Does anyone actually live within the 33% housing rule?

[ilovemygirl]

I've been thinking endlessly about this. Where we live, to buy a small fixer upper in a borderline/sort of safe area but with bad schools would still be 50% of dh's income. Yes, that's really 50% and that's just counting the mortgage and taxes. Insurance and utilities and maintenance would put us way higher.

I know a lot of people that had help buying their home (money from parents, inheritances, got to save a lot when they were younger by living at home, etc.) and that lowered the payments enough to make it affordable but I can't believe it's everyone. So does everyone else just pay above the recommended 33% cap for housing or are there really places with a low enough cost of living AND jobs to make that reasonable?

If you wouldn't mind sharing ... what do you do?

[velochic]

Yes, it is possible, but probably not everywhere in the US.  I was single when I bought the home we still live in.  I was in my 20's.  I saved.  I worked, and had no help.  I actually had no financial help from the time I was 18, through college, etc.  I bought much less than I could "afford", but I live in a low COL area.  So, I know it can be done, but it may have to do with where you live.  In fact, even when I bought the home, it was only about 18% of my income.  Now, dh is the sole breadwinner (I work very part-time and will go back when dd gets older) and it's about 7% of our income.  I believe that some places in the US are just harder to own.

However, I will say this... we live very intentionally.  We would not want to be house poor.  We could technically afford a home worth about 3 - 4 times our current home, but we enjoy doing other things so we prefer that our home is the most frugal part of our lives.  Also, in the spirit of full disclosure, we are older now (in our 40's and 50's), with good careers and actually have the cash to pay off our home if we wanted to.   I think it may be a person's situation that to afford the "other" things, they may have to compromise and just not own.  

[Ragana]

I have analyzed this situation endlessly. It does seem that most of the people I know either

1) had help with the downpayment

2) had high-paying jobs early in life

3) bought a cheap fixer-upper and fixed it up

4) just plain bought at the right time

We are in a high COL area. Currently, the super-cheap rent deal we have is about 20% of our take-home pay (health ins. and student loan repayment make up another 20%, but that's another story). If we were to be able to save up enough for a downpayment, the mortgage on a modest place would still be about 50% of our take-home pay. I'm not comfortable with that figure, and we're not handy enough to want to take on a foreclosure or something like that. We like our apt., fortunately, so we're staying put! (Besides that, other issues come into play - we love our kids' school, for instance, but this area isn't where we would want to buy; I have some concerns about buying a condo, etc.)

[Llyra]

This is why we don't buy. My parents and in-laws are like crazy about it-- to them, owning a home is what makes you a "real adult," and continuing to rent is irresponsible. But I can't buy where we live-- and I won't move, because DH has tenure, and tenure is a hard thing to walk away from in this economy. So we continue to rent. My rent is 31% of our net income, and it's hard enough to come up with that each month. In a lower COL area, DH and I would be able to afford something nice, but only if our income remained the same, which it wouldn't. It's a bind I think a lot of people find themselves in.

[Ramzubo]

We are over the 33%, but do live in a very high COL area. We have an old home in a rural area so our house is actually not bad at all for the state, but taxes and insurance here are some of the highest in the country. When we moved from a lower COL area DH got a pay adjustment and we knew that most of that was to accommodate for the house prices here.

Since we are primarily a one income family we knew that we would be higher than the 33%. We've managed to keep all our other bills at the same rate as when we lived in the cheaper area so we're doing fine even though the house bill takes out a large chunk. Our priority was to have one person primarily stay/work from home so we opted to go with a higher percentage towards housing. If we both worked full time we'd be at or under the 33%. 

[JenRN]

I live in a low COL area. DH and I bought a brand new house (3BR,2BA) in a nice neighborhood a few years back. We didn't have any family help/inheritance, but we worked hard to save up a small down payment of around $7k and got a good deal on the house. We based the finances on DH's income only, since we thought I might stay at home after any kiddos came along. We managed to come in just under the 33% mark based on his income.

Since then, with raises and a refinancing to a much lower rate, it's actually more like 25% of DHs income. (I do work parttime, but try to reserve that income for the "extras", college savings, etc.) If you factor in my income as well, its more like 14%.

[chel]

We are under 33 in a high col area.
We were able to do it by saving by living very frugally (1 br apartment for a family of 3) and then buying our first home when we were in our late 30's

[Linda on the move]

Originally Posted by ilovemygirl 

So does everyone else just pay above the recommended 33% cap for housing or are there really places with a low enough cost of living AND jobs to make that reasonable?

