What multiple of your income did you spend on your house?

disneysteve · #1 (**permalink**) 12-10-2006, 07:49 AM

When you purchased your current home, what multiple of your income did the purchase price represent?

For example, if your home was $200,000 and your income was $50,000, you spent 4 times your income.

A recent Money magazine article discussing how to be financially successful had a list of "rules" to follow. One of the rules was to not spend more than 2.5 times your income on a home. I'm curious how many of us followed that advice.

We bought our home in 1994. At the time, I believe we were earning about 85K and we paid 142K for the house. So we spent 1.67 times our income.

humandraydel · #2 (**permalink**) 12-10-2006, 08:02 AM

Well, I haven't bought a house yet, but I'm looking to in the next 1-2 years. I'm planning on spending about 1.5 times my income. This isn't because I make an extraordinary amount, just because I have significant student loans. And the 1.5 factor is only for the "loan" amount. Including the 20% downpayment the factor would be 1.83. If I didn't have the student loan I'd probably spend more like 2.25

fake_usa · #3 (**permalink**) 12-10-2006, 10:41 AM

I havn't bought a home yet but I'd be very happy if I could find a one at 2.5x my salary.
I'm looking at more around 4.33x my salery for a starter home in NJ.

PrincessPerky · #4 (**permalink**) 12-10-2006, 11:16 AM

when we bought it, it was 4X our income...but now it is 1.5 X our income...worth went up, income went up...

Ima saver · #5 (**permalink**) 12-10-2006, 11:50 AM

Our home cost about 6 times our income. However, we had the cash to pay for it and dh did all the work on it, so if you take out his pay it was about 5 times our income. It is now worth a lot more than that.

DivaJen · #6 (**permalink**) 12-10-2006, 02:35 PM

I suppose we spent about 3x our income, although I can't remember exactly what we were making back then.

Diolla · #7 (**permalink**) 12-10-2006, 02:44 PM

aargh more math

price/gross=0.87x my income
loan/gross=0.69x my income

I just bought it a year and half ago so those numbers should be about right.

LivingAlmostLarge · #8 (**permalink**) 12-10-2006, 02:53 PM

house was 5x our income. But disneysteve, you can't really use the number 2.5x because if you are 22 and buying your income is a lot lower than a 32 year old buying their first house. Or a 42 year old buying their 3rd home. It depends on circumstances etc.

Our home was our second purchase, we had 20% DP, and it's less than 28% rule. So it's not a cut and dry rule.

rduell · #9 (**permalink**) 12-10-2006, 02:55 PM

2.25x at the time. Now it's worth about what our total income is.

scfr · #10 (**permalink**) 12-10-2006, 02:59 PM

Since we're self-employed, our income varies quite a bit. I took the average of 3 years income (the year before we bought, the year we bought, and the year after we bought) and we spent 1.93 x our income on our previous house.

We recently sold our house and are going to move to a lower-cost part of the country in 2007. The plan is to spend not more than 1.5x our income on the next house, so if what the Money mag article says is true we're not spending too much. I just can't help but wonder if it's too little. Sure wish my crystal ball that would tell me where the real estate market is going to go was working .....

safari · #11 (**permalink**) 12-10-2006, 03:46 PM

When I purchased a house back in 2001, it was 5x my income. I am glad I didn't wait because since then my house doubled in value, while my income only grew by 40%.

disneysteve · #12 (**permalink**) 12-10-2006, 04:19 PM

I can't imagine spending 5 times income on a home. For our purchase, that would have meant a home costing $283,000 more than we actually spent. There's no way we could have afforded that if we still wanted to be able to eat.

I often wonder how there can be so many people earning enough to purchase all the new homes that have gone up in our area selling for 500K or 600K or more. But if people are buying them who earn only 1/5 of that price, that makes a whole lot more sense.

Ima saver · #13 (**permalink**) 12-10-2006, 04:44 PM

Well, I am one of the ones who spent 5 times our income. But i have had several houses that have appreciated in value over the past years, so I have always had the cash money for the next one. Our house has doubled in value the past 10 years according to the tax assessor.

LivingAlmostLarge · #14 (**permalink**) 12-10-2006, 04:46 PM

Depends on where you live again, and how much debt you have. For us a 5x home, is not a 5x mortgage. If you buy a home 5x the amount but have a 50% DP maybe because you lived in your last home a long time, bought it at 22 and lived there till 32, it's probably not a typical scenario.

disneysteve · #15 (**permalink**) 12-10-2006, 04:53 PM

Quote:

Originally Posted by LivingAlmostLarge

Depends on where you live again, and how much debt you have. For us a 5x home, is not a 5x mortgage. If you buy a home 5x the amount but have a 50% DP maybe because you lived in your last home a long time, bought it at 22 and lived there till 32, it's probably not a typical scenario.

Makes sense. I was just wondering where people measured up to that level suggested by the article. They didn't specify, but maybe they meant a first home purchase.

If you are older and selling a home for a substantial profit, you can afford to spend a lot more on the next place.

Mortgage interest rates are also a factor. When they are low, your money will buy more house than when rates are higher.

genmed · #16 (**permalink**) 12-10-2006, 05:08 PM

When we bought (just a few years ago), our mortgage was 1.8x our total yearly income, but now is less. I can't even imagine trying to buy a house now, we couldn't find one under 3.5x our current income if we wanted to.

pearlieq · #17 (**permalink**) 12-10-2006, 05:40 PM

1.97 times our income. It's a pretty comfortable fit.

JanH · #18 (**permalink**) 12-10-2006, 05:47 PM

Bought over a dozen years ago, house was 1.15 of our income. Guess it is one thing we did right!

frugalmomof1 · #19 (**permalink**) 12-10-2006, 05:53 PM

When we bought our second house about 2.5 years ago, it cost 3.5x our income, but we put more than 25% down (profit from selling our first house).
Right now our mortgage is 2.2x our income, and the house has appreciated about 45%, based on the last appraisal.

TBH · #20 (**permalink**) 12-10-2006, 06:03 PM

I am so bad at math, but I think our house was about 1.25X our income at the time (2004). Yeah, that sounds right, because we put down 20% and our mortgage was equal to a little more than 1X our annual income.

Now our income has gone up and so has the value of our house. I think our house is now worth about 2.5X our annual income.

The mortgage company (and my parents) wanted us to buy a house worth more like 5X our income and we thought that was nuts. There was no way we could have made the mortgage payments AND all our other bills, and we don't even have any debt to service.