First time home buyer wondering about financial allocation.

[HomeBuyersYAY]

I wanted a few people's opinions on me and my wife's financial situation:

Current Gross salary between both of us: 98,000/yr
Of that 17.5% goes into 401k
Take home NET income (after taxes) is $4880/month
Our current average monthly expenditures are $3000 (average over the course of a year) - that includes everything, utilities, food, insurances, cellphones, eating out, etc, and 850 in rent.

So we are looking at homes and our we are considering a mortgage with a PITI of 1650/month - so 800 dollars more than current rent. This leaves us with about $1000 left over in the bank each month.

Does that sound like a good amount to be saving? Would we be stretching our budget too thin at that point? How much does everyone else save per month? Given this is our first house, and its a big investment, im just a little apprehensive about writing a check for 1650 a month, heh.

Thanks!

[krantcents]

I wanted a few people's opinions on me and my wife's financial situation:

Current Gross salary between both of us: 98,000/yr
Of that 17.5% goes into 401k
Take home NET income (after taxes) is $4880/month
Our current average monthly expenditures are $3000 (average over the course of a year) - that includes everything, utilities, food, insurances, cellphones, eating out, etc, and 850 in rent.

So we are looking at homes and our we are considering a mortgage with a PITI of 1650/month - so 800 dollars more than current rent. This leaves us with about $1000 left over in the bank each month.

Does that sound like a good amount to be saving? Would we be stretching our budget too thin at that point? How much does everyone else save per month? Given this is our first house, and its a big investment, im just a little apprehensive about writing a check for 1650 a month, heh.

Thanks!

Did you include real estate taxes and additional Homeowner's insurance or does the $1,650 include impounds for that? If so the remainder of $1,000 is fine. Good luck with the house.

[maat55]

Your payment would be 34% of your take home pay. That is getting on the high side when considering % of take home pay.

Is the 4,880.00 after 401k?

It appears affordable, yet you are dedicating a large amount of your overall budget to house, which means you will likely be sacrificing in other areas.

You are leaving yourself a tight area for auto costs and numerous other gotya's. Do you have 3 to 6 months expenses as well as a sufficient downpayment?

[HomeBuyersYAY]

Yes, the 1650 includes insurance and property tax - its the PITI.

We currently have a sufficient amount saved for the down payment (20%) and will have about 3 months of living expenses in the bank after that.

The 4880 is net after 401k deductions and taxes.

I have been living in an apartment for so long with with such a surplus of income, not even having to think about the concept of a "budget," that going into a situation where extra expendatures/month actually matter - well, its a little frightening I guess. I kind of wanted to see what margin others lived off of to see if my concern is just because its a new experience, or if the margin I will be living off of sounds a little tighter than I initially thought.

We are contributing quite a bit to our 401k's and if worse came to worse I suppose we could reduce that a little, but I would prefer not to.

To give a little more insight - I have ZERO debt. No credit card debt, no car payments (fully own 2 cars, a 2000, and 2007), zero student loans, nothing.

Thanks guys, I really appreciate the insight!

[disneysteve]

I'd vote no. You would be at nearly 34% going to the house. That is too much. The rule of thumb is no more than 28% which, for you, would be $1,366/month. I say look at cheaper homes.

[MonkeyMama]

My only other question is how old you are.

Barring my opinion based on your age, I think it's quite fine. (The younger you are - the better, because you probably have room for advancement and higher income, etc.)

Anyway, for reference, my PITI is about $1700/month. When we both work, we gross $100k, but it's been about 8 years since my spouse worked. For the region that we live in, we are ultra conservative. We bought our home at your income level.

I suppose another question would be how old is the home and how much maintenance might it have? General rule of thumb is 1% - 3% of the value of the house set aside, monthly, for future maintenance. How much, just depends.

As far as the ratios, the general rules are that your mortgage PITI should be more more than 28% of your GROSS income. If you have no debt, you can get away with closer to 33%.

Anyway, using the 28% gross figure, you "could afford $2300/month." So I think $1700 is very reasonable.

So, you are putting 20% down and have not other debt. You are putting 17.5% to retirement (probably more than ample). You have an emergency fund. This leaves $12k per year cash savings. For future home maintenance, car replacements, other savings goals.

