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The 2.25 thing seems like it's very conservative. The general advice is that the most you should spend on rent in a given year is 30% of your salary, but let's
by rockostrich 6y ago
The 2.25 thing seems like it's very conservative. The general advice is that the most you should spend on rent in a given year is 30% of your salary, but let's bring it down to 20% to be conservative. Let's say we get a shitty mortgage rate of 4% over 30 years. Assuming your income won't change at all over the course of the 30 year mortgage and spending the equivalent of 30% of your salary per year, you end up spending 9 times your income on the house. Going off of Google's mortgage calculator, the cost of the mortgage is about 172% the cost of the loan for 30 yr/4% so that means you could buy a house that's ~5.25x your income to be equivalent to the money spent on rent.
Obviously this is ignoring a lot of things like HOA fees and taxes, but if even if you're mortgage payment is 50% of your monthly housing expenses you could still pay for something that's more than 2.25x your salary.
- Swizec 6y agoSure and all of this is moot if you can’t afford a down payment. The down payment and closing costs on a 1.5mil home are massive Paying the mortgage itself isn’t the problem. We already pay the landlord’s mortgage.
- AlexTWithBeard 6y ago5% downpayment for $140k home is $7k. This is one quarter of an average wedding expenditure in the US [1] [1] https://www.weddingstats.org/average-cost-of-a-wedding/ https://www.weddingstats.org/average-cost-of-a-wedding/
- Swizec 6y agoYes but $140k homes are not available where I want to live.
- PeterisP 6y agoI believe that the 2.25x estimate comes from a time where a mortgage rate of 4% would not be considered shitty but rather impossibly low. Lower interest rates have increased the home value that people can afford for the same monthly payment, and thus has been also a factor in driving up home prices.