How much is too much house?

[Dr. Love]

Too much house is one your truck can't pull.

This made me chortle loudly enough that several people in the gate area that I'm sitting in turned and looked at me weirdly.

[Azazello1313]

http://www.realtor.com/search/listingdetai...;srcnt=8#Detail

 

so you can get a bucky ball in nowhere, texas for 140K.

[The Irish Doggy]

it's not that paying off your mortgage is a bad thing. there are just a lot of other things that should be higher priorities. paying off any other kind of debt (higher rates and not tax deductible), retirement savings, rainy day fund, etc. if you get past all of that and still have a bunch of cash around, then sure, pay off your house too.

 

 

+1

[Ursa Majoris]

it's not that paying off your mortgage is a bad thing. there are just a lot of other things that should be higher priorities. paying off any other kind of debt (higher rates and not tax deductible), retirement savings, rainy day fund, etc. if you get past all of that and still have a bunch of cash around, then sure, pay off your house too.

Agree with this too, though it is obvious.

[Perchoutofwater]

I agree with Muck and Az, there is no reason to pay off a mortgage early. Financially over the long haul you would be much better investing any extra money that you might use to pay off a home loan early.

[The Irish Doggy]

Financially over the long haul you would be much better investing any extra money that you might use to pay off a home loan early.

 

 

I'm certain this is true, but I know there's a lot of people who have an emotional comfort level that dictates paying down the mortgage.

[Caveman_Nick]

I'm certain this is true, but I know there's a lot of people who have an emotional comfort level that dictates paying down the mortgage.

 

This is one of the biggest reasons to do it. Not everyone accumulates wealth to reach the highest number possible. Less stress and more comfort is wealth in and of itself.

[Ursa Majoris]

I agree with Muck and Az, there is no reason to pay off a mortgage early. Financially over the long haul you would be much better investing any extra money that you might use to pay off a home loan early.

One look at my 401k's performance over recent months tells me that investing in it for the long haul is still important but also reinforces making sure my main asset (and, BTW, the place I call home) is completely secure as fast as possible.

[Big Country]

Different strokes for different folks.

 

If pure financial gain is the motivation, then it is probably best to extend your mortgage out as far as possible and invest elsewhere for a higher gain. This is of course assuming a longer time frame, not a short term time frame.

 

If comfort/security etc. are greater motivators, then paying the house off as early as possible is better.

 

Neither is right or wrong, it is all about your personal ambition.

 

The difficult part is if you are married and each partner has a different preference for the above. You have to find that happy medium of paying down the mortgage debt while still investing in other vehicles.

 

As for living in the more desirable parts of California (I am in Orange County), we've just learned to live without a lot of extras. When we bought our house, it cost about 5 times our household income, but we put 25% down, so we were financing about 3.5 times our monthly income. It helped that we have no car payment. We make do and do without a lot of extras (no HBO, etc., TVs aren't the newest or nicest, etc.), but we have a house (would like it bigger now that e have to rugrats al over the place), a healthy family, food on the table and we have put ourselves in a position where my wife can essentially stay home to raise the children (she works a few hours a week at her family's business, usually going in when I get home from work).

 

So, it's a no frills lifestyle for the time being, but it works for us and our family is healthy (other than a recent round of colds that have me feeling nasty right now) and happy.

[muck]

Ok ... thank you BC ...

 

You financed 3.5x your annual income. Is that pretty typical of the people you know out there? Are they typically financing more? Less?

 

Any east-coasters out there?

 

...as an aside...as a self employed person, I can see why another self-employed person would want to payoff their home ASAP (especially in a homestead state), so that if someone somewhere brought litigation against the business that threatened all of their $$, if the cash is tied up in the house, the courts can't get it ... however, if it's sitting in a brokerage account or a savings account, the courts may be able to get to it... So, for my wife and I, as the business grows and/or we have any really large paydays, we plan on paying down our house simply to avoid the potential negative impact of litigation. Maybe its an unreasonable fear, but that is what the current plan is for Casa de Muck.

 

...generally, for the guy who works for someone else and who does not have the same sort of litigation exposure...kicking a couple extra $$s to the mortgage from time to time (i.e., rounding up to the next $50 or $100 on each payment) isn't a bad idea at all as long as stuff like disability insurance, etc. is getting taken care of, too...

[Riffraff]

As for living in the more desirable parts of California (I am in Orange County),

Any of these you, BC ?

[detlef]

Ok ... thank you BC ...

 

You financed 3.5x your annual income. Is that pretty typical of the people you know out there? Are they typically financing more? Less?

 

Any east-coasters out there?

Like I said before. I'm in North Carolina. When we bought, we put down 20% and financed about 3x, but we had a tidy amount saved up (above and beyond the down payment) and had just moved to the area and were both underemployed. Both of us had every reason to expect that we'd find better jobs once we got settled and we did. We pulled some money out of the house this year so our mortgage is 35K higher than it was but now the total nut is about 1.5x our gross.

