What would be a responsible mortgage in this case?

[syracusa]

I have touched on this in a previous thread but the question there was focused on something else. I would appreciate any opinion regarding the mortgage we would like to take on in a few months (or the price of the house), considering our financial situation. Overall, it is not complicated:

Ages: H: 48, W: 40
Kids: 2 (4 yo and 7 yo).
Family income: 170,000
Debts: zero
Retirement + college for kids: about 400,000 (200,000 of these is some land that my husband owes)
Amount available to put down on a house: about 100,000.

As a frugal person, what is the maximum mortgage you would find acceptable to take on - given this financial situation? (We are not interested in what the bank says we would qualify for as that would be an insane amount anyway).

Also, if the wife had to quit working full-time in about 4 years from now (it might not be a choice, I may be forced to) and family income would go down to about 120,000 - what would be the maximum mortgage you would find acceptable in this case, considering that during these four years we would continue to save a lot and pay as much as possible down on the mortgage, and not just the calculated monthly payment? This scenario is not sure though, I might actually continue to work-full time many years after these upcoming four, it will all depend on certain results at work. But just in case.

So give us a maximum number; something like: "if I were you, I would NOT go above THIS mortgage amount (debt)".
Again, we will have about 100,000 to put down. Or almost.

Thank you so much!

[humandraydel]

Well I think you are thinking about this the wrong way. What is the least amount you can spend and be happy with your house? I was in your shoes I would not spend more than 225k-150k mortgage and 75k down. But the bank would probably loan you 500k.

[bjl584]

The absolute max you would want to go is around $500K with $100K down.

That may be way too much house or that may be an average house. Without knowing where you live it's impossible to say.

[kork13]

If I were personally in your shoes, I would look at houses no higher than $400k, use an $80k-$85k downpayment (save the rest to bolster your emergency fund), and you'd end up with a $320k mortgage (approx. $1400/mo P+I payment, plus taxes & insurance). Of course, that would be my maximum... I think I'd start looking around the $300k mark, and progressively move up toward $400k only if the homes you're looking at aren't satisfactory to what you're looking for.

A $400k house would probably be affordable if your family income drops to $120k, but it would definitely be fine with a $300k home (both assuming at least a 20%+ downpayment).

[MonkeyMama]

Agreed with the others. I think income is kind of irrelevant as you can't depend on that kind of income for the long-term. & I'd probably somewhat guage by the lower income in your household. (Not that it has to be "easily affordable" on lower income, but should be "doable" on lower income, especially for shorter lengths of time, just to factor that crap happens).

On a $50k lower income, no debt, higher interest rates, we decided not to buy more than $300k. A larger down payment changes things a bit {We did put about $70k down}. I'd put the whole $100k down, personally (as long as you have ample cash savings otherwise). I'd maybe consider a $400k home given your income. Maybe $450k given current interest rates + $100k down. But that would be the absolute max, from a conservative point of view.

My income is about half yours, and all the calculators say we could borrow extremely absurd sums. For reference, I just plugged your data in and it says you can afford a $1 million house. Maybe a good rule of thumb is to go 50% or below said calculators. With these interest rates...

[phantom]

With $100,000 down, I think $500,000 is a good absolute max, because that's 20% down.

Trying to be frugal, the max I'd spend on a house would vary depending on what houses went for in the area I was looking in. There are some places where perfectly reasonable houses for families of 4 go for little more than $100,000. If I lived in one of those, I might seriously consider not getting a mortgage at all or at least staying under $200,000. In an area where house prices are much higher, I think you could get much closer to $500,000 and still call the decision pretty frugal.

I think it would be wise to set you own personal max by looking at what your budget would be if you only had $120,000 a year to work with. If that was your income, what would be the max you could pay per month for your house? I would us that number to figure out how much of house you could get with a 15 year mortgage.

[disneysteve]

If I knew there was a pretty good chance income would drop to 120K in 4 years, I'd buy based on that, not on current income. So 2.5 times income would put you at about 300K. Personally, I wouldn't exceed that.

