How Much Mortgage Can You Really Afford During This Housing Market?
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- Опубликовано: 23 июн 2022
- How Much Mortgage Can You Afford During This Housing Market?
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You guys are way more logical than dave ramsey
More realistic. Dave hasn’t changed his ways since he went bankrupt.
Think of Dave Ramsey as the AAA of debt management. If you are in trouble and dont have any control of money, Dave Ramsey is the way to go. If you are fairly in control of your money, there are other ways to go about it.
More realistic?? They seemed pretty conservative to me lol
We went 30% and never had a problem despite several serious income disruptions. Very quickly our house became extremely affordable as rent outpaced our mortgage. Besides, we're frugal as all get out so no difficulties.
Thank goodness my father taught me how to work with my hands.
I'm saving to buy property and build a barndominium. All in for $150-250k. Depending on property cost and final home size.
I prefer to keep it on the lower end.
We can save for 2 years and we will be good to go.
Why when looking at money rules, do we say "no more than 25% of gross income?" Why do we not use a % of your net income, wouldn't that make more sense? Let's say you have a $5,000 monthly gross income. That would mean you could afford a $1,250 monthly payment. After taxes, let's say you pay $500 in taxes. That would then make your % of actual income spent on housing 28%. I'm not sure if that makes sense but it's always something I have wondered about.
I’ve had the same thought before, what I came to was that it’s probably more common knowledge. Most employers tell you what they will pay you in terms of gross income.
Net income needs at least one extra step to calculate it.
So a couple benefits to using gross figures:
1. Leads to simpler calculations.
2. If you were to use net figures, what is “net” might get complex based on tax filing status, income types and sources and info would apply to less folks.
3. Saves you from the situation where we’re using net income and talking actual numbers ranges and someone doesn’t understand the difference between net and gross and goes further out on the risk spectrum trying to follow advice.
Simple is better for the vast majority of folks, but for the “financial mutants” I too would love to see comparable net income calculations shown as a footnote if possible.
@@ethandenson7182 I would figure more people would know what their check looks like. I’m into my finances, and I have no clue what my gross pay is every two weeks. But I do know what my checks are each month. Just feel like it would be better to know what to spend on a house after taxes and after your money is taken out for your 401k
I pay a ton in taxes so I only look at it from a net perspective because there is such a large difference between net and gross.
$55k vs $50k in gross vs net is a lot different than $250k vs $200k in gross vs net.
@@zoraster3749 Yeah, that's kind of what Im getting at. I think your net income is a lot more important than your gross income because Net is what you actually get to spend every month where as the gross can vary so much depending what you're doing with your $
Yup, I can't spend my gross income 😂, so WHY even bother to use it to figure out what I can afford...
25% gross is about 33% net.. Big difference
I've been waiting for this topic! This is a question I always wrestle with to fine the answer. I know you've covered this topic or something similar but I often ask myself: when renting and owning truly are the same cost (which is how it is now in a lot of States) what do you do? Of course factoring in that there are other expenses with owning such as HOA fees, property tax, insurance, etc. But if it comes out to about the same as renting and you already have an emergency fund for unforseen circumstances, how do you make that decision?
When I was renting (with three roommates) in LA, I think my rent was about 50% of my income
1st issue--Living in California
Great topic. Our first home was at 11.25%. I’m a boomer,could you guess. Many home mortgages were in the 5 to 6.5% range for years. Rates go down and pay increases over time. Buy the house you can afford, save for your future and remember, things will be different in 30 months.
What if the gross income and net income are highly different like in a state like CA? Example: earning gross is $300k, but taxes eat up roughly $120k which leaves a net of $120k? Should I still use the gross income number?
I've always looked at the monthly budget based off my net income. I know plenty of friends and coworkers who only look at the mortgage payment and not PITI (principal, interest, taxes, insurance) and use their gross to justify their "new" house purchase. Certain parts of US, the property taxes can be equal or more then your mortgage payment. For example a house in Long Island, NY has property taxes in mid 20k. The more affluent parts have taxes in 40ks.
A prime example of why not to live in NY
I’m also confused. What’s the thought process behind using gross income instead of net income.
25% of gross income is 38% of net income for me.
It doesn’t make sense. Use net income in your calculations.
I’m not scared now, but for a while there, I was pretty freaked out! I got a couple side jobs for like 8 months, and that helped me tremendously until I got a roommate and a raise. But that’s why I started watching this show and Dave Ramsey, and why I started being really on top of my finances! Now I save like another 15% of my income, and live on the remainder (like 40%)!
wow....my annual payments (Principle, interest, tax, insurance) was about 15% of my annual gross income with 25% down on my first house, and I was worried about that.
