House affordability

[LivingAlmostLarge]

Wow for the first time my DH and I are on slightly different pages on home affordability. This argument is probably the main reason I want to move because I don't think he's understanding the bigger picture of our finances and I need help explaining to him why we can't afford it.

Okay so we're a 1 income family saving now. We're considering a second income (me going back to work) but how do we reconcile this to buying a more expensive house?

My DH's argument is that we save a lot as a single income so buying a home on income isn't necessary. If we have two incomes we can count on that to buy the home because say we save the same proportion 25-30% then why couldn't we use the income to count towards buying a more expensive home? Wouldn't we be saving at 2x the rate we are at now?

My argument is that we should still buy off his income and my income is purely gravy and savings. That we can't afford to buy even if I go back to work a more expensive home because I think it's risky.

How do dual income couples with kids do this? What do they do? How do you reconcile home affordability with two incomes? Do you buy based on one? If you buy based on 1 income do you save your 15% for retirement and 5% otherwise then do the affordability? Do you buy based on two but accounting for saving first then seeing what is left?

[ua_guy]

I think you should run the numbers to get a better picture. Having both you and your spouse see what the new place is going to cost, and being able to weigh that against your savings/retirement goals and your other goals will give you the answer.

A more expensive home can mean a lot of things, so you have to define that goal for yourselves as well. Is the goal to have a bigger home with nicer finishes? A home that is closer to work and costs more because of its location? A home that's located within a desirable school district for your kids? All of the above/none of the above?

The two of you also need to decide what is acceptable risk for your household. Determine how you will hedge against risks, and if those situations are tenable given the cost of the new home. What happens if one of you goes jobless again? What happens if both of you go jobless?

My initial reaction is that you should focus less on what others do, and run the numbers to see what's right for your individual situations and goals as a household.

For my household, we purchased a home based on two incomes and we are still able to meet our savings/retirement goals. We can afford the home on one income should one of us go jobless. We enjoy life at home, so there was value in being in a home we love. But it's also a financial proposition: The home is affordable now, but is also located in an area that is likely to see explosive growth and desirablility in the coming years, and it's located on land that is rare and also comes with the ability to subdivide. While we don't bank on it, the home and property are likely to be an investment over time. Point is, a more expensive home isn't always wasted money. If it's more enjoyable and could appreciate more than a cheaper home in a less desirable area, there's value to that.

[disneysteve]

I think it really depends on your goals for your money.

Ideally, it is great to buy based on one income. That way if anything ever happens to the other income, you won't be at risk of losing your home.

However, if part of the reason for you to go back to work is to fund a better life for both of you NOW (as opposed to just a richer retirement later) then your husband's mindset makes sense.

Of course, as with most of these types of questions, is to do a little of both. As long as your plan is to return to work and stay there (not drop in and out of the workforce), you can still boost your savings with a big chunk of your income and put the rest toward a more costly house.

When my wife went back to work about 7 years ago, we signed her up for her 401k with a 50% contribution rate. The remainder, after taxes, is what we used for additional spending. There was no housing decision involved but we were able to do other spending that we couldn't do before because of her income.

[Like2Plan]

My argument is that we should still buy off his income and my income is purely gravy and savings. That we can't afford to buy even if I go back to work a more expensive home because I think it's risky.

How do dual income couples with kids do this? What do they do? How do you reconcile home affordability with two incomes? Do you buy based on one? If you buy based on 1 income do you save your 15% for retirement and 5% otherwise then do the affordability? Do you buy based on two but accounting for saving first then seeing what is left?

First off, I should say that I am pretty risk adverse, but this is what DH and I did:

We bought a house that we could afford on 1 income alone even though we were a 2 income family. Our goal was to buy a well located house that would meet the needs of a growing family so we wouldn't have to move. (It was just DH and I, but we purchased a 4BR home)

This was about 28 years ago. It is funny how inflation over that many years works as we probably could have spent another 10-20% and purchased a larger and fancier house. But then, we wouldn't have been able to pay off the mortgage as soon as we did. There would be more expenses associated with upkeep, property taxes and day to day operating costs (heat/electricity and so on) and more house to clean, etc. So, I'm happy with what we did.

[feh]

Are you renting now, or thinking about buying a different house?

I'd change the context away from basing affordability on income; what would a house cost that suits your needs?

