If total income is $80,000, then is $1,500 mortgage doable?

ScrimpAndSave · #1 (**permalink**) 05-12-2008, 04:03 PM

Just playing with numbers right now...

If the total income of a couple is $80,000.

Assuming that 25% is used for taxes, insurance, etc...the total take home would be about $60,000.

That means that totally monthly take home would be: $5,000.

$5,000 x .3 is: $1,500

Am I calculating this correctly? Would a $1,500 monthly mortgage be doable?

I'm looking at the possibility of buying a home at the end of 2010 (I know, I am way ahead of myself).

My salary will be about $65k and my then husband will have a salary that is unknown right now, because he still has one more year of law school to finish.

He has $20,000 of cc debt and $140,000 of student loans to pay back. So instead of assuming our combined income will be $130,000 (which is what it will be closer to), I have chosen the modest number $80,000 which gives him the opportunity to pay back his student loans and CC debt.

That is our only debt.

Does $1,500 sound survivable?

Thanks!

Scanner · #2 (**permalink**) 05-12-2008, 04:07 PM

Depends on property taxes

disneysteve · #3 (**permalink**) 05-12-2008, 04:38 PM

Haven't we had this conversation already?

Anyway, rule of thumb is no more than 28% of income to housing, including principal, interest, taxes and insurance, and no more than 36% of income to debt payments overall.

I think you are going about this wrong. You need to look at the big picture - mortgage (and related expenses) AND his CC debt and student loans all together, and joint total income. I understand that you want him to focus on repaying debt (especially the CCs) but you are going to be married. You need to handle finances as a team and look at everything together to decide what you can and can't afford and how best to divide up the household income. It might make more sense in the long run, for example, to go a little slower on the student loan repayment in order to get a better house in a better neighborhood and better school district (if you plan to have children) rather than buying something cheaper that you will want to upgrade in a few years. Moving costs money. Furnishing a new home costs money. Each time you move, you incur costs. If you can buy the "keeper" home right away and skip the "starter" home, you'll probably be better off. Even if that means he takes a little longer to repay his student loans.

ScrimpAndSave · #4 (**permalink**) 05-12-2008, 08:50 PM

Disneysteve, I understand and agree. I think that if we can afford a $1,500 monthly mortgage, we WILL be able to have the keeper house....or at least a house that we will stay in for at least 10 years. (Might not be the dream house, but close).

Affording a $1,700-$1,800 would really put us in in a good place.

Thanks - I know we talked about it before. I'm obsessed - Ha!

(Better than being a Bridezilla, right?)

creditcardfree · #5 (**permalink**) 05-12-2008, 08:57 PM

I think it's too much...especially if it does not include property taxes. That is a chunk of debt to pay back. We make slightly more and have a mortgage payment of $1200. But there are other priorities besides the house...such as college and retirement savings.

If you didn't have the debt, I'd think it would be fine. Don't get in over your head and don't finance in such a way just to get the payment right.

ScrimpAndSave · #6 (**permalink**) 05-12-2008, 09:01 PM

We are definitely saving for retirement - but we are not having children

I will be making $65k that year, $73k the next and $85k the year after that.

aida2003 · #7 (**permalink**) 05-13-2008, 06:17 AM

Quote:

Originally Posted by ScrimpAndSave

We are definitely saving for retirement - but we are not having children.

How sure are you about kids? Has one of you had some sort of sterilization?
My ex-colleague surprised me a few months ago announcing that his wife is expecting. I asked him what happened because they didn't plan to have any children for 5-7 years. He said they had always protected themselves, but...that protection assures you 99% only. Oopsie....they got into that unfortunate 1%. After some psychological adjustments (esp.for him), they're excited to have a boy in August

.
If to look from financial perspective, kids are not cheap

, though very precious

ScrimpAndSave · #8 (**permalink**) 05-13-2008, 06:33 AM

Nope. No kiddies for me!

