Affordability

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fk123_IHB

New member
I would be really interested in knowing the following:





A total annual income of _____ will allow you to afford fixed-rate 6% 30-year monthly loan payments (sorry so specific) for a property valued at ________.





(And yes, I know I can go to any websites online and punch these numbers in, but I'd like to get a more personal opinion of what people are comfortable paying)





Suppose the example incomes were:





$50000/year


$80000/year


$100000/year


$150000/year


$200000/year





(So lets say $50000/year would allow you to buy a home worth $225000)





Thanks for your thoughts!
 
Depends somewhat on the interest rate and resulting payment, but as a general rule I would like to have a loan at no more than 3 times income. I might stretch to 4 to reduce a downpayment, but I would rather not.
 
IMO, affordability is to the housing market what security is to a nation: it is the overriding issue that renders all other issues or arguments moot.
 
IrvineRenter, appreciate your response!





Based on that model, the results would be like this:





$50000/year - 150000 to 200000 plus down payment


$80000/year - 240000 to 320000 plus down payment


$100000/year - 300000 to 400000 plus down payment


$150000/year - 450000 to 600000 plus down payment


$200000/year - 600000 to 800000 plus down payment





Which honestly, does look reasonable to me. Not pretty, but it's real.
 
<p>If not already apparent in my posts here, I am *extremely* conservative with my financial outlook in general. My personal rule is that your <u>house value</u>, not your mortage be 3 times your annual gross income.</p>

<p>This method somewhat assures that you have some money left over for:</p>



non-personal-housing-related investments, such as income or vacation rental property, LPs, personal/family trust funds, brokerage accounts, etc.

3-years or more rainy day funds in cash or near cash in case one of you becomes disabled, or another family emergency strikes

fully augmented retirement savings - i.e. fully funded Roth IRAs and 401(k)s upto the max. allowed

kid's college savings plans, fully funded to about $250k in today's dollars per child

HSAs (combined with a high-deductible PPO health plan)

>

<p>So, in answer to your question, if you make $200,000 as a couple, then purchase a house no more than $600,000 in value (even though you could potentially afford a $600k mortgage on a $750,000 house with 20% down).</p>
 
i like crucialtaunts response too. i'm sure everybody has other things in life to pay for other than a block of wood and steel! :)





and momopi, i am not including down payment (which is why in my results, the down payment was just addended to the sum) since everybody has varying amounts.





thanks for your opinions!
 
<p>[OT] re: 250k per child - it's not unreasonable.</p>

<p>Tuition is being raised, even at UCLA, 5% per year which is outstripping inflation.</p>

<p>You take a public school education which is going to be about 60-80k - assumes 10-15k tuition/yr, plus room&board, books, and travel (assuming your kids stay on campus) and let that grow at 5% per year for 14 years. That's a good 120 - 150k.</p>

<p>Even worse with a private school education which is easily 120 - 160k / yr. Tuition 30k/yr plus 10k room and board, books, and travel ... you're going to need 240k to 320k to completely cover it.</p>

<p>Both my kids have had 529 plans since they got their SSN's at 2 months and I am contributing what I can ... I don't think I'll get to 250k but at least enough to significantly defray my expenditures later on ... of course I plan to have them take on some debt, to learn how hard it is to earn a buck and get out of debt (economic tough love!!)</p>

<p>[resume discussion]</p>
 
<p>In re: $250k/child:</p>

<p>I was thinking along two lines for arriving at that number. Private school, as indicated by Fraychielle, can (will?) be in that range when my kids are ready in about 14-15 years. If there's any leftover, it may give them an incentive to go into grad school (law, medical school, MBA, MA, MS Engineering, PhD? etc. you name it). As a parent, basically my charter is to provide them the best of opportunities in order to help them gain their full potential. Enough said... Ok, back to the Irvine affordability gap...</p>
 
fk123 - Below is just my opinion not necessary want to start another argument :)-





In general I am conservative with money, so I agree with crucialtaunt that we do need to make sure there're money left over for at least 6-months rainy day, 401k and 529 (as much as possible), medical, etc. More importantly please pay off your credit card debts.





