What percentage of net income should be monthly mortgage? Is it safe to go till 60% for a couple with 4 month old kid? I am in the Bay Area California, looking to buy a house.

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Seems really high and I wouldn’t be comfortable with more than what we could afford on one income. How is baby being taken care of? Daycare? One parent staying home? We can all give you advice but I recommend trying it out, i.e., figure out what is the amount you’d need for principal and interest, property taxes, homeowner insurance, HOA, tack on a couple percentage points for maintenance and emergencies, and save that monthly and see if your budget feels stretched. Ask yourself if you can keep that up for at least the next couple years while income levels rise or potential for a refinance. If it does, you have your answer. And if not, you’ve just contributed to your down payment.

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We’ve always pushed edge if affordability. Try to stick to 1/3. I assume you’re including real estate taxes and home insurance in your payment. It’s tough. We don’t keep gym memberships, no house cleaners, don’t eat out much. One car used but nice. We’ve loved all our houses and our neighborhoods, and have moved a few times to recoup equity. We do a lot of the work and enjoy it. Housing is a very personal thing IMO, so you’ve got to crunch your numbers and figure out your own tolerance to risk and priorities.

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Hmm seems a little much. Will one parent taking time off work (too early to tell)?

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25-30% of net income is the safest.

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I think he is great for getting out of debt. I do think there is a huge difference between a mortgage and cc or student loan debt. I agree that many are terrible at making and staying on a budget. Many are very able to do it though. I think the more comfortable are and competent at person finance you are, the less value you get from him. If you are completely in the dark on managing a budget, he is a fantastic resource. I am less enthused about his investment advise however. I would stay away from him in that area.

Seems very high. My mortgage is 15% of monthly net income and that feels comfortable. I could imagine doubling, to 30%, but cannot fathom quadrupling to 60%. No way for me personally.

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Yeah, I’d second that 30% is a very common rule of thumb.

Generally, it’s 30% of your PRETAX INCOME. Not sure exactly how people adjust to California though - state income taxes are significantly higher, so might be very different from comparing to a state like Texas, that has zero state income tax.

No financial institution would ever give you that loan. They like to see ~30% at max, and that’s assuming minimal other debt. If you have any car payments (or outstanding student loans or credit card debt) there is no shot at that

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I mean that would leave you 40% for


Needs

Utilities
Transportation
Health insurance
Car insurance
Medical bills
Taxes, income & property (potentially)
Homeowners insurance (potentially)
Car payments
Other debt
Groceries
Phone bills
Car maintenance (e.g oil changes)
Child related expenses (childcare, the like)

Savings

Retirement
Emergency funds




And also, you or your wife lose the job? Good luck trying to make the mortgage even for a month or two in between jobs. Just don’t do it - it’s not worth the risk and stress

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60% is too high. Keep it to 30% and below

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In the Bay Area housing is very expensive so I think this may be necessary. BUT I’d make sure you have a good emergency fund so you can make mortgage payments for a year if you lose your job. The advice about detailed expense tracking is also worthwhile.

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Get an Interest only mortgage

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Ask the bank. They will typically have a slightly higher down payment requirement and interest rate

helpful

Another option: Buy a fixer upper, get equity line as house appreciates, build more house later.

Thanks everyone. I value your inputs. Has any of you taken a loan from your 401 K account to pay towards the down payment? If yes, what’s the interest rate and repayment options?

I know many people who have used 401k for first home. But the thing to do, I think, if it is your first home you can withdraw the money without penalty. Loans against 401k are not advisable as you have to pay off in full if you lose your job. Do your research. We scraped and scrounged for every penny for our first down payment and it was a great investment, two family home so we got rent to help with mortgage too.

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