How much is too much for a house payment? UPDATE WITH MORE INFO - Mothering Forums

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#1 of 53 Old 02-05-2009, 03:39 PM - Thread Starter
 
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If.....
Your obligations are: Morgage, Car ($350/month) electric, water, cell phone (150/month), cable, car insurance (120/month).

And you bring in about $4500/month (made about $80,000 last year according to W2's)

And to have room to save a little each month??


UPDATED INFO: OPINIONS please...
We are currently in a 1000 sqft house with a house payment of about 1050.00 per month. We bought the house for 115,000 and will net about a 5-10k profit. The house we are interested in is about 300,000 and we have 10% to put down on it. I know I will know better once we work things out with the mortgage lender but I just want to get an idea of what you all think.
The BIGGEST reason we are considering this right now is the seller (a huge construction owner in the area) is offering some big incentives to buy right now. He will either pay 6 months of your mortgage OR pay your interest rate DOWN to 1.5% the first year, 2.5% the second year, and 3.5% the 3rd year. His new constructions are booming because of these incentives and he is well known in the community for his charitable donations, as well as the fact that his employees (about 150) have all been with him for about 10-15 years. So I trust the offer- I just don't want to buy too big for us.

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#2 of 53 Old 02-05-2009, 04:11 PM
 
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Rule of thumb is to never buy a home that is more than 2.5-3 times your annual income.

Another measure is that you shouldn't spend more than 25-30% of your monthly gross income on housing, and that includes mortgage (principal, interest, PMI if needed), taxes, and house insurance.

If you bring in $4500/month that's $52,000/year. So don't buy a house that costs more than $130,000 to $166,000, and don't have a monthly payment that is more than $1350 (mortgage, taxes, insurance).
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#3 of 53 Old 02-05-2009, 04:21 PM
 
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Your mortgage payment including principal, interest, taxes and insurance should not total over 28% of your monthly gross income. Add all your other debts to this such as credit card payments, student loans, car loans etc. and this should not total over 36% of your monthly gross income.
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#4 of 53 Old 02-05-2009, 04:25 PM
 
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No offense to the pp, but going on percentage alone is a bad idea. There are just WAY too many variables. I mean, say I make $24k/year (NET) and I spend 25% on my mortgage, that leaves me only $1500 per month for everything else. BUT, if I make $100k/year (NET), I could spend 75% on my mortgage and still have more left over each month than the person spending 'only' 25%.

This is my advice:

Take all of your bills and expenditures (you didn't mention food/household goods, gas/maintenance for your car, etc.) and add them up. Subtract that number from your take-home pay number. Then decide what you're comfortable having left to save (and for miscellaneous) and use what's left for your mortgage.

So, if you're bringing home $4500 (also, is that monthly or 2 paychecks?) and your bills are, say, $1500, you have $3000 left. How much do you want to save, what type of cushion do you want?

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#5 of 53 Old 02-05-2009, 04:35 PM
 
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If the $4500 is take home, I would definitly stick to 1200-1500 as the top. Which can get you a pretty nice house (depending on where you live) w/ a good down payment.

Interest rates are lower right now, but say you get a $185k home w/ 20% down at 6% Interest. That would be about $900 a month for the mortgage, plus probably looking at $350 a month escrow for taxes and insurance (once again depending on the area). Now if you only put 10% down, it would be about $1000 a month plus the $350 ish for escrow, but then you'd also have around another $50-60 a month to pay for PMI.

Rates are a bit lower now, so montly would be slightly lower, but key is getting that down payment in to avoid PMI since that money goes no where. Also note, the bigger the house, the higher the electric/gas bills may be and so on, so you don't want to go too high with it.

But keeping it at a top of $1500 would definitly give you room to save. Or if you didn't have a down payment, it would be good to work on putting extra into the principle of the payment to get to where you don't need to pay PMI anymore.

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#6 of 53 Old 02-05-2009, 07:41 PM
 
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Originally Posted by gurumama View Post
Rule of thumb is to never buy a home that is more than 2.5-3 times your annual income.