[muck]

Like I said before. I'm in North Carolina. When we bought, we put down 20% and financed about 3x, but we had a tidy amount saved up (above and beyond the down payment) and had just moved to the area and were both underemployed. Both of us had every reason to expect that we'd find better jobs once we got settled and we did. We pulled some money out of the house this year so our mortgage is 35K higher than it was but now the total nut is about 1.5x our gross.

 

Is 3x pretty typical of others in your part of the country? Or is the current 1.5x more typical for NC?

[The Irish Doggy]

The mrs and I bought 2X with 10% down here in Cincinnati. My sister and BIL just bought 4X with 5% down in San Diego.

 

I think most people in Cincy go more towards 3X. Not sure about Cali.

Edited June 23, 2008 by The Irish Doggy

[Perchoutofwater]

At the time I bought mine, it was 1.35 X with 20% down. We live in East Texas.

[Azazello1313]

mine, at the time I bought before I was married, was about 3X my gross with only a couple percent down. now that we're hitched and she's making a little $$, the total amount mortgaged is about 2x combined gross. denver area.

[muck]

In full disclosure, we're in South KC (i.e., north Oklahoma).

 

1) Our annual income is all over the map.

2) My wife is at home with the kids.

 

In a good stretch, it's about 2x of gross. In a bad stretch, it's closer to 6x gross. We hoped it'd average at 3x or under.

[rocknrobn26]

mine, at the time I bought before I was married, was about 3X my gross with only a couple percent down. now that we're hitched and she's making a little $$, the total amount mortgaged is about 2x combined gross. denver area.

 

Not sure if this changed, but the rule near Chi used to be 2X no down payment, 2.5X w/ ~20% down. I still like the 25% max if you want a few toys/ a decent vacation. If, as BC said, one is happy putting more in (3X+) and enjoying the house to compensate, GO FOR IT!!!! Whatever floats your boat!

[Big Country]

You financed 3.5x your annual income. Is that pretty typical of the people you know out there? Are they typically financing more? Less?

 

At the time (We closed December of 2002) I would say it was typical. We could have qualified for more but being financially responsible we rejected that idea and we actually went in initially looking to buy for less but the reality was that in order for us to be in an area that was in a good school district, not on a major street and in a relatively low crime area we had to spend more. In our original price range we seriously would have been limited to areas with major gang problems and very poor schools.

 

FWIW, we paid $360K for our house, but were able to put almost 25% down, and our payment is right about $1650 a month, not including tax. It is a little over 1100 sq. ft. 4 bedrooms that are relatively on the small side, a small kitchen, 2 bathrooms. We are however on 11,000+ sq. ft in the back of a cul de sac. We are in one of the better if not best school districts in the area, in a very low crime area.

 

Now, in retrospect there were better homes available that we would have preferred now with the knowledge we have now (basically friends we have met bought at the same time, live in a neighborhood with more younger families and have larger houses but much smaller lots, the main trade off. They paid essentiallythe same as us at the same time), but at the time we bought, we had no kids and knew they were a few years off so it was not the highest priority.

 

Now, we would not have been able to purchase a home in this area after say 2004 or so. At it's peak, we probably could have received close to 700K for our home with multiple offers over asking price. Today, we are probably realistically looking at the mid-500s.

 

In the last few years, I would say typical has been to finance closer to 6+ times your annual salary. It would not be uncommon to see a family with a gross income under 100K buying homes in the 600K to 1 million dollar range, especially since 600K was probably right around the median home price in 2005 and 2006, and salaries did not increase in conjunction with the siaring home prices.

 

Basically if I had not taken the leap to buy when I did, actually paying a decent amount more than I had initialyl set out to do so but within our means, I would not have been able to afford a home. As noted in my initial response, we have no car payment and have resigned myself to the fact that ratehr than replace my truck with a newer car at 100K miles as I had initially planned, I will drive it until it costs me more to maintain than it is worth (I have a 98 F-150) and I am currently at about 145K miles. I don't have any of the newest hottest gadgets (otehr than the wii my wife got me for Father's Day) and with two kids the house is a little cramped for my taste's but it serves us well, especially having a hugh backyard. It is great for the kids, the dog and hosting BBQs all summer (which I do get to spoil myself by getting a new one this summer).

 

Different strokes for different folks. We are considering looking at bigger places towards the end of the year or early next year once the market settles a bit, and if we decide to have a third child we will need it, but until then we are happy where we are.

 

Time for dinner or I could keep going on, but no need to share even more about my personal situation.

[detlef]

Is 3x pretty typical of others in your part of the country? Or is the current 1.5x more typical for NC?

Well, in general we enjoy a very nice ratio of median income vs cost of living in this area so I'm guessing it's closer to the 1.5 number than it is to the 3. When we moved here, I recall doing the research and noticing that the incomes in my wife's field were nearly the same as back in the bay area to the dollar. Which is astounding considering our 2300 home on a landscaped .4 acre lot in a quiet middle class neighborhood would have easily set us back 3-4x what we paid here.