We are under the 33 guideline with no outside help. However, we also are in our mid 40's and my DH has a higher than average income. We live in a medium COL area, and we opt to live in smaller house than many in our income bracket would choose to live in.

It is because of sacrifices that we've made for DH's career for the last 15 years that we are comfortable financially. We didn't have this comfort starting out. We've built it over time.

Part of it is choices about how to spend money now -- people he works with are surprised when they see our house. It's a nice house in a nice, desirable area, but it is much smaller and less impressive than they expect someone with his title and income to live in -- because the norm in our culture is to be "house poor" no matter what the starting salary!

[34me]

We are very similar to Linda on the Move that we intentionally bought a much smaller house than we can technically afford.  We had no help in purchasing it and even 11 years ago when we bought it, I was nervous about the responsibility of it all.  We live in a city that consistently places in the top 5 of Money Magazines top places to live.

[velochic]

Originally Posted by Llyra 

This is why we don't buy. My parents and in-laws are like crazy about it-- to them, owning a home is what makes you a "real adult," and continuing to rent is irresponsible. But I can't buy where we live-- and I won't move, because DH has tenure, and tenure is a hard thing to walk away from in this economy. So we continue to rent. My rent is 31% of our net income, and it's hard enough to come up with that each month. In a lower COL area, DH and I would be able to afford something nice, but only if our income remained the same, which it wouldn't. It's a bind I think a lot of people find themselves in.

It's sad that anyone is made to feel like owning has anything with adulthood.  A lot of people have to move often for work and renting totally makes sense in those cases.  It makes them no less responsible than the person who has a job that keeps them in one spot.

In some areas of the country it really is almost impossible to own.  Dh had a job opportunity in San Jose a while back.  There's no way we could have bought if we had moved out there at that time, even though we do so easily here.  I agree Llyra that tenure is something to hold on to in this economy.

Also, owning is not it's all cracked up to be.  There are as many cons as there are pros.
 

[nd_deadhead]

We did have help with the down payment - a loan from my parents that we repaid. We came in under 33%, including the repayment to my parents. But we bought a smaller house than we could have, and it was just after we got out of college, so our incomes have steadily increased, while our mortgage stayed the same (or got smaller, when we refinanced to a lower interest rate).

We do live in a fairly low COL area.

[Ruthiegirl]

Our mortgage is about 20% of our take home pay, but it didn't start out that way.  We bought at a good time and dh's income has gone up as he has advanced at work over the past 8 years.  We started at over 40% of our take-home pay and it was painful for many years.

This is the internet, so of course it is hard to give a full picture of our reality, but I can say this:

I am older than many here.  We didn't buy until I was 30 and dh was 35.  We have a lot of education between us -- that education has opened up more work opportunities.  We spent a lot of years renting and working and saving and living very, very frugally.  We saved and saved for a down payment.  We moved a lot so that we could both work our way up in our careers.  I am not working now as we have 3 almost 4 kids, but the effort that we made early in our marriage has paid off with a good, secure job for dh and a comfortable lifestyle.  We will never be rich, but we will always have enough.  

Buying a house that will cost you half of your income is very dicey.  And I would be surprised if you could find a bank willing to give you a loan right -- mortgage regulations have changed and it is much more difficult to get a loan.  I would worry that one small housing disaster would sink your family into debt.  Houses can be very expensive to repair -- a plumbing leak, a roof leak, a sewage issue -- all can cost large amounts of money.

I just don't think home ownership pays off for everyone.  I would think a decent rental in a decent school district and an aggressive savings plan would benefit you more in the long run.  

[Ruthiegirl]

Originally Posted by velochic 

It's sad that anyone is made to feel like owning has anything with adulthood.  A lot of people have to move often for work and renting totally makes sense in those cases.  It makes them no less responsible than the person who has a job that keeps them in one spot.

I agree.  I think it is very frustrating to hear it parroted that home ownership is the key to adulthood.  It is simply not a realistic choice for a lot of people.  And those that I hear repeating the grow-up-buy-a-house mantra have lived through very different economic times.  Young people today are faced with a very different picture -- it is much more likely that they will change jobs many times over the course of their lifespan requiring multiple moves making home ownership tricky.  

And it is my opinion, that the days of a rapid increases of value in the housing market are over.  I have owned my house for 8 years and it is worth exactly what I paid for it.  It is not my retirement plan to sell my house and have a windfall of cash.  I must plan for retirement and that plan does not include my house.  If I make money on it, terrific, but it is not a guarantee.  

