muck Posted June 21, 2008 Share Posted June 21, 2008 Food for thought... There are three different methods (imo) to consider how much house is 'too much house'. 1) What is the monthly payment in terms of your gross or net income? Obviously the % of gross would be different than the % of net, but the logic still applies... Whether or not you should pay as little as 20% of your net or as much as 50% of your gross depends on what else is going on with the rest of your budget, and the third point below. 2) What is the purchase price of the house when compared to total household income for a typical year? This is very similar to #1 above, however, the payments can be quite different depending on the interest rate, amortization term (i.e., 15yr mortgage, 30yr mortgage, etc) and whether or not you're paying PMI. Do you want to buy a house that is less than one year's income, or more than five year's worth of income? 3) What is the purchase price of hte house when compared to the rest of your net worth? For example, if one family is looking at a $200,000 house and the monthly payment would be 50% of their gross income, but they have $400,000 in stocks and bonds outside of their retirement accounts, then they are probably in a better position than a different family looking at spending 30% of their net income on a $200,000 house where they're upside down on their two cars and owe more in credit cards than they have invested outside their retirement accounts. ......carry on........ Quote Link to comment Share on other sites More sharing options...
keggerz Posted June 21, 2008 Share Posted June 21, 2008 If someone isn't sure if its to much house then its to much house Quote Link to comment Share on other sites More sharing options...
Riffraff Posted June 21, 2008 Share Posted June 21, 2008 (edited) Food for thought... There are three different methods (imo) to consider how much house is 'too much house'. Location (1), location (2), location (3). Edited June 21, 2008 by Riffraff Quote Link to comment Share on other sites More sharing options...
AtomicCEO Posted June 21, 2008 Share Posted June 21, 2008 Location, location, location. Frasier: There's an old real estate maxim that says the three most important things when looking for a property are location, location, location. Woody: That's just one thing. Frasier: That's the point Woody. Woody: What, that real estate people are stupid? Frasier: No, that location is the one most important thing in real estate. Woody: Then why do they say that it's three things? Frasier: (Sigh) Because real estate people are stupid. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 21, 2008 Share Posted June 21, 2008 Going strictly on advice from my rich friends you either need to pay cash or at the most pay it off in 5 years. If you spend you life paying for a house you will ultimately have a house and no money and live on peanut butter and kozy kitten. I think it is far better to have paid for cheap housee and a cand at least one beater ride than a bunch of debt and possibly no place to live. Quote Link to comment Share on other sites More sharing options...
geeteebee Posted June 21, 2008 Share Posted June 21, 2008 Going strictly on advice from my rich friends you either need to pay cash or at the most pay it off in 5 years. If you spend you life paying for a house you will ultimately have a house and no money and live on peanut butter and kozy kitten. I think it is far better to have paid for cheap housee and a cand at least one beater ride than a bunch of debt and possibly no place to live. I'd disagree. If you buy a house in a good location, I don't think it is a bad idea to carry debt on it While I like the idea of having enough to pay it off in 5 years, I don't think you should actually should do it. I know that there is a lot to feel good about having a mortgage paid off, but I think there are relatively few people who should actually do it. Mortgage debt is generally cheap debt, especially on an after tax basis and there is a lot to be said about having liquidity. If you have plenty of liquidity even after paying it off, then sure, go ahead and do it. Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 21, 2008 Share Posted June 21, 2008 I'd disagree. If you buy a house in a good location, I don't think it is a bad idea to carry debt on it While I like the idea of having enough to pay it off in 5 years, I don't think you should actually should do it. I know that there is a lot to feel good about having a mortgage paid off, but I think there are relatively few people who should actually do it. Mortgage debt is generally cheap debt, especially on an after tax basis and there is a lot to be said about having liquidity. If you have plenty of liquidity even after paying it off, then sure, go ahead and do it. That was my step sis philosophy. She kept as little on the house as possible and invested heavily. Her investmens crashed and now she is 50 and homeless. I'm just sayin. Quote Link to comment Share on other sites More sharing options...
I Like Soup Posted June 21, 2008 Share Posted June 21, 2008 I've heard many things but one that stuck with me is buy a house worth 2X your gross income. Also, a paid off house...no risk whatsover. Quote Link to comment Share on other sites More sharing options...
Ursa Majoris Posted June 21, 2008 Share Posted June 21, 2008 Also, a paid off house...no risk whatsover. Ding ding ding! It might not be the absolute best financial move, all other things being equal but for damn sure it is the safest. Once it's yours, free and clear, all sorts of $hit can happen and you'll still have the roof over your head. Quote Link to comment Share on other sites More sharing options...