Caoineag · #9 (**permalink**) 05-13-2008, 08:10 AM

It would probably be easier to judge this if you laid out the whole proposed budget. That way you can get a feel of whether it would seem tight to you. While like you we aren't going to have kids, we are planning on being financially independent at a fairly young age so we are keeping our monthly expenditures to an absolute minimum so that we have plenty to save and plenty left to enjoy travelling.

ScrimpAndSave · #10 (**permalink**) 05-13-2008, 09:48 AM

Yeah...this would all be so much easier if I knew what my fiance will make when he gets out of law school. He will be working as an associate in a medium sized private law firm in central Jersey. I have no idea what that starting salary will be.

disneysteve · #11 (**permalink**) 05-13-2008, 09:56 AM

Quote:

Originally Posted by ScrimpAndSave

Yeah...this would all be so much easier if I knew what my fiance will make when he gets out of law school. He will be working as an associate in a medium sized private law firm in central Jersey. I have no idea what that starting salary will be.

I imagine there must be some way to estimate that. Can he speak to friends who graduated before him or maybe speak to his instructors who work in the area?

Why the rush to buy the house now? I don't remember. What about waiting until he is out of school and settled in a job before you buy? What if he works a few months and isn't happy in the position and you need to move to a different area?

jIM_Ohio · #12 (**permalink**) 05-13-2008, 10:25 AM

General questions get general answers. Specific questions get specific answers.

The issue is you are looking for a specific answer with general information. You don't know salary in 2 years, yet are trying to decide how much house you can afford. There are many macroeconomic issues you have no control over which will change the decision:

1) interest rates
2) housing markets
3) employment of spouse 1
4) employment of spouse 2
5) debt ratios
6) budget

You are trying to decide what mortgage payment you can afford now, when my advice would be to save-save-save now. Or at least pay down the debt now. Deal with the now. Your plan has too many variables you have no control over to try and create a short term plan for a very specific problem, even though the knowns are very general at this point.

For example retirement savings is a general problem-general solution type thing-

save 10% or 15% or 20% of income. Trying to plan now how much I need in 15-20-25 years is not a good idea- my spending habits over that same 15-20-25 years is not known, my health is not known, and my rates of return are not known. So trying to even pick the year or amount to retire with is wasted effort. Save now, solve that problem now.

Another example is budgeting. A very specific solution to a very specific problem. This plan gives me a spending amount which needs to be tracked each year. The budget will give me a specific outline for how I should spend my money (and how I do spend my money). This specific outline, measured year over year, will be able to help make a retirement plan more specific (because more data is needed for a specific financial plan to solve the problem).

In your case I would look to make a specific budget, and possibly make another specific plan to pay down the debt, and make another specific plan to pay for the wedding. Solve the specific problems and see what the solutions are. This will tell you your spending levels and that would influence the decision as to the type of house to purchase.

vsjhoc · #13 (**permalink**) 05-13-2008, 02:52 PM

Quote:

Originally Posted by ScrimpAndSave

Yeah...this would all be so much easier if I knew what my fiance will make when he gets out of law school. He will be working as an associate in a medium sized private law firm in central Jersey. I have no idea what that starting salary will be.

As I posted elsewhere, sites like vault have specific information about associate salaries. Check also at Salary.com.

Saving in So Cal · #14 (**permalink**) 05-14-2008, 01:42 PM

As other posters have said, you cannot really make this type of decision with ballpark estimates. You need accurate information. A few points you may want to think about:

If your fiance knows where he'll be working, then he should know what he will be making. Employers do not offer employees jobs without telling them what they will be paid.

If your fiance does not know where he'll be working, then do not count on him having a job until after he passes the bar exam. Even then, it could be tough going as the job market for new associates is definitely cyclical.

If your finance ends up working at a medium-size law firm, he should make a decent salary but he may have to pay more than average for his benefits and its unlikely his employer will contribute much toward reirement. In addition, associates at law firms are generally required to work extraordinary hours and many find they can't or do not want to keep doing so indefinitely. After a few years, many will leave to find more meaningful work and more humane working conditions, usually for significantly less pay. For instance, where I live, public sector attorneys make about half of what a comparable attorney would make in the private sector. Non-profit sector attorneys make even less.