My family pushed hard for us to buy and we did because it made sense for us, but I will not reap the same benefits that my parents and in-laws have gained from the sales of their houses.  

[Mulvah]

I agree with what was already stated - buying a home for half of your income is not really wise, especially in this economy.

I want to say that I don't think owning is for everyone at every point in their life.  Also, 33% of a $50,000/year income can be vastly different from 33% of a $250,000/year income.  You have to figure out what percentage works for you now and project how it will work long-term (yes, some guessing involved).

Edited by Mulvah - 9/19/11 at 9:05am

[JollyGG]

We bought right at the 33% line. We live in a low COL area, but also an area with low salaries. We bought in the times of much lower restrictions and only had something like 1K down and so I don't think us from then would even be able to buy today. We stuck to our budget really strictly and we searched for months for what we wanted in that price range. We finally ended up buying a "for sale by owner" house for a bit below market value. But even that 33% was really hard for a while. Basically the only lower cost things we see around here are our salaries and our houses. So food and other consumer items cost just as much making them a much bigger percentage of our income. Luckily for us our careers and pay have increased over time and our house is now somewhere around 15% of our income. I agree with what a previous poster implied. Money and time are more wisely spent on getting an education and a stable career path before embarking on home buying right now.

I love our house, but it is smaller than some of our friends. I have big dreams for building on and making changes, but right now those aren't possible and we are okay with that because our mortgage is very doable right now. We have been in our house for 6 years and have only about 10% equity. That is with making an extra payment a year for several years and with us buying slightly below market in the first place. Houses used to be an investment, but not right now.

[Ragana]

Originally Posted by Ruthiegirl 

Buying a house that will cost you half of your income is very dicey.  And I would be surprised if you could find a bank willing to give you a loan right -- mortgage regulations have changed and it is much more difficult to get a loan.  I would worry that one small housing disaster would sink your family into debt.  Houses can be very expensive to repair -- a plumbing leak, a roof leak, a sewage issue -- all can cost large amounts of money.

I just don't think home ownership pays off for everyone.  I would think a decent rental in a decent school district and an aggressive savings plan would benefit you more in the long run.  

I agree with this. We could push ourselves and make something work, even in this high COL area, but we chose to prioritize our own educations, time w/ kids (being there after school, etc.), kids' activities, volunteering, etc. instead of the overtime hours that would be required to swing it (and then barely). BTDT worked up to 60 hrs./wk. for almost ten years - no, thanks.

[swd12422]

I agree with Ruthiegirl too. It doesn't make sense to put yourselves even closer to the already thin line between getting by and sinking into debt. The goal is to be as far away from the line (creditors calling, debt collection issues, empty bank accounts each month, needing assistance) as possible. Buying a house that's out of your budget doesn't get you anywhere near that goal.

[Ramzubo]

Originally Posted by Mulvah 

I agree with what was already stated - buying a home for half of your income is not really wise, especially in this economy.

I want to say that I don't think owning is for everyone at every point in their life.  Also, 33% of a $50,000/year income can be vastly different from 33% of a $250,000/year income.  You have to figure out what percentage works for you now and project how it will work long-term (yes, some guessing involved).

I think how much you earn makes a big difference. After you take out our mortgage we still take home more than the average median income in the US. Since the pay is high here (and Dh has a good job) we are still debt free, own 2 newer cars, eat well, travel regularly and have some tucked away to repair our very old home. Our quality of life is good even though our mortgage is high. If our mortgage was the same percentage it is, but we made less, then it would be more of a struggle and our quality of life would suffer.

[choli]

Originally Posted by Ruthiegirl 

Our mortgage is about 20% of our take home pay, but it didn't start out that way.  We bought at a good time and dh's income has gone up as he has advanced at work over the past 8 years.  We started at over 40% of our take-home pay and it was painful for many years.

I think this is the case for most people - I earn more than twice what I earned when we took out our mortgage 14 years ago. It is more difficult in the beginning, but gradually the mortgage becomes less and less of the overall income. We did take a much smaller mortgage than we were offered even then.
 

[oaktreemama]

Ours is 20%. Like other PP's meantioned at first it was closer to 35% but we have lived here for years and our salaries have gone up. We pay extra every month (we do Dave Ramsey) and will be mortgage free in five years.

We thought about moving to a bigger or nicer house once upon on a time and never did. We realized we wanted to really live in the country so would rather we save and buy our dream home rather then keep up with other people.