Help with deciding on maximum amount for house payment

[becoming]

Let's say you have a variable income, but it's always between $7,000-$10,000 a month bring-home. $7,000 is the absolute minimum guaranteed income after taxes & health insurance are taken out, but it's usually more in the range of $8-9K/month. $4,500-$7,000 of this income is very stable/reliable, and $2,400-$3,000 of it is from a little less of a reliable source (could possibly be cut back in the future, but most likely not). You have a little less than $2,500 in bills monthly, including house insurance, vehicle insurance, all utilities, cell phones, Internet, satellite television, etc. You have three young children and live in a fairly low cost of living area. What is the maximum monthly payment you would be comfortable with paying on a mortgage?

Another question: If your children would be attending private school, costing somewhere between $600-900 a month for all three, bringing the total of monthly bills to over $3,000, how much would you feel comfortable paying for a mortgage each month?

Editing to add: In this scenario, DH is putting a significant amount of money in 401K each month, BUT you will have little to no savings after making a down payment.

[A&A]

You said low COL........so I, personally, wouldn't go higher than $1000 per month. Would that get you a decent house?

[Poddi]

Is this after tax income? I'd just do a budget based on the $7000 per month. so, maybe 30% of that would be $2100 for mortgage?

Of course I have no idea if that amount is right for a good house in your area that suit your family's needs, or would that buy a 2-bedroom fix-upper? Do you know how much a decent house cost in your area?

[becoming]

We're looking at houses here in the $180,000-$250,000 range. That will get us a 4-bedroom house on a little bit of land in a good school district, if we can find the right one. A $2,100 house payment makes me feel a little panicky, though, plus we don't have nearly enough for a down payment on a house that would end up with a payment that high. We're probably going to have around $12-18K for a down payment, depending on how soon we buy. We're planning to do FHA.

[Shellie]

I know that on paper something like $2100/mo looks like it should be doable but I understand why that would make you feel panicky having been in that situation. Those are some broad ranges on your income though so it looks like if your situation changed you could be taking home as little as $4500/mo? I personally wouldn't want to go more than $1k per month or so with that take home and $2500 other expenses. Of course we've experienced things like medical expenses ins. would not cover, etc. so that has made me more afraid of ending up in a situation where things are tight.

I guess, since it looks like you will need to go over $1k/mo to get the house you want with <$20k down, you need to figure out really what is the least amount you are likely to take home on an ongoing basis. If you have enough saved to weather at least 6 months at the lowest point and it's likely the lost income can be replaced fairly quickly, then I'd say $1500-$1800 might be comfy.

[SeekingJoy]

How much are you putting into non-retirement savings? How quickly can you rebuild your savings after purchasing a house? I think the answers to these questions tell you more about your finances than bills or even bills as a percentage of income.

[becoming]

Originally Posted by SeekingJoy

How much are you putting into non-retirement savings? How quickly can you rebuild your savings after purchasing a house? I think the answers to these questions tell you more about your finances than bills or even bills as a percentage of income.

Well, right now we're putting a little over $3,000/month in savings, but we only have a $450 mortgage payment currently. If our mortgage payment triples, we'll probably be putting around $1,500/month in savings (this is non-retirement savings). So, with say a $1,200 mortgage, we could be back up to $10,000 in non-retirement savings in probably 6-10 months, depending on circumstances.

[Delicateflower]

Originally Posted by becoming

We're looking at houses here in the $180,000-$250,000 range. That will get us a 4-bedroom house on a little bit of land in a good school district, if we can find the right one. A $2,100 house payment makes me feel a little panicky, though, plus we don't have nearly enough for a down payment on a house that would end up with a payment that high. We're probably going to have around $12-18K for a down payment, depending on how soon we buy. We're planning to do FHA.

$250,000 shouldn't give you a $2100 mortgage payment. Do you have really high taxes?

I would very very strongly advise you against putting every cent into your downpayment. You need a really good cash cushion when you own a house. I would not want less than $15,000 of money that you can use immediately on a new roof or new furnace. When we bought there was no difference in FHA between 3.5% down and 10%, and since we didn't have 10% we went with 3.5%. And don't forget closing costs!

[becoming]

No, I was referring to the $2,100 payment suggested by a PP. $250,000 should be around $1,200 by my calculations.

[SeekingJoy]

A $250k loan, would give you a monthly payment of around $1800, depending on your taxes, interest rate, etc. I wouldn't be comfortable with that, but in your situation, I could see how that might work for you, given your options.

