We’re considering a house priced at 1.45M. Our monthly take-home is 15,000, and we have no other debts. Our monthly living costs range between 5,000 and 7,000. We’re looking at a mortgage offer with a 5/5 ARM at 5.625% interest and putting down about 25%, which would make our monthly mortgage around 8,300. This is significantly higher than the 7,500 my husband feels comfortable with. We’ve got 150k in savings and some in a 401k. We’re both in our 40s and fairly new to this system, so any advice would be appreciated!
We make 18k before taxes and our mortgage costs us 5500. We manage, but it’s tight, and adding any more might prevent us from saving for the future. Remember, owning a home comes with its own set of extra costs and taxes, especially during the first year. Perhaps consider adjusting your budget downwards.
@Daryl
Just to clarify, our monthly net income is 15,000, not gross.
Dru said:
@Daryl
Just to clarify, our monthly net income is 15,000, not gross.
With a proposed mortgage of 8,300, considering property taxes and insurance might increase, you’d only be saving about 1,000 to 2,000 a month from a 15,000 net income. This doesn’t seem like a sound financial move.
@Val
I agree, and I hope they consider this carefully. While the income is good, this plan might lead to being house poor, needing to cut back significantly on current expenses.
Based on a general rule of not exceeding 3x your annual income for a mortgage, your loan should ideally not be more than about 540,000. I’d be cautious with anything over a 4,500 monthly payment based on a 180,000 yearly income.
@Keller
Just to clarify, our monthly net income is 15,000, not gross.
Dru said:
@Keller
Just to clarify, our monthly net income is 15,000, not gross.
Got it! It might be tight but seems feasible. Best of luck with whatever you decide!
Even with a 15k net, if you have 5-7k in monthly expenses, this affects your debt to income ratio which banks cap at about 43%. It sounds like you might not qualify for the loan you’re hoping for, not to mention, if one of you loses a job, it could be financially disastrous.
@Fox
Actually, lenders usually exclude variable expenses like groceries or utilities. They focus on minimum debt payments and housing costs.
Tanner said:
@Fox
Actually, lenders usually exclude variable expenses like groceries or utilities. They focus on minimum debt payments and housing costs.
Exactly, only recurring debts like credit card payments are typically counted, not your monthly groceries or utility bills.
@Merritt
We don’t carry a balance on our credit cards.
Tanner said:
@Fox
Actually, lenders usually exclude variable expenses like groceries or utilities. They focus on minimum debt payments and housing costs.
I’m in the process of getting a mortgage now, and any regular debt payments are definitely factored into the debt to income ratio.
@Fox
Keep in mind they won’t have rent payments once they purchase, though they will have property taxes and home insurance to consider.
Mika said:
@Fox
Keep in mind they won’t have rent payments once they purchase, though they will have property taxes and home insurance to consider.
That’s true, but those costs need to be considered as they replace rent in the monthly budget.
@Fox
We have 400k saved specifically for the down payment, in addition to our other savings.
Dru said:
@Fox
We have 400k saved specifically for the down payment, in addition to our other savings.
With only 100,000 in retirement savings at 40, I’d suggest looking for a less expensive home to ensure you can retire comfortably. An 8,500 mortgage might be too much of a strain.
Dru said:
@Fox
We have 400k saved specifically for the down payment, in addition to our other savings.
It sounds like you might need to reevaluate your savings strategy, especially for retirement.
Dru said:
@Fox
We have 400k saved specifically for the down payment, in addition to our other savings.
Consider investing that 400k or consulting a financial advisor who can help with more than just investments, like estate planning or finding better mortgage rates.
I’m puzzled how your monthly living costs are so high without including rent. If you’re considering a 7,500 mortgage on top of that, it doesn’t leave much room for savings or unexpected expenses, which are common with homeownership.