The student loan amount you've listed is a little frightening to me and I suspect it does not factor in the possibility of your fiance needing a bar loan to pay for his bar review course and living expenses while he is studying for the bar. I know of a few other lawyers with similar debt loads and I can tell you that it weighs heavily on them. Debt loads like that usually include private loans with higher interest rates. Your fiance should have copies of loan disclosure statements estimating what his payments will be when the loans become due. You should add those all up so you have a better idea of what his loan payments are going to be when he graduates. You may be surprised at how much it is.

ScrimpAndSave · #15 (**permalink**) 05-14-2008, 05:39 PM

Yes, the $140,000 does factor in the loan for the bar exam, review course and housing.

We are estimating about $2000-$2500 a month for student loan payments.

tripods68 · #16 (**permalink**) 05-14-2008, 06:55 PM

Quote:

Originally Posted by ScrimpAndSave

Yes, the $140,000 does factor in the loan for the bar exam, review course and housing.

We are estimating about $2000-$2500 a month for student loan payments.

Wow!

My mortgage is only $1600.00 a month. You might want to lower your housing cost maybe around $200K instead. Just an idea.

disneysteve · #17 (**permalink**) 05-14-2008, 07:41 PM

Quote:

Originally Posted by ScrimpAndSave

We are estimating about $2000-$2500 a month for student loan payments.

That sounds awfully high. $2,500/month would be $140,000 in only 56 months (not accounting for interest). Surely these loans have a much longer repayment schedule than 5 or 6 years. My med school loans had a 25-year repayment schedule. These must be at least 10 or 15 if not 25 like mine.

ScrimpAndSave · #18 (**permalink**) 05-14-2008, 08:06 PM

I'm sure the minimum payment would be less...we are just estimating on the much higher end to be safe.

I know that a $140,000 student loan debt won't be like $50-$75 a month. It's going to be a hefty payment.

disneysteve · #19 (**permalink**) 05-15-2008, 05:53 AM

Quote:

Originally Posted by ScrimpAndSave

I'm sure the minimum payment would be less...we are just estimating on the much higher end to be safe.

I know that a $140,000 student loan debt won't be like $50-$75 a month. It's going to be a hefty payment.

You shouldn't have to estimate at all. The loan disclosure statements should spell out the exact payment schedule. Have him pull out all the loan documents and you can tally up the actual minimum payments. Then once you know his actual income, you can decide how much above the minimum you want to pay to retire the debt early while still leaving money for savings, buying a home and other needs.

jIM_Ohio · #20 (**permalink**) 05-15-2008, 09:28 AM

Again- OP is looking for a very specific answer (house payment they can afford in two years), yet is using very general estimates to make decision.

garbage in = garbage out.

OP should concentrate on 3-4 short term goals to make 1 intermediate goal work.

The intermediate goal is getting a house. Don't worry about what you can afford then, just know that it is a goal.

Then work all short term goals to get stars to align and allow the intermediate term goal.

Short term goals:

1) save 20% of paychecks. 10% to retirement and 10% to house fund.
2) keep expenses and debt low. Start repaying the debt now (why wait). Paying this down now saves you money and would allow a larger house payment because debt load would be lower.
3) pay cash for wedding and do not let wedding push debt higher.
4) do everything you can now to maximize fiance's earning power when he passes bar (maybe be flexible and you work 2 jobs now, so he studies and aces bar exam in a year or two).

My advice is specific for specific problems you have mentioned in posts. It does not solve your original question (how much house you can afford in 2 years), but I think we could agree if you did all of the above, your situation would be much better off financially in 2 years.

In addition what you might see is that it makes sense to move somewhere else (where husband gets hired based on earning power comment) and then you see house prices there are different than house prices where you are now.