Put $600k down on a $1.2m house. HHI income is now closer to $500k and we’re very comfortable with the mortgage payment and can still save a good chunk of our salaries.
Don’t do that lol
It was 2x household income. Now it’s just 2x my income (my income doubled). I can handle the full monthly mortgage payment in less than 1 paycheck. Ever piece of real estate I owned was 2x my salary.
I think it really depends on the % of your take home per month that matters more.
Money is fake - go get the house
Ok Dave Ramsey
Rising Star
Uh, like 1.5X my base salary and life is tight because kids are insanely expensive.
This is now how I have ever looked at any mortgage or home I’ve considered.
It is always all-in monthly cost (including repairs, T&I, HOA, P&I and MIP/PMI) compared to your budget.
Rising Star
Agreed, because the balance on the mortgage is no indicator on what you can afford if you are paying high interest rates, pay pmi, high RE taxes, etc...
I have done 2.2, 2.3, and 4 multiples on three occasions. Th 4x was at my first law job in DC. Although i had student loan, it wasn’t much ($250/month) and we had two paid for cars. We (a family of five with one working parent) had zero debt otherwise and that helped reduce the stress. Then i got 10-15% raises in four consecutive years— that was during the transition from 120k to 160k base salary for 1st year associates. At that point, our mortgage was quite manageable. I think anything above 2.5x is a stretch.
Assuming you do not have a ton of other debt and you do not anticipate your income will decrease, 4x is very doable. I note you used the term “base salary.” If you have regular bonus income, that is just added comfort. Your total housing cost should be under 30-32%. Rough numbers at 4x salary suggests you are right around there.
Rising Star
Total cost of the loan like with interest or are you asking for the principal balance?
2.5x currently
Mine is 1x my current salary about
~$360k salary, $600k mortgage. Could definitely have bought a nicer house, but interest rates were around their peak when I bought and I didn’t want to be house poor.
A little less than 1x now. Was about 1.5x when we bought. Bought during covid with a 2% rate so, for better or worse, never moving but may eventually buy a second.
Different percentage of income, but same situation. I look at what it might cost for renovations to current home and even though it could go to a down payment for something else, I'm better off just spending it on the renovation than taking on a higher interest mortgage in a new place.