How much mortgage is too much?

[Stella_luna]

DH and I just sold our home . . . at these crazy inflated prices, we made $170,000 net profit (after paying off current mortgage, closing costs/realtor fees). But prices here are so crazy, we'll be using that as a down payment on a home that is about $400,000 (which buys a fixer-upper around here). So before, we were in debt $125,000 . . . now, we'll be in debt about $225,000. The mortgage payment is only going up about $800/month, to about $2000/month, which we can afford . . . but that still sounds SO bad. We needed to move, because we need more room and a better school district, but now I'm wondering if this was a good move. DH insists that many people have mortgages that are that high, but it seems crazy to me. Do any of you have a mortgage that exceeds $200K?! We have no other debt, but still . . . are we crazy?!

[artgoddess]

Ours was over that when we sold our house. We are waiting for the market to go down before buying again, so that we can buy a house and hopefully only have a mortgage of around 500K.

[shawni]

Wow! If you can afford it, than I say go for it. Our mortgage is 60k and I can't imagine paying more than that right now. Hopefully, one day we will make a profit selling this one.

[Stella_luna]

Originally Posted by artgoddess

Ours was over that when we sold our house. We are waiting for the market to go down before buying again, so that we can buy a house and hopefully only have a mortgage of around 500K.

We've thought about waiting out the market too . . . how are you doing it? Are you renting? Is it awful/expensive having all your furniture and stuff in storage?

[wonderwahine]

i would wait till the market goes down if you can find a rental the same or similar size for less a month. And since you said you CAN afford $2000 a mth, put the remaind from the rent, and save the rest, to help build your downpayment up. Also, having that money in an account for a while will also earn more money.

[nannymom]

What matters isn't how high it sounds it's whether or not you can afford it. i wouldlook into some financial info about what percentage of your income should go towards your housing payment and see how it lines up.

[`guest`]

I think it's also about getting used to expanding that much. You said that 2k was not a problem for you financially, right? If not, you should be fine. I think the idea of kicking it up like that is hard, we gradually went up on our mortgage over time...also, the more your house is worth, the more equity, etc etc and if you are in a sustainable market, moving to a better area/better schools is never a bad financial move. You just get this one life, would you rather live in a better area for your kids, if you can? I say do it.

I think people need to be unemotional about it; look at it from a financial/investment standpoint. You are increasing your debt, but also your net worth. I like my mortgage to be no more than 25% of income, but I think most guidelines are 30-40%.

[velochic]

Dh just interviewed for a job in Palo Alto, CA. While he was out there, he looked at homes for sale. If we were to buy a home there, we'd be looking at a million+ dollar mortgage. :

If you can afford the mortgage without being "house-poor", then it's not too much.

[avendesora]

Some lenders will tell you that you can put 35% of your income towards your mortgage. I think that's uncomfortably high. Ours is 25%, including taxes & insurance, and we're doing fine.

Here's another thing to think about: if your mortgage jumps up, even though you can officially 'afford' it, where has that extra money being going to for now? Have you been saving that extra money? Or is it part of your spending money? It will be a real adjustment to cut back by that amount if you're used to having it around.

Here's yet another thing to think about: your electric/gas whatever bill will also be going up, as you'll have a larger house to heat. Real estate taxes will as well. Not that those have to deter you, just something to factor in.

You're not far from me! I'm in Huntingdon Valley, PA (Montgomery Co). Our house was 225k when we bought it, and it's not very big! When we got our mortgage we owed just over 200k; now, just under.

Good luck!
Aven

[msjd123]

Originally Posted by velochic

Dh just interviewed for a job in Palo Alto, CA. While he was out there, he looked at homes for sale. If we were to buy a home there, we'd be looking at a million+ dollar mortgage. :

If you can afford the mortgage without being "house-poor", then it's not too much.

Velochic, I grew up in San Mateo and am still sad that we'll never, ever be able to live anywhere near there (and therefore, my family) because we just can't afford it. DH and I are both teachers and we work full-time plus some more, but no way is it ever going to be possible. So, here we are in southern CA, which neither one of us loves, but what can we say -- we were able to buy a house for less than $500K.

[emilys_mom1]

we are in the process of selling our house right now. We bought it for 223,000 (morage 1700 per month) and we are selling it 6 years later for 450,000. It is a small 1450 sf house, 3 bed 3 bath. Now that we have 3 kiddo's (4,2, and 6 months) we need more room.

Here in CA, the prices for a house are outrages. I'm so afriad of the bigger house payment. I think 1700 is alot already with 3 kidds to feed and cloth.

We'll see what happens.

[LEAW]

In some places the cost of a home is just that high... around here a $250k house would get you teh BEST suburb a normal 3br, 1400 sf house, and in the city a 5 br 2400 sf house... at the same time, $250k won't buy you much in any part of DC or a lot of California, and anywhere in Chicago that I would live..