 

So, I'd say 2x is a pretty safe average.

 

In terms of this sort of thing, moving here was one of the best things we ever did and, so far, the local economy is very, very stable (knocking on wood).

[I Like Soup]

FWIW, we paid $360K for our house, but were able to put almost 25% down, and our payment is right about $1650 a month, not including tax. It is a little over 1100 sq. ft. 4 bedrooms that are relatively on the small side, a small kitchen, 2 bathrooms. We are however on 11,000+ sq. ft in the back of a cul de sac. We are in one of the better if not best school districts in the area, in a very low crime area.

 

Holy crap. I paid $219K for a three bedroom, 2 bath, (1900 square feet) with a pool and it costs me $1387 with insurance and tax a month. No down payment (VA loan). Not to get off on the price of living or anything, but my quality of life is assuredly higher. I could never justify living in CA for that very reason, no matter how nice the weather (doesn't pay any bills).

[bushwacked]

 

Holy crap. I paid $219K for a three bedroom, 2 bath, (1900 square feet) with a pool and it costs me $1387 with insurance and tax a month. No down payment (VA loan). Not to get off on the price of living or anything, but my quality of life is assuredly higher. I could never justify living in CA for that very reason, no matter how nice the weather (doesn't pay any bills).

 

 

That's cheap....houses are more than that in Wyoming.

[CaP'N GRuNGe]

 

Holy crap. I paid $219K for a three bedroom, 2 bath, (1900 square feet) with a pool and it costs me $1387 with insurance and tax a month. No down payment (VA loan). Not to get off on the price of living or anything, but my quality of life is assuredly higher. I could never justify living in CA for that very reason, no matter how nice the weather (doesn't pay any bills).

 

Before the market took a hugh crap your house was probably worth about $325-$350K in this neighborhood.

 

A quick check at Zillow.com has the estimated current value slightly below that range too.

 

You got in at the right time. Even in this market $219K won't get you much I bet unless you move aways out.

Edited June 24, 2008 by CaP'N GRuNGe

[montster]

 

Holy crap. I paid $219K for a three bedroom, 2 bath, (1900 square feet) with a pool and it costs me $1387 with insurance and tax a month. No down payment (VA loan). Not to get off on the price of living or anything, but my quality of life is assuredly higher. I could never justify living in CA for that very reason, no matter how nice the weather (doesn't pay any bills).

 

my wife and i bought a house one town over from you (in gilbert) in 1998, just married and 2-3 years out of college. paid $119k (roughly 1.6x our combined gross income) for 3 bed, 2 bath, 1550 square feet in a division where every house looked like every other. we saved money for maybe 6 months before buying it, put 5 percent down, paid about $1000 per month. at the time, we thought, it will always be like this!

 

10 years later, we are renting but looking at places up to about 5 times our gross income, in san mateo county, which i believe is one of the top 100 when it comes to counties with highest average home price. it will be a stretch if we can make it work, but we're looking at all the options. we have considered going someplace else, but we have a lot of family very close by; our daughter is in a preschool we really like; and my wife's office is only 20 minutes away. plus, the market here -- while not suffering nearly as badly as other parts of the country -- is nearing a low point; if we're going to do it, there may not be a better time for a while.

[I Like Soup]

Before the market took a hugh crap your house was probably worth about $325-$350K in this neighborhood.

 

A quick check at Zillow.com has the estimated current value slightly below that range too.

 

You got in at the right time. Even in this market $219K won't get you much I bet unless you move aways out.

 

Similar homes in the area have sold for $340K so I'm not complaining. I'm also not selling so no biggie. Hell, a year before I moved in, the same home was being sold for around $175K with a pool.

 

my wife and i bought a house one town over from you (in gilbert) in 1998, just married and 2-3 years out of college. paid $119k (roughly 1.6x our combined gross income) for 3 bed, 2 bath, 1550 square feet in a division where every house looked like every other. we saved money for maybe 6 months before buying it, put 5 percent down, paid about $1000 per month. at the time, we thought, it will always be like this!

 

10 years later, we are renting but looking at places up to about 5 times our gross income, in san mateo county, which i believe is one of the top 100 when it comes to counties with highest average home price. it will be a stretch if we can make it work, but we're looking at all the options. we have considered going someplace else, but we have a lot of family very close by; our daughter is in a preschool we really like; and my wife's office is only 20 minutes away. plus, the market here -- while not suffering nearly as badly as other parts of the country -- is nearing a low point; if we're going to do it, there may not be a better time for a while.

 

At some point, you have to figure what it is worth to you. Wife (hugh!), family situation, etc. But...if I were the major money winner in the family, those wouldn't count near as much as 5X what I could get in a "normal" area. Please note; I am not married and don't have that pressure yet.