Another measure is that you shouldn't spend more than 25-30% of your monthly gross income on housing, and that includes mortgage (principal, interest, PMI if needed), taxes, and house insurance.

If you bring in $4500/month that's $52,000/year. So don't buy a house that costs more than $130,000 to $166,000, and don't have a monthly payment that is more than $1350 (mortgage, taxes, insurance).


I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.

Quote:
Rates are a bit lower now, so montly would be slightly lower, but key is getting that down payment in to avoid PMI since that money goes no where.
By my calculations we would be better off spending $45 a month or so on PMI and $1100 on interest (out of a $1500 payment) than spending $1500 on rent while we save a bigger deposit. All of the rent money goes nowhere, while with the same mortgage payment, even with PMI, $400 a month of what we'd pay out goes to prinicipal.
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#7 of 53 Old 02-05-2009, 07:57 PM
 
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I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.

Totally depends on where one is in the country. I would say at least 50% of the country has "good" houses in the $150K range. However, some metro's that number is completely out of line, but in the country or a smaller city, it's completely do-able.






Back to the OP - 35% of my net take home would be my absolute max I would be comfortable with paying in combined home ownership costs (mortage, insurance, taxes and the dreaded PMI if not putting donw 20%).

For me my numbers would be: $56K gross - $38K net so no more than $1,123 a month for a mortage.

We rent a 3 bedroom, 2 story house with additional 1/2 basement for $850 in a neighborhood of houses that cost $300K - $500K, thus we are still renters, it would almost never be cheaper for us to own over rent.

I figured out that it would never be cheaper to buy a house that appreciates at 1% a year (lucky if that in current economic situations) over us renting a house that has only raised rent once in 8 years.

Used this calculator to determine that, another MDC mama posted this link - thank you to who ever that was - http://www.nytimes.com/2007/04/10/bu...PHIC.html?_r=2 )
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#8 of 53 Old 02-05-2009, 08:04 PM
 
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I've always heard your house/apartment/condo payment should only be at most 1/4 of your monthly salary per month.

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#9 of 53 Old 02-05-2009, 08:10 PM
 
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I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.
It depends on where you live. In the midwest or in smaller towns, it's easy to find houses in that price range or lower. Nice house.

In the city or on the coasts, probably not possible.

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#10 of 53 Old 02-05-2009, 08:53 PM
 
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I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.

The median home price is $277K in this country. That means that far more than 5% of homes are in the $130-$166K range and below

The point is that if you can't afford a home that is no more than 2.5-3 times your annual income, you can't afford a home, unless you have a huge down payment.

Part of the reason the country's housing market is in shambles is that people let themselves be convinced that they can "afford" a home based on various numbers told to them by bankers, mortgage brokers, real estate agents, etc.

If you stick to 2.5-3 times your annual income, or 30% of your monthly income (and no more than 36% debt load), then barring a huge crisis, you can truly afford a home.

If not, save and wait.
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#11 of 53 Old 02-06-2009, 01:19 AM
 
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Well but by that rule to buy a median priced house, people need 93k annual income at least. I'm sure most people don't make that much. Last I heard the average price of a house in Canada is about 300K, if we go by the no more than three times your annual salary thing then the average family need to bring in a 6 figure income to qualify for that. Is that likely? Or are most people paying much higher percentage on their housing?

An average home here is about 500 - 600K, even though most families have two income, I doubt they bring in 200K a year.

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#12 of 53 Old 02-06-2009, 01:36 AM
 
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I would say under $1000 property taxes, etc.. included. I would go for between $900-$1200 tops. Just my opinion based on the info you provided and I agree with SHADS that you really need to take into account everything you are spending to get a clear picture of what you would be comfortable spending on a mortgage payment.
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#13 of 53 Old 02-06-2009, 02:00 AM
 
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I don't think the advice holds in the same way in Canada. Tax rates, typical cost of living differences and social safety nets... I imagine the advice would be different for Canada.