I rent and my rent is under 15% of my gross. I am also maxing my 401k and an HSA. That in mind as I consider how much I can afford for my first home, I can't imagine going up to 25% of my gross... that'd be huge - that'd be almost 50% of my net...
23% now on my mortgage at 50k a year, 2500 a month net. It'll jump when I remortgage end of this year, no doubt to around 27% but...it's fine. I can still save a grand a month and enjoy my life too. Got over 1.5 years of bills saved at around 22k.
Is the 25% rule 25% of your take home pay after taxes and insurance but before accounting for percentage sent to retirement accounts/investments?
I"m not scared of my housing/income ratio, but I'm scared silly of the current housing market. My ratio is currently at 16%, but I'm stuck renting a townhouse. The upside is I'm not sinking money into maintenance, taxes, fees etc, and the townhouse is a new build, so I'll continue to sock away (aka smartly invest in brokerage) for a downpayment until the market isn't insane.
This is the way
Personally I'd really love to own real estate properties as well as REITs, I've been informed of people making as much as $30,000 from these investments and If anyone could be lenient enough to share, I'd really love clue and tips on how to maximize profit
My strategy is to start with Reits and then move to Real time real estate investing
@Dr Benny wow! do you think you can give me some advice on how to invest in a healthy way as you are doing? please
@Dr Benny Thanks for sharing, just looked up the broker you mentioned on google and I'm super impressed with her credentials. I will be writing her an email shortly
Does the 25% rule apply equally to someone who has debt (car, college loans, etc.) vs. someone whose only debt is the mortgage?
Personally... i would have never bought my house if i had any other debt.
There might be an economical turmoil but there is no doubt that this is still the best time to invest.
Best time to invest? thats funny though because in the last four months I have lost more than $47,900 in stock market which is the biggest I have loss since I ventured into stock investment.
@@wilsonjudson1650 you haven't lost anything unless you got off the ride (aka actually sold shares). You still have the same number of shares you did when the market was doing well, its just the shares price that's dipped, which will recover your 48k in full in 2-3 yrs...unless you change your strategy and sell or transfer your positions, then you will lose money. This isn't the first time there's been a bear market.
Not the best advice on this.
-25% net is much safer.
- Also if your a dual income family make sure you can pay your bills on one income.
-don't assume that you'll automatically make more money it often doesn't happen. I was making twice what I am now 3 years ago but things have changed.
At least they addressed worst case scenario
My mortgage is 17% of my gross…. I like to use it more as 25% of my net pay. It’s easier to shop that way for us
I use NET income, not gross, and I include utilities in housing expense. Therefore that includes gas/electric/water/trash/internet/mobile phone and, yes streaming services or cable TV depending on if you’ve “cut the cord” or not. ALL THAT TOGETHER is under 25% of my net.
Living in Dallas, I'd have to put down something like 80k down in order to be able to get to that 25% gross income. Faaaaaat chance that happens. Better win the lottery....The scary thing is...rents have been taking off and they have rocketed up to 18.9% of my gross. So, I'm nearly there at the 25% just on apartment rent. Not even a mortgage.
Sounds like you better start saving up a down payment. What's your situation, are you single, married, married with kids? Can make more sacrifices if you're single and save more that way. Might need to put all investing on a stop except matching until you have that down payment.
@@classics-wz1bz Thankfully, I'm single and no kids. Thankful for the no responsibilities, which means less capital requirements and I can live cheaply. However, having a partner would obviously be helpful because they could help carry the weight of the financial endeavor. Anyway...I'm living pretty cheaply right now. 525 sq ft apartment that was probably built sometime in the mid 1900s. My monthly expenses are probably about $900 above the US poverty level. I also started a business like 3 years ago part time that I've been aggressively trying to grow to one day start siphoning the profits from. I've built up cash recently in order to be able to pay my big tax bill coming, but at the same time, I'm really trying to throw money in investments when I can, because I feel that's the only way I'm going to be able to get into a house. I'm also lucky that the median price in my area has fallen from a peak of 480k down to around 325k. If it falls even further, I may actually be in a much better position to make a move and it not hurt me financially.
Doesn't it depend on how frugal you are and personal preferences? We care much more about our home quality than personal expenses like shopping or car. We spend small percentages there so that we can spend more on housing and it works for us without any stress or struggles.
Ours is 8% of our gross income and we want to buy a bigger place but I’m so scared to.