But for housing need in highly desirable area like Irvine, we are willing to stretch the budget and break the old 3x rule. We are willing to scarifice on secondary needs like luxury cars, entertaintment, travel, etc. Irvine public schools are excellent so at least you dont need to pay for private education, and for your "entertaintment and fun", it has decent public ammenities especially in newer master-planned neighborhood.





So for me, a 90k income can "comfortably" afford a $500k house with 20% down.





This is assuming 6.5% 30-year fixed rate with a loan of $400k. Principle and Interest is $2500. As long as this is not more 30% from your gross income, I'd say you're still okay. You can pay your property tax relying on your IRS check from previous year.





So with this model, you can afford to buy a house <u>now</u> at apprx 5.5x your income.
 
BTW - I realize the tricky part is to come up with 20% down.





AND it does imply that you have to stretch to live in a "POS overpriced box" at 90k income. For many people in this blog, I understand this isn't acceptable :)-.





That's why I dont disagree that waiting for the next bottom can be the right decision for some people.






 
<p>I just don't agree, while I can afford a few options here, I just don't agree on paying 500-700k for a house. To me it just seems like an extreme amount of leverage. Plus affording the mortgage is just the first step, the usual Irvine Mello Roos, association fees and taxes make it VERY expensive on top of a already expensive proposition.</p>

<p>-bix</p>
 
bix - Yes, with the Irvine new home Mello Roos and HOA, I agree you do have to be more conservative. So for $90k income, you probably can afford a brand-new home at $450k with 20% down.
 
<p>"That's why I dont disagree that waiting for the next bottom can be the right decision for some people."</p>

<p>You're right red. For some people its better to wait for value. Other people gotta have it now and are willing to pay. To each his own.</p>

<p>I like the direction this is headed. I think that a year from now people will be thinking in these terms: "how much will I save by waiting, and is it worth it for me?" Homes will be like big screen TVs. Everyone knows that they are coming down in price and you will get more for your money by waiting. That will be so obvious it's just assumed. The only debate will be whether the wait is worth the cost/hassle of renting and the delayed gratification.</p>
 
<p>red,</p>

<p>So where are you finding brand-new houses in Irvine at $450,000? Maybe this is a semantics thing, but "house" conveys detached SFR. In Irvine, the only brand new "homes" at $450,000 are condos/townhomes. Prices will have to come down quite a bit for a brand-new house in Irvine to cost $450,000.</p>

<p>biscuitninja,</p>

<p>Totally agree about the Mello Roos, association fees, and taxes In Portola Springs, that ends up being about $1000/month for the entry level products. Anybody know if any of these fees/taxes sunset after a period of time? Or could you pay off your home and still be paying $1000/month in "rent?"</p>
 
Skeptic,





You dont find many brand-new homes at $450k in Irvine. So for me personally, if I am making $90k and have to buy a house now, I would probably go outside Irvine. Or you might consider taking some risk using 7/1 or 10/1 IO-only loan.





Regarding the Mello Roos and HOA, I dont think they will go away anytime soon, even if you pay off the home. Most of the new Mello Roos bonds take 20-30 years if not longer. You will have to factor this in your monthly budget and keep in mind that Mello Roos and HOA aren't tax deductable.
 
bigmoney - the thing about buying a home is people in general are thinking "in the long run" the value will go up. So I am pretty sure if you do a survey right now, most people including myself believe that in 10 year their home value will be more than today. This is unlike buying a Plasma TV obviously.





But when it becomes "obvious" that the price will come down 30-40% in near future I think most people will wait. This is just common sense. BTW - I realize that based on recent statistical data, the 30-40% crash has become "obvious" for many bubble sitters but I think the general public will need to see something more dramatic.
 
<em>"I think the general public will need to see something more dramatic."





</em>If the general public understood what the chart below means for the housing market, they would have their drama.





<img src="http://piggington.com/images/dec06defaults.jpg" alt="Foreclosures and Defaults graph" />
 
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