How much to "spend" on a house

[sargo]

I'm planning to buy a home soon. I'm single, and in my 30's. My question comes in the fact that as I said, I'm singe, and in my 30's. Meaning, I hope to get married soon, which might possibly mean moving. I know you never know what can happen in the future, but just assuming I might sell, and buy, say within 10 years, I am wondering what my best money spending options are. I'm not trying to make money necessarily on the home, but not lose too much either.
For instance, I could get a 30 year loan, or possibly squeeze out a 15. Or, just make more or bigger payments on a 30. Of course that helps out on saving money, especially if you plan to live there for a while. But is it really worth it to do that if you might not live there for that long? Thanks.

[adstalker]

Due to the financial crisis, mortgage lenders no longer do stated income loans. Your question of how much to spend on your house can basically be answered with one sentence. How much the bank will approve you for is basically dictated by your income and your Debt to Income Ratio.
Typically for fannie mae loans your DTI cannot exceed 38%.

get a 30 yr fixed especially if you dont plan on living in the property forever.

[wincrasher]

Well you definately need to set a budget to get to how much you can afford.

20% down is alot of money to save - do you have it? You'll need your emergency fund in place - 3 to 6 months expenses - do you have that? Your payment, including taxes and insurance cannot exceed 31% of your gross - and that is a max limit.

You need to budget for maintenance and utilities as well. Homes typically eat more utilities than an apartment. I'd include $200-$300 a month on maintenance/repairs/improvements. There always seems to be something to fix or work on.

So you sort all this out and it gets down to the deal. If you are going to have a short time horizon on ownership, it becomes even more important to find a good deal. I'd think you are buying for resale - so you need to find something undervalued - like a foreclosure. But it also has to be something desirable in the market - something I would think appealing to a growing family - like a 3bed/2bath with a nice yard, quiet neighborhood, good school district, close to shopping and restaurants - like that.

There are lots of post on here where people settled for what they could afford, not what was a good investment. So they get stuck in overpriced condos or townhouses that they cannot unload. Worse yet are the underwater folks who are having to bring money to the table at closing. Don't be one of these people. Buy smart, find a good deal and look how it appeals to a broad range of buyers, not just you.

Good luck!

[LivingAlmostLarge]

But buying what you can afford makes more sense right than buying what is resallable? Not sure if I get that part.

If it's so expensive or unaffordable then there will be a market always for starter condos/homes because not many people will be able to buy an "investment" home right off the bat.

[wincrasher]

Maybe it didn't come across clearly.

If what you can afford is not easily resellable, then you should probably wait until you can afford to buy something that is. "Settling" for what you can afford can cause greater problems later.

Right now there are lots of "deals of a lifetime". I'm saying to look for those. If you need to exit strategy a short time down the road - like relocating for a job, or getting married or having kids, then it's smart to consider more than if the house is "perfect for you" at this time - you need to think yeah, this might not be absolutely perfect for me, but 90% of families would LOVE this house. So a single person might not need 3 bedrooms, but it appeals to the broadest market of buyers. Get my point?

A single bedroom townhouse definately has a limited appeal. That might be an excellent starter house for many, but guess what? Most starter homes have to be cheap. So how much run up in the value, say over 5 to 10 years could one expect, to still be appealing to a starter buyer? How many starter buyers are there compared to "move-up" buyers? Or job relocators?

Just stuff to consider.

[sargo]

Thanks for the replies. Yes, luckily I've been in a pretty good position the last few years, and have been able to save a good deal of money. So I have plenty to put down, and have plenty for an emergency found. I should also still be able to save a good amount of money each month if I go with my higher price point. This also leads me to a question. If I do "plan" on resale soon, if I go with a 30, should I still make extra payments, or put down even more then 20% as a down payment. Its obvious that doing this saves money in the long run and shortens the duration, but in the short run is it a good idea. Putting that money elsewhere is ok, but none of my current investments seem to be making that great a return. Thanks.