Of course, we paid about 1.6 times income when we bought our house so I'm definitely on the conservative side of this discussion.

[JoeP]

If I knew there was a pretty good chance income would drop to 120K in 4 years, I'd buy based on that, not on current income. So 2.5 times income would put you at about 300K. Personally, I wouldn't exceed that.

Of course, we paid about 1.6 times income when we bought our house so I'm definitely on the conservative side of this discussion.

Agreed. We're conservative as well: house cost was ~1.8 times income, with mortgage exposure of about 1.2 times income.

[feh]

If I knew there was a pretty good chance income would drop to 120K in 4 years, I'd buy based on that, not on current income. So 2.5 times income would put you at about 300K. Personally, I wouldn't exceed that.

I agree.

Although I don't think we can really give advice without seeing your entire budget. One major potential expense is retirement savings. You need to decide how much you want saved and by what age.

[scfr]

Personally, if I were in your shoes, I wouldn't spend over $200K on a residence ($100K down & 100K mortgage) and I wouldn't take on a mortgage longer than 15 years because of your ages.

[MonkeyMama]

Personally, if I were in your shoes, I wouldn't spend over $200K on a residence ($100K down & 100K mortgage) and I wouldn't take on a mortgage longer than 15 years because of your ages.

Very good point!

I did not catch the age when I posted - that would change my answer. I think I'd personally tap out at a $200k-$250k mortgage, simply because wife is so much younger. 15 year loan, indeed. Maybe 20 years. I would not do a 30-year loan.

[syracusa]

Thanks so much, everyone. I really appreciate all the input.

It was interesting to see the array of opinions from the most cautious and conservative to the most "generous". :-)

As we are looking in a suburban area that is generally considered "expensive" in this state, because of schools and proximity to amenities of all sorts, all in all you cannot get away with a low amount and have what is usually identified as a "nice" house. I mean "nice" as in "updated and on the new side". If you want to keep the mortgage "responsible", you need to content yourself with an older house, maybe smaller, less updated etc.
Let's just say you are not going to get "the house of your dreams" in this area.

This is fine by us though - as I do not want to go further out there where schools are less solid and proximity to amenities is virtually non-existent. We are always extremely busy so I need to be able to have 1 minute-rides to stores, etc. My husband's sister keeps hinting on why we choose to look in what is considered a "snobby" area around here and why we don't move closer to where they are (not that she wants her brother close as they aren't really that close, but because she wants us to admit that their choice was the valid one) - but I personally cannot go over how far from anything they are. Distance from amenities drives me crazy - so I guess we have to pay the price.

That being said, we capped the price of the house at 340,000 - with us putting down about 100,000, maybe a bit less. So that would make a mortgage of about 240,000 dollars. My husband does not want to make it 15 years, he prefers 30, with us choosing to pay extra on it whenever we can - but he wants the flexibility that a 30 year mortgage affords.
Not that we plan on taking 30 years to pay it, as we do plan on paying it off much sooner than that. If I remain full-time, preferably no longer than 7 years.

[MonkeyMama]

@syracusa - I think that sounds beyond reasonable, and you have a good attitude about it. $340k couldn't even buy you a *house* where I am from, but that is not good enough reason to spend more than you can afford, in my opinion. So you don't buy a house then...

With that income, you will probably get a lot of pressures from bankers and realtors, etc. to borrow MUCH more. So, just a heads up. Just come back to SA if you need some common sense thrown at you.

[disneysteve]

we capped the price of the house at 340,000 - with us putting down about 100,000, maybe a bit less. So that would make a mortgage of about 240,000 dollars. My husband does not want to make it 15 years, he prefers 30, with us choosing to pay extra on it whenever we can - but he wants the flexibility that a 30 year mortgage affords.

I think that is very reasonable for your situation. Good luck with everything.

[sblatner]

Just remember there are closing costs when you buy a house. When we bought ours years ago, we had to pay a lot to close. That should get added on to the deposit.