Now, as for the idea that $160-180K is far far too small a value for a house, I live in New York City. When we made 50K take home, we lived in a less accessible by subway neighborhood and paid $1100 in rent. We have friends who live 2 blocks from there now and pay $1300 in rent; walk up; small 2 BR. No, you can't buy on that income in this city for the most part. We bought a Manhattan apt when it was about 3 times our annual income. It would cost more now, but that's also why there aren't a lot of small families buying here right now. They're buying in Brooklyn, Queens, Jersey, where they can.

If it can be done here, it can be done anywhere else in the country. It cannot, however, be done by people who say as I keep seeing on House Hunters "gee, I just don't know if it's big enough for us" when it's a newly married couple with no children looking at a 3000 square foot monstrosity. 2 people do not need 3000 square feet, and if they can maybe just barely "stretch" to afford it, they should not be buying it!

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#14 of 53 Old 02-06-2009, 02:20 AM
 
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I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.
150K is a newly constructed 4B house in my area.

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#15 of 53 Old 02-06-2009, 02:37 AM
 
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150K is a newly constructed 4B house in my area.
Same here. And lots of 'older' (10-40yo) houses are WELL within that range and lower. 50yo+ houses are much cheaper than that. There's a lower economic area of town that has houses under 100k, some even under 50k. Not that I'd live in them if I had the choice, but some people don't.

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#16 of 53 Old 02-06-2009, 02:41 AM
 
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Well but by that rule to buy a median priced house, people need 93k annual income at least. I'm sure most people don't make that much. Last I heard the average price of a house in Canada is about 300K, if we go by the no more than three times your annual salary thing then the average family need to bring in a 6 figure income to qualify for that. Is that likely? Or are most people paying much higher percentage on their housing?

An average home here is about 500 - 600K, even though most families have two income, I doubt they bring in 200K a year.
I'm not picking on your post, as you seem to be echoing what some others have stated here as well.

However, the bottom line is that it would be worth considering the idea that the foreclosure rate is at least in part due to people thinking they can afford a higher percentage of their income going to housing costs that what is realistic.

Yes, there are many variables that go into how much one particular family can truly afford when it comes to housing. The 'standard' rule of 2.5-3 times your annual income would honestly scare the crap out of me if we actually bought a house worth that much. We *could* pay the mortgage on it, but it wouldn't be pretty.

The rule of 28%/36% of gross pay for debt (with 28% to housing and no more than 36% for all debt combined) would also concern me personally. I think that how much your family pays, percentage wise, from your gross pay towards taxes makes a big difference though.

Anyhow, I would not personally be comfortable with paying more than 25% of our NET income for housing (including property taxes, insurance, and upkeep). As it is now, our housing costs are less than 10% of our net income, and I honestly don't want it to be any higher than that. It is way more rewarding to be able to comfortably afford food, utilities, savings, retirement, college funds, medical care, vehicles, etc etc etc, than it would be to live in a more expensive house.
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#17 of 53 Old 02-06-2009, 04:25 AM
 
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that it would be worth considering the idea that the foreclosure rate is at least in part due to people thinking they can afford a higher percentage of their income going to housing costs that what is realistic
Totally agree. And let's not forget that if a couple bases their mortgage on both parties working full-time it can create obvious "situations" when babies enter the mix.
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#18 of 53 Old 02-06-2009, 06:20 AM
 
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The median home price is $277K in this country.
What country are you in? All info for the US that I'm finding is right around $175k (median).

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#19 of 53 Old 02-06-2009, 07:09 AM
 
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Maybe we should clarify what kind of mortgage we're talking about here? Instead of saying like "home price should be no more than 3 times your annual income", maybe you meant the "mortgage amount shouldn't be more than 3 times your annual income"? That's a big difference. Our house wasn't exactly cheap when we bought it, but we put in a big down payment, so our mortgage amount was less than 3X income, but the home price was not.

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#20 of 53 Old 02-06-2009, 10:24 AM
 
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My rule of thumb is to never have a mortgage payment (plus insurance, taxes, etc) that is more than I would pay in rent.