TDFFFreak Posted June 22, 2008 Share Posted June 22, 2008 I'd disagree. If you buy a house in a good location, I don't think it is a bad idea to carry debt on it While I like the idea of having enough to pay it off in 5 years, I don't think you should actually should do it. I know that there is a lot to feel good about having a mortgage paid off, but I think there are relatively few people who should actually do it. Mortgage debt is generally cheap debt, especially on an after tax basis and there is a lot to be said about having liquidity. If you have plenty of liquidity even after paying it off, then sure, go ahead and do it. Every situation is very different when it comes to home buying, but generally speaking I tend to agree with gee above. Buy the house more as a place to live in and not an investment. Buy in the best neighborhood possible. Make sure you take advantage of your tax deduction due to being a home owner. Get a good 30 year or 15 year fixed mortgage (none of this interest only or ARM in this current market). Remember, one size does not fit all. Quote Link to comment Share on other sites More sharing options...
rocknrobn26 Posted June 22, 2008 Share Posted June 22, 2008 I'd disagree. If you buy a house in a good location, I don't think it is a bad idea to carry debt on it While I like the idea of having enough to pay it off in 5 years, I don't think you should actually should do it. I know that there is a lot to feel good about having a mortgage paid off, but I think there are relatively few people who should actually do it. Mortgage debt is generally cheap debt, especially on an after tax basis and there is a lot to be said about having liquidity. If you have plenty of liquidity even after paying it off, then sure, go ahead and do it. I've heard many things but one that stuck with me is buy a house worth 2X your gross income. Also, a paid off house...no risk whatsover. Agree w/ both of the above. I have advised people to stay less than 25% of gross income (P,I,T,I) and if your employment is steady, no worries. And you'll still have a few $$$ for a vacation. Our first house started @ 15%, when we had a kid it jumped to around 27%. Times were lean, but we survived those 3 years. Next house brought us back to ~15%. We did nice vacations, had $$$ for improvements, no worries. But I will admit, this is a different market. If I were young and renting, I'd be looking to max out a 25-30% house, NOW!!!! In a good area where I knew I would stay because of good schools, locale, etc.. But if your corporate, and the potential to having to move soon is a good possibility, I might not. Hell, life is a crap shoot. If it feels good do it! Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 22, 2008 Share Posted June 22, 2008 so saith the homeless Quote Link to comment Share on other sites More sharing options...
millerx Posted June 22, 2008 Share Posted June 22, 2008 Agree w/ both of the above. I have advised people to stay less than 25% of gross income (P,I,T,I) and if your employment is steady, no worries. And you'll still have a few $$$ for a vacation. Our first house started @ 15%, when we had a kid it jumped to around 27%. Times were lean, but we survived those 3 years. Next house brought us back to ~15%. We did nice vacations, had $$$ for improvements, no worries. But I will admit, this is a different market. If I were young and renting, I'd be looking to max out a 25-30% house, NOW!!!! In a good area where I knew I would stay because of good schools, locale, etc.. But if your corporate, and the potential to having to move soon is a good possibility, I might not.Hell, life is a crap shoot. If it feels good do it! Bingo! Because of our country's deplorable gov't school zone designations, the house you can afford and the house you want can be dramatically different. If it were just my wife and I, we would be willing to live an area that would save us money...however, because we want better education for our kids, we decided to move into a less advantageous (financially) house and mortgage, so that the little ones would have a better educational experience. Why is this? Why can't we choose where our kids go to school, but rather have it dictated by where our house sits? Our country is crazy and stupid to think that all public schools are the same. And if they aren't, then why the hell hasn't the system been changed? I say privatize the school systems so that you can have your kids get the best education without having to sacrifice the expense of living in a potentially unaffordable district!! For a free country, we are so backward ass and behind the curve in so many ways! Quote Link to comment Share on other sites More sharing options...
muck Posted June 22, 2008 Author Share Posted June 22, 2008 Also, a paid off house...no risk whatsover. The one major risk is as GTB discusses. Liquidity. To paint the extreme, if your house is paid for but you have no money you do not eat. PS - As an attorney friend of mine says, "We live in uncertain times." Pretty much anything can happen to anyone at any moment. Quote Link to comment Share on other sites More sharing options...
muck Posted June 22, 2008 Author Share Posted June 22, 2008 Bingo! Because of our country's deplorable gov't school zone designations, the house you can afford and the house you want can be dramatically different. If it were just my wife and I, we would be willing to live an area that would save us money...however, because we want better education for our kids, we decided to move into a less advantageous (financially) house and mortgage, so that the little ones would have a better educational experience. Why is this? Why can't we choose where our kids go to school, but rather have it dictated by where our house sits? Our country is crazy and stupid to think that all public schools are the same. And if they aren't, then why the hell hasn't the system been changed? I say privatize the school systems so that you can have your kids get the best education without having to sacrifice the expense of living in a potentially unaffordable district!! For a free country, we are so backward ass and behind the curve in so many ways! If education is your big issue, then why don't you simply live in the cheap house that's convenient to work, etc. and use a portion of your savings to send your kid to private school (or homeschool). Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted June 22, 2008 Share Posted June 22, 2008 (edited) Also, a paid off house...no risk whatsover. that is not really true. a paid off house is an investment you have sunk a lot of money into. it is an asset/investment whose value, as many people have learned recently, CAN decline. as such, it is an investment that has risk. more risk than some investment vehicles, less than others. Edited June 22, 2008 by Azazello1313 Quote Link to comment Share on other sites More sharing options...
polksalet Posted June 22, 2008 Share Posted June 22, 2008 To paint the extreme, if your house is paid for but you have no money you do not eat. Maybe in the city but not in Redwater. Quote Link to comment Share on other sites More sharing options...