[jpg7n16]

Very simple rule of thumb:

Market value of house < or = 3x your annual pretax salary, with 20% down.

This keeps your monthly expenses related to housing finance (mortgage + insurance + taxes) at or under the recommended 28%


So if you make $60k, buy a home at or under $180k. If you get married to someone who also makes $60k, your income would be $120k combined, so at or under $360k.

[snafu]

I have the impression you're looking at purchasing a house as an investment rather than a place to live. The risk factor may be larger than you imagine. Success will be dependent on location and how good a deal you make as a buyer. The cosmetics/decor can be changed. Buying and selling is expensive with realtor commission,closing costs [escrow, funding & document fees,surveys,inspection appraisal] adds thousands. You may believe the seller is paying the commissions but the only one handing over $$$$ is the buyer!

If you are willing to put in the work and aggravation, you could consider a 4plex, live in one section and rent the other three, hopefully enough to pay the mortgage costs.

[1yearfrom0debt]

All of the posts above hit the nail on the head. The bank will determine how much you can afford. I would get pre-approved and go from there. If you are thinking a life changing event could occur, then maybe you buy a smaller home on a 30 year note so the payments are low. This will allow you to save more for future purchases, i.e. engagement ring, wedding, etc. I would not get too complicated as the market is still pretty vulnerable.

[rj.phila]

i think it's important to note that making money to any degree on a house lies on one assumption: you are actually able to sell the house within the time frame desired. just wanna point out that, even though it seems obvious. if you do this, make sure you're buying in an area that will be desirable for buyers in 5-10 years.

[disneysteve]

Originally Posted by 1yearfrom0debt

The bank will determine how much you can afford. I would get pre-approved and go from there.

Absolutely not. Do not allow the bank/mortgage company to determine how much you can afford. I guarantee you they will approve you for way more than you should actually spend. You should get pre-approved because it is helpful when putting in an offer, but only you know how much you can truly afford.

[sargo]

Thanks again for all the replies. Maybe I mis-titled the subject a little bit though. My question isn't so much as how much to "spend" on a house, like how much can i afford, but more like, where and how to spend my money. (As the above poster stated, I have been pre-approved already, but have done the numbers for me, and am well within my means, much lower then where I was pre-approved) For instance, if i do plan to sell in a few years, would it be smarter to put more money down(more then the 20% I already will), make more to my monthly payments and more payments a year. Or would it be smarter to pay just my 20%, then my minimum payment.
I of course understand that putting more down, will lead to a smaller monthly payment. I could also pay more each month, or put in extra payments which would decrease my overall interest, but is doing that beneficial if i plan (possibly of course) to sell the house in a few years.
It all seems to be a balancing act with what you feel comfortable with, and how much you can afford it seems. Is this the right thinking? Just put as much down, make extra payments, etc etc, as long as I have my safety net, and the proper income to debt ration(which I will). Thanks!

[rj.phila]

yes, your thinking is right in that the less interest you pay, the more profitable a home purchase+sale will be.

fyi, rule of thumb is that at minimum mortgage payments, 5 years occupied is the cutoff point at which it makes sense to buy vs. rent. if you plan on buying in 2011 and selling in 2013, the speculative bet that your house will appreciate to the point that you will recoup closing costs AND agent costs on the sale is virtually nil. i'd eyeball it at about a 5 in 100 chance, probably less. but im not nostradamus, and your market might have more promise than the average US RE market.

put another way, the benefits of home ownership work similarly to compound interest-time being on your side. 2-5 years is not a promising window, frankly. most people dont stop SPENDING on serious rehab for 2-5 years.

[Eric80]

I think that you should assess the situation in terms of the milestones that you aim to achieve. The reason I say this is because the worse thing that could happen is that you take out this loan and then an unforseen circumstance may occur. This could then leave you in a real sticky position.
I hope this helps