You're probably looking at those dream houses on the website and wondering what’s the monthly payment and can I qualify for it? If the house you are going to get and mortgage is around $300K and let’s say the rate is 6% for 30 years fixed (just a rough idea, not the actual rate you get) Principal and interest around $1800. Taxes and insurance: $700 ( depends on the house you get and the insurance premium you get) and your monthly mortgage payment would be $1800+700= 2500 But if you don’t put in 20% down payment and there is mortgage insurance you probably have to pay and let’s say it’s another $200 and your total monthly mortgage payment will be $2700.
If my taxes and insurance came out to 8400 a year I'd move lol
Originally, I was paying like 65% of my income towards my house. Currently, I pay about 44% of my income towards my house. In a couple months, I can get rid of my PMI, and then I’ll only pay 37% of my monthly income towards my house! I got a raise and a roommate. I didn’t start stripping for more money.
@@SonicCloudLink haha! I started stripping for the adrenaline rush! 😂
Great job, the 25% rule doesn’t apply for most Americans, especially in my state ( California)
Why use dti on gross income as a recommendation? Income tax in one state compared to another can differ. I’m not touting Dave Ramsey because his target is impossible but budgeting on gross has never made sense to me.
does gross income include projected income from investments such as index funds?
That's the nice thing about gross income calcs...it's gross and includes everything...
TLDR stay under 25% of gross pay, so around 35-40% of your net pay (after taxes and deductions).
This is probably a silly question but why not 25% net income instead of gross?
Scares me that so many people out there are rushing to buy a house right now without realizing they’re paying greater than 35% of their monthly take home pay on their mortgage.
Have you been following along? They are no longer rushing to buy. That ended.
@@edhcb9359 I have many friends in my area of Florida that are in the buying process right now.
@@nicholaslamantia9597 Well that speaks volumes about your friends but not about the housing market.
@@edhcb9359 very nice of you to say
@@nicholaslamantia9597 Had to be said.
I rent and my rent is under 15% of my gross. I am also maxing my 401k and an HSA. That in mind as I consider how much I can afford for my first home, I can't imagine going up to 25% of my gross... that'd be huge!
My bf and I make 160k+ and when we get married we'll make 180k+
We want ... Our mortgage to be less than 2k and it doesn't seem like it will...... This is America
What if you’re debt free, make 90-95k a year, work in an incredibly stable job, and want to buy a $329,999 home? Which is actually a very normal looking home in my area. Nothing too fancy. If I go off of your 25% take home pay then after taxes and investments then I can only afford a $235,000 home which is what a doublewide or modular go for on a few acres of land…idk what to do?!
They don't use 25% net they use 25% gross, so based off your 90k, that's a mortgage payment of 1875/ month. But they also throw utilities/home repairs into that calc too
Does the 25% include property taxes, PMI (if aren’t able to put 20% down), home insurance and HOA fees, or is this just mortgage payment alone? Thanks.
It includes all of that, yes. If you can manage it, it would be nice if it included the utilities as well, but that might not be possible.
HOA are 🗑️
I'd also consider your family situation. Do you have a family? Are you planning to have children? How will that affect your finances, even if you have higher pay in the future?
My mortgage is 15% of my gross
26 paychecks a year? Yearly salary /12? Or 2 checks X 25%
ar e you paid biweekly? if so pay ch3ckbefore any deductions x 26 x .25 ie 2000 x 26 x .25 /12 = 1083 a month on a 52k a year
If you're worried about the difference between these then maybe look at a house that's less
You preface this conversation by saying Engineer, Lawyer, ect .. what about the other 90% of us? I know in my medium sized southern city most people are just labor or office workers. Trying to give a standard process that only works for the top 10% is not very sound advise. Can you show me a city or town where the majority of people have high paying professions? No, most people are normal with normal jobs. Are we just Boned then? Especially with interest rates goin g to hit 7% and adding 1000 dollars more to a 300K mortgage? Come on guys,. give us something we can use other then Get Better Jobs and make more Money.
The answer for regular folks is to get remote jobs and move somewhere cheap. Or split the mortgage with a spouse/ partner and or rent some rooms out. It’s sad and it shouldn’t be like this but it is what it is, they don’t build enough housing and a lot of inventory is taken up by investors. So unless they start building more or put serious restrictions on investors those are the options.
Well yeah you can't afford it... Not much else to say...
I couldn’t imagine having a 25% of my gross income as a mortgage. Mine is 5.7% and I honestly don’t know that id want to even double it. Let alone 4-5x it.
I was thinking the same.
Does Bo have be a PFS before he too can become a "Money Guy"? 😄🥲