That being said, it's all about what you CAN afford. 25% or maybe 30% of your take home income, not more, is probably ok and affordable. Just remember that a bigger house will also have more property tax, higher utilities, and more rooms to furnish too!

[mamaroni]

my dh has been in the mortgage business for almost 15 years. His rule of thumb is that your mortgage amount can be 3.5 times your annual gross income, with a mortgage amount of 3 times your annual gross income being "perfect" in his mind meaning you aren't getting more than you can realistically afford. The federal rules state that your mortgage payment including principal, interest, taxes and insurance, plus ALL of your other debts (car loans, student loans, etc) cannot exceed 36% of your gross monthly income. However the rule is rarely followed and many lenders will lend where the total debt is higher than 36%.

[Stella_luna]

Originally Posted by avendesora

Here's another thing to think about: if your mortgage jumps up, even though you can officially 'afford' it, where has that extra money being going to for now? Have you been saving that extra money? Or is it part of your spending money? It will be a real adjustment to cut back by that amount if you're used to having it around.

Here's yet another thing to think about: your electric/gas whatever bill will also be going up, as you'll have a larger house to heat. Real estate taxes will as well. Not that those have to deter you, just something to factor in.

Hi, neighbor! I know Hunt. Valley--I used to carpool to college with a girl who lived on Warfield Drive .

With our current small mortgage payment, we've actually been saving lots of money. We rarely spend any money. With a new house, we won't be saving as much, but we figure life will get cheaper in 2 years (when DD is in school all day, we won't be paying for her ridiculously expensive Montessori preschool, and I'll be able to double my work hours--I'm a freelancer), and then we'll be able to save again. And yes, utilities will be going up. Taxes at all the houses we've looked at are all about the same as we pay now (we live in a town with really high taxes already, despite the mediocre school).

Good food for thought.

[phathui5]

We also have a $195k mortgage, but our monthly payment is $1623. It's definately more than we want to be paying. We're trying as hard as we can to get our cars paid off so that the mortgage is our only debt.

[Stella_luna]

Originally Posted by lisa2976

In some places the cost of a home is just that high... around here a $250k house would get you teh BEST suburb a normal 3br, 1400 sf house, and in the city a 5 br 2400 sf house... at the same time, $250k won't buy you much in any part of DC or a lot of California, and anywhere in Chicago that I would live..

WOW, I wish I could find a house for $250! Here the prices are outrageous. Like I said, we're looking at horrible fixer-uppers with tons of awful problems in the $400-$430 range. Nothing nice under about $450. It's AWFUL.

[Stella_luna]

Originally Posted by mamaroni

my dh has been in the mortgage business for almost 15 years. His rule of thumb is that your mortgage amount can be 3.5 times your annual gross income, with a mortgage amount of 3 times your annual gross income being "perfect" in his mind meaning you aren't getting more than you can realistically afford.

Thank you! That's great! We're within that parameter, so that makes me feel like we'll be OK. I just get so scared about money and the huge dollar numbers give me anxiety attacks.

[PajamaMama]

Originally Posted by avendesora

Some lenders will tell you that you can put 35% of your income towards your mortgage. I think that's uncomfortably high. Ours is 25%, including taxes & insurance, and we're doing fine.

I don't think that the percentage is as important as that...it is more about what you can afford with the rest of your expenses. For example, If you are netting 6k a month, so what if you have a mortgage payment of 4k a month? You still have $2,000 to spend on your other expenses every month...and that would be a mortgage payment of over 50% of your income.

I have seen polls here regarding income and there are LOTS of mdc families with 6 figure incomes, which means that after taxes they have around 6k a month net. If they only have a 25% mortgage payment, which is based on gross income and not net, then they have about a $2,000 a month mortgage payment, leaving them $4,000 a month for other things. Why shouldn't they have a higher mortgage payment if obviously it is not going to mean they can't meet their other obligations?

Then, on the other end of the spectrum...if you are only making $18k a year, how are you supposed to find housing for $375 a month???

[PajamaMama]

Originally Posted by Stella_luna

Thank you! That's great! We're within that parameter, so that makes me feel like we'll be OK. I just get so scared about money and the huge dollar numbers give me anxiety attacks.

I agree...I can not imagine having a mortgage 3x my husband's annual salary (I am a sahm.) The thought gives me the willies.

[LEAW]

Ugh yah, I agree. Our mortgage is 2x dh's salary, and it's just under 1/4 his take home pay each month... looking at payments for 3x his salary would really hurt us.

I think that if you live a lifestyle in line with your home (i.e. if you have a $4000 monthly payment, you aren't going to be eating rice and beans and shopping the thrift circuit) then you would still need a larger take home than that.. higher utilities, property taxes, the expected neighborhood things - landscaping, fancy car, yaddayadda...

SO keeping your mortgage w/in 30%ish of the take home income is probably a smart thing... because we all end up living w/in our means rather than living a frugal life in a huge house.