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People have different definitions of "affordable." To me, a gross $65,000 household income, less after taxes, is not enough to be able to afford a home within t

People have different definitions of "affordable." To me, a gross $65,000 household income, less after taxes, is not enough to be able to afford a home within that price range. It's probably closer to below $275,000. I do agree with you regarding location, though.

DavidPeiffer 6y ago
Completely agree. A lender in Iowa told us they approve up to 35% of gross income. Not certain if that was total servicing all debts, or their limit on the mortgage percentage payment. 65k could buy a ~300k house at a 3.25% interest rate. I talked with an attorney from San Francisco on a plane once. When they bought their first house, 70% of their income was going towards the house. Raises helped that become a more reasonable percentage over the year. Fast forward a few years, their family grew and they wanted to be further towards the edge of the city. They sold the house at a huge profit and put that money towards a bigger house further out. Different perspective in different markets.
- mlac 6y ago
  That works until the bubble pops, and then really only for for families with high incomes. In your example, let's assume its 70% of take-home (it has to be after tax, or they would literally have nothing left). Taking home 300K, it's easy to live off of 90K. Taking home 100K, it's harder to live on 30K a year. Taking home 65 and doing that, it's not going to happen. The cost of most household consumables is largely fixed, even as income scales. One can have expensive taste and increase that, but you can only spend so much on toilet paper and laundry detergent.
busterarm 6y ago
You should never buy a home that costs more than 2x your yearly income. So yeah, you should make at least $137,500 if you want to buy a $275k house.
- smabie 6y ago
  I mean that feels pretty simplistic. Like most things, it depends. There are many things that I could know or believe that affect the calculus. For example I might get promoted next year and make more money or whatever.
  - isbvhodnvemrwvn 6y ago
    Or laid off, or get into an accident.
    - ineedasername 6y ago
      In which case the equity you've built up in a house can help serve as a cushion, either by obtaining a home equity loan or if circumstances don't allow that because you don't have a paycheck you can cash out the equity by selling the home. Absent on economic downturn, even if you sell within the first 1-2 years you should be able to roughly break even and then downsize to a cheaper apartment. The only times I see renting as a better economic option is when the monthly mortgage + property & utility costs are significantly more expensive than renting, AND there's an excellent chance of needing to relocate within the next 3-5 years before much equity is built up. At earlier stages in a career, somewhat frequent relocations are common. But for a large part of the population who, especially as they age into their 30's+, want to stabilize such things in the interest of staying close to family, or make their own family, a greater level of geographic stability is very desirable and can be achieved without much if any career sacrifice if the location is strategically chosen, and buying a house at that stage almost always makes economic sense in the long term. Of course there are some people who will always want to periodically uproot themselves every few years to new locales, and there's nothing wrong with that either, but I guess my point is that these differences in lifestyle choices significantly change where the economic balance falls.
- Ancalagon 6y ago
  by this logic like 99% of people would be priced out of purchasing houses in most of california...

DavidPeiffer 6y ago

Completely agree. A lender in Iowa told us they approve up to 35% of gross income. Not certain if that was total servicing all debts, or their limit on the mortgage percentage payment. 65k could buy a ~300k house at a 3.25% interest rate. I talked with an attorney from San Francisco on a plane once. When they bought their first house, 70% of their income was going towards the house. Raises helped that become a more reasonable percentage over the year. Fast forward a few years, their family grew and they wanted to be further towards the edge of the city. They sold the house at a huge profit and put that money towards a bigger house further out. Different perspective in different markets.

mlac 6y ago
That works until the bubble pops, and then really only for for families with high incomes. In your example, let's assume its 70% of take-home (it has to be after tax, or they would literally have nothing left). Taking home 300K, it's easy to live off of 90K. Taking home 100K, it's harder to live on 30K a year. Taking home 65 and doing that, it's not going to happen. The cost of most household consumables is largely fixed, even as income scales. One can have expensive taste and increase that, but you can only spend so much on toilet paper and laundry detergent.

busterarm 6y ago

You should never buy a home that costs more than 2x your yearly income. So yeah, you should make at least $137,500 if you want to buy a $275k house.

smabie 6y ago
I mean that feels pretty simplistic. Like most things, it depends. There are many things that I could know or believe that affect the calculus. For example I might get promoted next year and make more money or whatever.
- isbvhodnvemrwvn 6y ago
  Or laid off, or get into an accident.
  - ineedasername 6y ago
    In which case the equity you've built up in a house can help serve as a cushion, either by obtaining a home equity loan or if circumstances don't allow that because you don't have a paycheck you can cash out the equity by selling the home. Absent on economic downturn, even if you sell within the first 1-2 years you should be able to roughly break even and then downsize to a cheaper apartment. The only times I see renting as a better economic option is when the monthly mortgage + property & utility costs are significantly more expensive than renting, AND there's an excellent chance of needing to relocate within the next 3-5 years before much equity is built up. At earlier stages in a career, somewhat frequent relocations are common. But for a large part of the population who, especially as they age into their 30's+, want to stabilize such things in the interest of staying close to family, or make their own family, a greater level of geographic stability is very desirable and can be achieved without much if any career sacrifice if the location is strategically chosen, and buying a house at that stage almost always makes economic sense in the long term. Of course there are some people who will always want to periodically uproot themselves every few years to new locales, and there's nothing wrong with that either, but I guess my point is that these differences in lifestyle choices significantly change where the economic balance falls.
Ancalagon 6y ago
by this logic like 99% of people would be priced out of purchasing houses in most of california...