[bigdaddybus]

For my household, we purchased a home based on two incomes and we are still able to meet our savings/retirement goals. We can afford the home on one income should one of us go jobless. We enjoy life at home, so there was value in being in a home we love. But it's also a financial proposition: The home is affordable now, but is also located in an area that is likely to see explosive growth and desirablility in the coming years, and it's located on land that is rare and also comes with the ability to subdivide. While we don't bank on it, the home and property are likely to be an investment over time. Point is, a more expensive home isn't always wasted money. If it's more enjoyable and could appreciate more than a cheaper home in a less desirable area, there's value to that.

I have similar thoughts.

We bought the cheapest house in an higher end neigborhood for our area. It was an estate sale where 5 kids wanted to cash out on Moms house. It is both an investment, and a nice big place to raise our 4 kids. 1400sq ft bigger than our previous house and the entire move cost me $27K out of pocket. Moving was a smart financial move IMO.
My wife and I have a 56/44% split on our household income. We could make it pretty easily on just my income, it would be rough to make it on just her income. Like others have said, look at the numbers and discuss as a couple.

[MonkeyMama]

We have never bought a home that cost more than one income. The peace of mind of that is priceless (I can say 15 years later, with spouse being unemployed most of those years - which was not the plan).

Buying with one income accounts for economy/unemployment, sudden illness, etc., etc.

That said, I haven't bought a house since I was 25. Income was "everything" at that point in time. You obviously have other assets to fall back on in the worst case, so not sure if income is the be-all, end-all. You can manage some of that risk if you have other money to fall back on.

All of the above said, I believe our first home we bought the max we could afford on two incomes. Lending standards were more strict back then. It was a home we could easily afford on one income (50/50 income in our household, so could afford on only half of what we qualified with), even if most would not agree. Why? Because we were used to most our income going to housing. So it was not a stretch on my income. High cost region. In fact, we refinanced to a 15-year very soon after, when interest rates dropped a bit. Spouse has also been unemployed for 11 of 14 years of home ownership. & I could easily afford the house payment while on months of pregnancy disability. *shrug* I think it is somewhat relative. (I have never felt that was a stretch in the slightest, given all of the above).

When we bought our first home, could not probably afford to save 15% to retirement, on my income alone. But, the point was just to more easily weather any short term unemployment or disability or whatever. & to be able to stay home first 5 years with our kids. That was the goal. We had the second income and certainly counted on it somewhat.

[LivingAlmostLarge]

We currently own a townhouse and we want a single family. We are discussing so many moving parts of our move whether we stay, go, move to HCOLA versus MCOLA. But overall we want to get out of our townhouse and into a SFH. We are not looking for new with high end finishes. We want the shortest commute possible with a top school district and a SFH. Size is 3/2 minimum. I do not want a 3/1.5 bath cape (super common) that I have to renovate. We do not want an older home than 1950s because of the issues we have. We might not be able to upgrade heat, insulation, etc. So we are able to tolerate an older home but not 1880s or 1900s or 1920. NO.

Our incomes would be more like 1/3 to 2/3 split. I could probably swing the higher mortgage on my income but there would be no savings and probably nothing left. I want to stick to $600k and my DH is looking more like $750-900k. We'd have 20% down for any home puchase. This is not extravagent home looking at mostly 3/2 baths 1200 sq ft, but the locations are closer to work. If we choose to live 1 hr commute minimum but this is more in the 30 minutes to 1 hr commute.

Ideally I think moving out of this area is the best decision where we can buy homes for less than $600k and even if income does go down we'd still be coming out ahead. Out of pocket the move doesn't matter because this is long term we want to do this either where we are or moving. Right now our house is 15% PITI and it's still tight based on our savings rate and living expenses. But 15% of my income gets us to around $750k if we stayed in the same alignment.

[feh]

Personally, I would move to where the COL is lower.

[bigdaddybus]

We currently own a townhouse and we want a single family. We are discussing so many moving parts of our move whether we stay, go, move to HCOLA versus MCOLA. But overall we want to get out of our townhouse and into a SFH. We are not looking for new with high end finishes. We want the shortest commute possible with a top school district and a SFH. Size is 3/2 minimum. I do not want a 3/1.5 bath cape (super common) that I have to renovate. We do not want an older home than 1950s because of the issues we have. We might not be able to upgrade heat, insulation, etc. So we are able to tolerate an older home but not 1880s or 1900s or 1920. NO.