I wouldn't be comfortable putting our entire savings into a downpayment, either. Since you are saving $3k a month, is there a reason you can't wait 3-6 months to buy to save up more money? Or reduce your 401k contributions down to just what is matched for a few months and build up savings with the rest?

[becoming]

It likely will be 3-6 months before we buy, as we're looking in areas that don't often have houses available, especially the kind we want. Ideally, we're looking to buy land to build a house, which will be better all the way around because we can pay for the land with cash & then use the land for the down payment on our mortgage. I'm really just looking for anyone who's BTDT & can give me advice on how high is too high for a mortgage with an income near ours. This will be our first REAL home purchase (we live in a mobile home currently) & we want to make sure we don't get in over our heads.

[jentilla]

Wow! I think we have the same life minus the private school. Ds will be going to private preschool next year, but then he'll be back home to HS. Plus I will have a mother's helper for dd2. Anyho, we just sold and bought last summer and I only felt comfortable with a mortgage increase of a few hundred. Our old mortgage was $750 per month and now it is 1050, both of those figures include taxes. We bought a 5 bedroom on 1 acre with a pool. We got a great deal and we are in a low col. Now didn't care about school district and this one is so-so.

[becoming]

jentilla, are you guys doing okay so far? No problems making ends meet? We have been sort of blowing and going with the amount of extra money we have right now, so I'm worried about being able to cut back where we need to in order to make things work.

[annethcz]

Honestly, I think the numbers you're throwing out give you A LOT of leeway and a lot of opportunity to continue to save large amounts of money.

Even with a $2100/month mortgage payment and $2500 in fixed bills (which may go up with a larger house ) gives you fixed expenses of $4600/month. If all of the kids go to private school, that gives you bills of $5500/month. How much do you spend on food, gas and incidentals?

If you're planning on $7K net/month, this gives you $1500 for food, gas, clothing, entertainment AND savings after bills. Would you be comfortable with this amount? What are the chances that your income will be $7K vs. $10K? Are you comfortable with saving less during the months when your income is the lower amount, and making up for it when your income is the higher amount?

There are so many variables that it's still hard to say. How much do you spend on food and other household expenses? Some families are okay spending $400/month on food, and others have a hard time keeping to a budget of 2-3xs that amount. Is it important to you to eat out regularly? Do you have expensive hobbies?

Our net income (after taxes, insurance, 401K and 529 contributions) is between $5-6K/month, and we have no problem paying our $2100/month mortgage payment.

Like other posters, I'd strongly advise against completely draining your savings account on your down payment.

[jentilla]

Lindsay we are not having trouble, but we have been spending a lot on home projects so we are completely cutting back. It is also important to us to own our home and so we are setting up a budget to pay off our house in 4 years. We could afford a MUCH larger mortgage since the income is normally 8-9k, but I just want to be able to save, etc. I think you have to find the right house, but in this economy and housing market I felt better not spending so much.

[Delicateflower]

Originally Posted by becoming

We have been sort of blowing and going with the amount of extra money we have right now, so I'm worried about being able to cut back where we need to in order to make things work.

I think you have your answer there. Start living as if you had a mortgage payment of $2000 (to give you leeway) and see how it feels.

[becoming]

This is all very, very helpful. Especially the part about not spending all our money on our down payment. Thanks for all the suggestions I know it's hard giving advice when you don't know the whole story, so thank you for trying.

[goldingoddess]

We are about to buy a 255k house with an FHA 3.5% down loan. With the down payment and all closing costs it will be about $17k we pay into escrow to close. We are getting a closing credit from the seller which makes it a bit easier.

Also our total monthly payment including taxes, mortgage insurance and home insurance is just a hair under $1800/month this is at 5% interest rate.

HTH

[AAK]

I would go up to 2500 if I thought I would be staying in the house long term.

Amy

Just read everything that everyone wrote, so I needed to explain a bit. My amount of 2500 would be including taxes, and home owner's insurance. Currently, we have a 1900 mortgage, but our total take home is 5200/month after taxes, health insurance, and contributions to a 401k. But, I think that it a bit tight for us. However, if our min monthly income was 7000 (1800 more than what we make) I know I could handle 2500. Especially since the income range was 7-10K/month. I would base my budget on the 7K. The months where there was more, the extra would go to savings.

[Carson]

We have a similar guaranteed monthly take-home and our PITI is $1990/month. I would say we are very comfortable with that, however, have no other debt or childcare costs and live generally quite frugally. We save a significant amount each month for retirement and home improvement (LT-major upgrades).

Since we have dual incomes it was important to me to make sure we stayed in a range where we could squeak by if we lost one income. It wouldn't be great long-term, but it wouldn't force us to accept less than ideal employment, either.