It's served us well over the 20 years I've been a homeowner.
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#21 of 53 Old 02-06-2009, 10:33 AM
 
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If anyone is interested, this site has median home prices for a variety of cities at the end of 2007. So, it's a little old, but, will give you a general idea. http://dcjobsource.com/homeprices.html

There are MANY cities with median home prices well under the 150K range.

I'm not sure of the exact numbers, but I've always heard that your total debt (including mortgage) shouldn't be more than 35-36% of your income. So, if you're completely debt free (no student loans, no car payments, etc), you can afford a bigger mortgage. If you've already got $1000/month you're paying out toward credit cards/car payments/etc., then you have a lot less leeway.
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#22 of 53 Old 02-06-2009, 11:31 AM
 
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What country are you in? All info for the US that I'm finding is right around $175k (median).
You're right--I got a number that was incorrect. Thank you for correcting me!
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#23 of 53 Old 02-06-2009, 01:42 PM
 
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The median home price is $277K in this country. That means that far more than 5% of homes are in the $130-$166K range and below

The point is that if you can't afford a home that is no more than 2.5-3 times your annual income, you can't afford a home, unless you have a huge down payment.

Part of the reason the country's housing market is in shambles is that people let themselves be convinced that they can "afford" a home based on various numbers told to them by bankers, mortgage brokers, real estate agents, etc.

If you stick to 2.5-3 times your annual income, or 30% of your monthly income (and no more than 36% debt load), then barring a huge crisis, you can truly afford a home.

If not, save and wait.
I disagree. Median home price doesn't give you any real indication of what housing truly costs. Unless you don't go to college or have parental help and buy when you're very young, few people can have a studio or one bedroom apartment as their first home, so very cheap housing is ruled out for those of us who spent longer getting educated and had children shortly after getting full time jobs.

Also, jobs and cheap housing don't necessarily go hand in hand. Places like Flint and Detroit are included in national averages. And there aren't any jobs there.

Let's take someone fresh out of grad school, $40,000 a year, married and ready to have a child, so looking for a 2 bed house with a yard in a safe area. A quick google tells me that for 30% of their income they can get a $165,000 loan. Add in a down payment of 20 or 30,000 and you're verging on $200,000. That's a lot more than the $100,000 to $120,000 a year that you're advocating as the most they can afford.

So by saying
Quote:
The point is that if you can't afford a home that is no more than 2.5-3 times your annual income, you can't afford a home, unless you have a huge down payment.
do you mean that 30% of your income as mortgage payment is too much?

Quote:
Originally Posted by wifeandmom
Anyhow, I would not personally be comfortable with paying more than 25% of our NET income for housing (including property taxes, insurance, and upkeep). As it is now, our housing costs are less than 10% of our net income, and I honestly don't want it to be any higher than that. It is way more rewarding to be able to comfortably afford food, utilities, savings, retirement, college funds, medical care, vehicles, etc etc etc, than it would be to live in a more expensive house.
Here's where the talking in percentages breaks down. Either you have a very very high income or a very very low one, but to be honest I can't see how you reasoning and reality intersect. From your statement that you need 90% of your income to afford the other necessities I assume you're on the lower end of the scale, but how can your housing costs be that low? I've never lived anywhere where rent was much less than at least $600 for a one bedroom place. But that would put your income at $6,000 a month, and I can't imagine you struggling to buy groceries and pay the power bill with that much money.

I'm not picking apart your finances, but after you leave the average range costs don't scale.
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#24 of 53 Old 02-06-2009, 02:05 PM
 
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Take all of your bills and expenditures (you didn't mention food/household goods, gas/maintenance for your car, etc.) and add them up. Subtract that number from your take-home pay number. Then decide what you're comfortable having left to save (and for miscellaneous) and use what's left for your mortgage.
Yes, this is the same way that DH and I decided how much house we could afford. We've been very happy with the decision we made based on this sort of math. I would only add that you should round-UP all your figures and count on utility rates increasing in the next few years. I don't find percentages all that helpful - I'd rather calculate the mortgage I can afford based on my other expenses. Also be sure to consider how taxes, interest and PMI (if you are not putting 20% down) can increase your mortgage payment. Get a good quote from a mortgage broker, so that you know all the hidden costs before you make a decision. HTH!
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#25 of 53 Old 02-06-2009, 02:28 PM
 
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The best piece of advice we got when house hunting was to build a budget that we were comfortable with and that included all of our priorities (like saving, travel, etc.) and then plugging a housing number into that budget. We then converted that to a mortgage amount.