Our incomes would be more like 1/3 to 2/3 split. I could probably swing the higher mortgage on my income but there would be no savings and probably nothing left. I want to stick to $600k and my DH is looking more like $750-900k. We'd have 20% down for any home puchase. This is not extravagent home looking at mostly 3/2 baths 1200 sq ft, but the locations are closer to work. If we choose to live 1 hr commute minimum but this is more in the 30 minutes to 1 hr commute.

Ideally I think moving out of this area is the best decision where we can buy homes for less than $600k and even if income does go down we'd still be coming out ahead. Out of pocket the move doesn't matter because this is long term we want to do this either where we are or moving. Right now our house is 15% PITI and it's still tight based on our savings rate and living expenses. But 15% of my income gets us to around $750k if we stayed in the same alignment.

All I gotta say is DAMN!

I live in a 4850sq (5 bd, 3.5 bath) ft ranch that is 15 yrs old with brick front, cedar sides, look out finished basement, trex deck, paver patio, granite counters, hardwood and tile thoughout, irrigation system, with great schools within walking distance to multipe parks/baseball fields/schools and I would sell my place for $325K and make money.
COL is out of control in some parts of the country.

I'm sure I couldnt afford half my house wherever you live.

how far of a commute to get to a more reasonable area?

[MonkeyMama]

I don't know how necessary it would be to base the mortgage off of YOUR income. Just that I wouldn't think it would be wise to base the purchase off your entire combined income.

If something happened to the larger income, for the long run, surely you'd have the equity, assets and time to regroup and to sell the home. I think the point is you want options and not to go bankrupt. Not that you have to today, right now, be prepared to take over the mortgage and cover everything on the smaller income.

There are elements of our lifestyle that we choose because we are gainfully employed. For example, moving to a low cost area, we did buy a very nice house (because it just seemed so CHEAP). It's where I would prefer to raise my kids, but if the crap hits the fan I know we can downsize and pay cash for an apartment and at least not end up homeless. You know what I mean? That's how I know we have not bought beyond our means. It's a comfortable existence, and it comes with a Plan B.

What messes most people up is putting -0- down and/or being unable to make the payments during job loss. I think you are conservative enough not to put yourself in that position, anyway. But of course the less you have to pay for a home, the better position you put yourself in. But you have to balance that with your situation (cost of living) and must-haves.

[disneysteve]

I want to stick to $600k and my DH is looking more like $750-900k.

All I gotta say is DAMN!

I'm sure I couldnt afford half my house wherever you live.

I have the same thought when I see people posting numbers like this. It amazes me that there are enough people out there earning enough money to buy all of those homes. Makes me feel poor. You need to be earning at least 300K to even think about a 900K house.

Our house was 142K and today would probably sell for about 225K.

[HappySaver]

I really thing you need to take one step back and you and your husband need to be on the same page on where you want to live. Just one month ago you were talking about moving from east coast to west coast. If you move, your husband would need to find a new job, and that would change your financial perspective. It sounds like he has a good job he's happy with, and that is VERY hard to come by. Doesn't make a lot of sense to give that up unless you have a very clear alternate plan.

[LivingAlmostLarge]

Nope I still want to move. We are at a crossroads. He's starting to realize looking at homes where we are that housing very expensive.

Bigdaddy I think it's ridiculous too. MM I agree we're used to half our living expenses going to our house. It sounds nuts but it's what it is. But I want to change that. DS we'd be making $300k probably more if we buy a $900k home. But still the point is we'll be working to just pay for a HOME!

I know that giving up a job you like for one you don't is hard. So I'm not pushing the issue. I think we'll have to revisit it in 12 months. Perhaps with more in savings. I'm really not sure. We just can't keep living like this.

[Goldy1]

I am currently a stay at home mom. We just paid off our house over a year ago. We could qualify for a bigger better home. I would actually like a house about my size in a more upscale neighborhood.

I live in a nice neighborhood. property values increased 16.8 percent last year. it consists of 1500 ranches to 3000 square foot homes on a pond within walking distance. It is safe and the school district has schools rated mediocre to top notch(we have about 30 something schools in the district).


We chose to stay despite an urge for change and that I would prefer a different city sometimes.
Why? Well, it's not a generalization for everyone.
If we move and my husband gets laid off we are up a creek. If he gets laid off and we stay here, we can work it out easier.
I have a teaching degree. I'm not likey to find high paying work.
I will work again. However, we want to retire at some point . I don't feel young enough to take on a lot of mortgage now.