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How large a percentage of post tax income are people comfortable paying into mortgage in the US? 1 million is a lot, but that’s the average house price in my a

How large a percentage of post tax income are people comfortable paying into mortgage in the US? 1 million is a lot, but that’s the average house price in my area as well, and we are certainly not getting SV level salaries here, so it seems quite conservative that two Google employees can’t make payments on a $1 million house. I mean, 150k is what, roughly 8k a month take home? (Don’t know CA tax). Two people making that can easily afford 7-8k a month on the mortgage. Most people here are paying 50-60% of household income as mortgage payment. Myself included, but that’s because wife no longer works. It was 30% when she was still working, and I’m intentionally overpaying to derisk for the next recession, as well as being on a shorter term (10 years). Crazy though, interest rates just have to go to 7% and most I know will lose their house.

smt88 8y ago
> How large a percentage of post tax income are people comfortable paying into mortgage in the US? Isn't a substantial portion of a monthly mortgage payment deductible? > it seems quite conservative that two Google employees can’t make payments on a $1 million house. With 20% down, that comes out to ~$5,000/mo in principal, interest, taxes, and insurance. That's $30k/year/person, which is certainly a lot, but it's also within reach of someone making ~$100k+. I think the most unlikely part of that scenario is the $200k down payment. Maybe people are borrowing more to get a huge mortgage, in which case I'm sure you're right. > interest rates just have to go to 7% and most I know will lose their house. Because they didn't get fixed rates? Or just hypothetically, they wouldn't be able to afford their house today?
- supertrope 8y ago
  Only the interest was deductible with several caveats. It was only about 25% of the interest, there is a max mortgage amount, and there is an income phase out. The new tax law limits state and local tax deduction to $10K.
- indemnity 8y ago
  > Isn’t a substantial portion of a monthly mortgage payment deductible? Wow, mortgage payment deductions on owner occupied properties exist in the US? Makes sense why people talk about pre-tax income when calculating affordability there then. Here nothing about a mortgage payment is tax deductible for the property you live in, only the interest of a mortgage payment on investment properties, and that rule is not long for this world. > I think the most unlikely part of that scenario is the 200k down payment The down payment requirement is steep, but here it is 20% which isn’t nothing, and we saved that in three years on slightly above average incomes for the area. Granted, living in house sharing arrangement so we could actually save. > Because they didn’t get fixed rates? We generally can’t fix mortgages for terms longer than 5 years here, so interest rate risk exists until you have a decent amount of equity. Most people fix for 2, because for the past decade rates have only been going down, but I imagine that pendulum has swung and people are carefully watching what’s happening in the US.
- olliej 8y ago
  Just to clarify - 1 million is low balling. The area I live now - Palo Alto/Mountain View/etc I would be surprised if you got below 2 million. The real problem though is that if you’re getting a mortgage you end up having to pay a further premium on the cost in order to compete with people making cash offers. As far as mortgage write offs on taxes I think it’s just interest component of your payments, and the new tax bill removes most of those for individuals -

smt88 8y ago

> How large a percentage of post tax income are people comfortable paying into mortgage in the US? Isn't a substantial portion of a monthly mortgage payment deductible? > it seems quite conservative that two Google employees can’t make payments on a $1 million house. With 20% down, that comes out to ~$5,000/mo in principal, interest, taxes, and insurance. That's $30k/year/person, which is certainly a lot, but it's also within reach of someone making ~$100k+. I think the most unlikely part of that scenario is the $200k down payment. Maybe people are borrowing more to get a huge mortgage, in which case I'm sure you're right. > interest rates just have to go to 7% and most I know will lose their house. Because they didn't get fixed rates? Or just hypothetically, they wouldn't be able to afford their house today?

supertrope 8y ago
Only the interest was deductible with several caveats. It was only about 25% of the interest, there is a max mortgage amount, and there is an income phase out. The new tax law limits state and local tax deduction to $10K.
indemnity 8y ago
> Isn’t a substantial portion of a monthly mortgage payment deductible? Wow, mortgage payment deductions on owner occupied properties exist in the US? Makes sense why people talk about pre-tax income when calculating affordability there then. Here nothing about a mortgage payment is tax deductible for the property you live in, only the interest of a mortgage payment on investment properties, and that rule is not long for this world. > I think the most unlikely part of that scenario is the 200k down payment The down payment requirement is steep, but here it is 20% which isn’t nothing, and we saved that in three years on slightly above average incomes for the area. Granted, living in house sharing arrangement so we could actually save. > Because they didn’t get fixed rates? We generally can’t fix mortgages for terms longer than 5 years here, so interest rate risk exists until you have a decent amount of equity. Most people fix for 2, because for the past decade rates have only been going down, but I imagine that pendulum has swung and people are carefully watching what’s happening in the US.
olliej 8y ago
Just to clarify - 1 million is low balling. The area I live now - Palo Alto/Mountain View/etc I would be surprised if you got below 2 million. The real problem though is that if you’re getting a mortgage you end up having to pay a further premium on the cost in order to compete with people making cash offers. As far as mortgage write offs on taxes I think it’s just interest component of your payments, and the new tax bill removes most of those for individuals -