I Like Soup Posted June 22, 2008 Share Posted June 22, 2008 The one major risk is as GTB discusses. Liquidity. To paint the extreme, if your house is paid for but you have no money you do not eat. PS - As an attorney friend of mine says, "We live in uncertain times." Pretty much anything can happen to anyone at any moment. OK, I'll go with your extreme. I guarantee you your food bill is much smaller per month than your housing bill. that is not really true. a paid off house is an investment you have sunk a lot of money into. it is an asset/investment whose value, as many people have learned recently, CAN decline. as such, it is an investment that has risk. more risk than some investment vehicles, less than others. Please note the PAID OFF portion of my statement. Who cares what the value of your paid off home is? Quote Link to comment Share on other sites More sharing options...
Riffraff Posted June 22, 2008 Share Posted June 22, 2008 I've heard many things but one that stuck with me is buy a house worth 2X your gross income. Good advice, assuming you don't live in a place where it's not possible to buy a house that low (EX: most big cities, especially east and west coast) Quote Link to comment Share on other sites More sharing options...
theprofessor Posted June 22, 2008 Share Posted June 22, 2008 (edited) Our current home is 3,140 square feet and now that our last son is out of the house we have been looking for land to build a home. The home we are designing will only be 2,380 square feet which should be perfect for me and the Mrs. We've been looking for land for almost a year and it's very, very frustrating. Were going to put in an inground pool also so we have a great place to entertain and to have a fun place for the children and grandchidren when they visit. Edited June 22, 2008 by theprofessor Quote Link to comment Share on other sites More sharing options...
Cyclones Posted June 22, 2008 Share Posted June 22, 2008 Maybe in the city but not in Redwater. Screw Lexington, I'm moving to Redwater, where gas, food, and energy are free and the government does not assess property taxes. Quote Link to comment Share on other sites More sharing options...
Azazello1313 Posted June 22, 2008 Share Posted June 22, 2008 Please note the PAID OFF portion of my statement. Who cares what the value of your paid off home is? umm, anyone who owns one? why wouldn't you care what the value of your single greatest asset was? it matters quite a bit at some point. Quote Link to comment Share on other sites More sharing options...
wiegie Posted June 22, 2008 Share Posted June 22, 2008 (edited) Who cares what the value of your paid off home is? I don't get this statement. Most people who put a lot of emphasis in living in a paid-off home indicate that they want to pay off their home to eliminate risk so that no matter what happens, they have a place to live. I would speculate, however, that the risk of having to move to a new home (for a job change or something similar) is much greater than the risk of becoming homeless because you can't pay your a monthly housing expense. As such, if you have much of your wealth tied up in your paid-off home, you should be very concerned about what happens to the value of that home. (I'll also admit that I really don't get the whole "if you have a paid off mortgage, at least you'll always have the roof over your head" argument. This makes it seem as though the only house available for you to live in is the one in which you currently reside--a better saying would be "if you have wealth, you'll always have a roof over your head". (Because people's situations (and neighborhoods) change, for flexibility it would usually be better to be able to have "a" roof instead of "the" roof.) Therefore the goal should be maximizing your wealth (subject to whatever liquidity and risk parameters you desire).) Edited June 22, 2008 by wiegie Quote Link to comment Share on other sites More sharing options...
cliaz Posted June 22, 2008 Share Posted June 22, 2008 Here is my take: Getting advice on buying a house is like when you are about to have kids - everyone has their opinion on how to raise the kids - do what you feel it right. Don't do something stupid like buy a grand 7,000 sq ft home because you can afford it - it might be in a flight path of an airport. Do your research, when you find a house - come back to the neighborhood on the weekend and check out the neighbors - go to the county webpage and look up crime stats in the area - average income per household - check out the utility service for that area - do they have a bad rep for not restoring service in a timely manor after a storm? - pull the water report - how is the drinking water? Luckily we are in a market where you can take the time to do all the research. When the wife and I were shopping for homes - on average a house sat on the market less than a day in our area so we had to jump on our fast. once you are in your home for a year and you get that big tax return back - stick it in a separate savings account. Divide that tax return by 12 and every month pull that amount out of the savings account and add that to your mortgage bill. This will give you some padding the 2nd year in your bills so you can play catchup on other bills or simply give you cushion. Or - take that 1st big tax return and set up your emergency fund. Remember - you want to have at least 6 months worth of bills sitting in some type of account in which you have access to the month. In the event one or both of you lose your job - you are good for 1/2 a year. Quote Link to comment Share on other sites More sharing options...
H8tank Posted June 22, 2008 Share Posted June 22, 2008 Too much house is one your truck can't pull. Quote Link to comment Share on other sites More sharing options...
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