For us, PITI is about 30% of our net pay. We are comfortable with that largely because we have quite a bit left over. If we had a smaller income, I would want a much smaller percentage going to housing.

Don't forget to also estimate for home repairs, maintenance, etc. We've spent a lot more on our tiny cottage than I thought possible.
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#26 of 53 Old 02-06-2009, 02:59 PM
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I don't mean to be rude, but I don't think they make houses that cheap in 95% of the country. I have heard the 30% of your income as payments rule.
I'm in the Chicago suburbs, and we've seen several homes listed for that and less. And not all of them have been tear downs/burn downs.
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I disagree. Median home price doesn't give you any real indication of what housing truly costs. Unless you don't go to college or have parental help and buy when you're very young, few people can have a studio or one bedroom apartment as their first home, so very cheap housing is ruled out for those of us who spent longer getting educated and had children shortly after getting full time jobs.

Also, jobs and cheap housing don't necessarily go hand in hand. Places like Flint and Detroit are included in national averages. And there aren't any jobs there.

Let's take someone fresh out of grad school, $40,000 a year, married and ready to have a child, so looking for a 2 bed house with a yard in a safe area. A quick google tells me that for 30% of their income they can get a $165,000 loan. Add in a down payment of 20 or 30,000 and you're verging on $200,000. That's a lot more than the $100,000 to $120,000 a year that you're advocating as the most they can afford.

So by saying do you mean that 30% of your income as mortgage payment is too much?



Here's where the talking in percentages breaks down. Either you have a very very high income or a very very low one, but to be honest I can't see how you reasoning and reality intersect. From your statement that you need 90% of your income to afford the other necessities I assume you're on the lower end of the scale, but how can your housing costs be that low? I've never lived anywhere where rent was much less than at least $600 for a one bedroom place. But that would put your income at $6,000 a month, and I can't imagine you struggling to buy groceries and pay the power bill with that much money.

I'm not picking apart your finances, but after you leave the average range costs don't scale.
I know quite a few towns where you can rent for $200-300 a month. And in most cities if you are only paying for lot rent for a motor home or mobile home.
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#28 of 53 Old 02-06-2009, 03:37 PM
 
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Let's take someone fresh out of grad school, $40,000 a year, married and ready to have a child, so looking for a 2 bed house with a yard in a safe area. A quick google tells me that for 30% of their income they can get a $165,000 loan. Add in a down payment of 20 or 30,000 and you're verging on $200,000. That's a lot more than the $100,000 to $120,000 a year that you're advocating as the most they can afford.
That would indicate that the person in question was not ready to buy a home in that area, and should either wait until she was earning more money or look for a house in a cheaper area.

Generally, people fresh out of grad school have neither the income nor the downpayment to be in a good position to buy a house and would be better off to wait until they are in a better position.
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#29 of 53 Old 02-06-2009, 03:58 PM
 
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I don't think I have seen a home listed for $150ish near here for about 10 years. Maybe 1 or 2 bedroom condos that are age restricted for 55 plus???

It is great that there are places where houses cost that, but hardly helpful if you don't live in one of them.

I think SAHDS approach is the most logical.
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#30 of 53 Old 02-06-2009, 06:00 PM
 
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Quote:
Originally Posted by choli View Post
That would indicate that the person in question was not ready to buy a home in that area, and should either wait until she was earning more money or look for a house in a cheaper area.
Really? You really think it's too much to spend 30% of your income on housing? Really? Even when that income is decent?

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I know quite a few towns where you can rent for $200-300 a month. And in most cities if you are only paying for lot rent for a motor home or mobile home.
Wow! Are there any jobs in those cities?
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