What am I missing? The others are penalizing you merely because you contribute so heavily to your 401k (which lowers your take-home).

I personally save 13% gross income to retirement and about 10% gross income to cash, at current, and I find that quite ample. We don't borrow for anything (just have the mortgage). Our mortgage is about 25% of our gross income, today.

Most on this forum would say 20% gross should go to savings (retirement and cash). You claim to have your bases covered and save 30% of your gross income (with the mortgage). 17.5% retirement + 12% cash savings. I don't see anything wrong with that!

[MonkeyMama]

P.S. Any online calculator will tell you that you can afford $2300 - $2700/month PITI. Those numbers I would NOT recommend!!

I am always astonished with those calculators and lending rule of thumbs.

[HomeBuyersYAY]

Me and my wife are, in fact, quite young (24 both of us). Both out of college/married 2 years now. The house that we are having a second viewing of this upcoming weekend is a 2001. The list price of the house references that 1650/month number as well. I would like to hope we can offer a little lower as well.

The posts from everyone has already given me a lot to think about. Thanks guys.

[littleroc02us]

When buying a house, remember this, it's completely different and more expensive then renting not including the mortgage payment. My wife and I just got back for the Dominic Republic for vacation, we are debt free except our mortgage and guess what? The garage door opener broke and a snow storm had hit while we were gone, an ice dam formed and leaked through our kitchen ceiling. So I have purchased a new garage door opener and installed it, I've been buying different projects to fix the ice dam issue, so luckily I have an emergency fund. These are common setbacks you will experience when buying a house and this doesn't include all the curtains, furniture, etc.. So, make sure you have a large EF fund and put large down payment on the new house.

[disneysteve]

When buying a house, remember this, it's completely different and more expensive then renting not including the mortgage payment.

So, make sure you have a large EF fund and put large down payment on the new house.

Very, very true. And that is part of the reason why the 28% rule exists. Plus, it is simple math. If 30% goes to housing, 30% goes to taxes, 20% goes to savings and 20% goes to everything else, that's 100%. Push over the 30% for housing and that has to cut into something else. For most people, what it cuts into is savings, leaving them ill-equipped for emergencies, like leaking roofs or broken garage door openers and, of course, retirement.

[MonkeyMama]

Another thing I forgot to mention yesterday was that renting is not apples to oranges with home owning. The tax code favors home ownership, so in addition to everything I mentioned yesterday, I'd estimate you will also save at least $2k per year in taxes. (That is a conservative estimate based on the info you provided). As we all mentioned, home owning has other expenses, but this helps offset those.

Anyway, since you are young and buying a house on the newer side, I think the numbers sound very good.

[maat55]

Very, very true. And that is part of the reason why the 28% rule exists. Plus, it is simple math. If 30% goes to housing, 30% goes to taxes, 20% goes to savings and 20% goes to everything else, that's 100%. Push over the 30% for housing and that has to cut into something else. For most people, what it cuts into is savings, leaving them ill-equipped for emergencies, like leaking roofs or broken garage door openers and, of course, retirement.

I'm interested in knowing the difference in % of take home pay when investments come out before and after. OP's investments come out before, in many cases, people have their investments come out of take home pay.

I would say he is fine seeing that his investments are taken out before hand.

[MrPolarZero]

I think that you are already have a good chance of purchasing the house. However, you still need to recheck your accounts again in order to check whether there are still things that you need to settle before actually getting the house.

[HomeBuyersYAY]

I'm interested in knowing the difference in % of take home pay when investments come out before and after. OP's investments come out before, in many cases, people have their investments come out of take home pay.

I would say he is fine seeing that his investments are taken out before hand.

If we were to NOT contribute that 17% to our 401ks we would be taking home an extra $1100/month.

[jpg7n16]

I'd prob advise looking at homes around $275k in value and put 20% down.

$98k * 3 = $294k max home value minus a little, rounded to a nice number = $275k


I usually recommend people save between 15-20% for retirement alone. So 17% is great



If the housing payment is too high for your liking, you can always buy a cheaper house. Nothing wrong with owning a $150k home if it meets your needs just fine!