Does anyone actually live within the 33% housing rule? - Mothering Forums

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#1 of 60 Old 09-19-2011, 05:07 AM - Thread Starter
 
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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?


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#2 of 60 Old 09-19-2011, 05:43 AM
 
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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. shrug.gif 

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#3 of 60 Old 09-19-2011, 05:51 AM
 
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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 smile.gif

 

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.)


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#4 of 60 Old 09-19-2011, 06:01 AM
 
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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.
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#5 of 60 Old 09-19-2011, 06:07 AM
 
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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%. 


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#6 of 60 Old 09-19-2011, 06:25 AM
 
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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%.

 


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#7 of 60 Old 09-19-2011, 06:28 AM
 
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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

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#8 of 60 Old 09-19-2011, 06:28 AM
 
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Originally Posted by ilovemygirl View Post

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!

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but everything has pros and cons  shrug.gif

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#9 of 60 Old 09-19-2011, 06:37 AM
 
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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.

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#10 of 60 Old 09-19-2011, 06:41 AM
 
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Originally Posted by Llyra View Post

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.
 

 

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#11 of 60 Old 09-19-2011, 06:46 AM
 
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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.


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#12 of 60 Old 09-19-2011, 06:47 AM
 
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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.  

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#13 of 60 Old 09-19-2011, 06:57 AM
 
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Quote:
Originally Posted by velochic View Post



 

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.  

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#14 of 60 Old 09-19-2011, 07:04 AM
 
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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).

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#15 of 60 Old 09-19-2011, 07:15 AM
 
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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.


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#16 of 60 Old 09-19-2011, 08:09 AM
 
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Originally Posted by Ruthiegirl View Post

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.

 

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#17 of 60 Old 09-19-2011, 08:17 AM
 
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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.
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#18 of 60 Old 09-19-2011, 09:14 AM
 
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Quote:
Originally Posted by Mulvah View Post

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.

 


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#19 of 60 Old 09-19-2011, 11:10 AM
 
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Originally Posted by Ruthiegirl View Post

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.
 

 

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#20 of 60 Old 09-19-2011, 11:43 AM
 
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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.

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#21 of 60 Old 09-19-2011, 11:52 AM
 
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We are around 33% once we add up mortgage, insurance, utilities and a small amount for maintenance.  We bought this house 9 years ago.  Prices have gone up a lot since then.  We don't have a huge income, and I can't see how we'd cover everything else if we were paying over 50% of our take home on housing.

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#22 of 60 Old 09-19-2011, 01:55 PM
 
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My house payment is right about 33% of my take home pay.  when I get rent from it it goes down to about 10%.  

 

but

 

I live in a bad neighborhood (with a great schools)

I live in a duplex

I live in a low cost of living area
I live on a corner lot

I have no equity

The 33% includes insurance, and taxes but not maintenance which can be quite a bit.

 

My house sucks.  

 

 

 

 


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#23 of 60 Old 09-19-2011, 02:11 PM
 
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Our mortgage, taxes and homeowners insurance are about 25% of our take-home pay (which includes DH's two jobs and my part-time job).

We want to move to a slightly larger house, which would raise us up to about 33% of our take-home pay, and that makes me really nervous! We don't have much left over each month even at the 25% level. We had to make some home repairs this year, and food costs us a fortune.

 

I would not buy a house at 50%. It will just cause you tons of stress. Especially if the schools aren't that good, etc. I would actually prefer to be a renter, but of course DH (who grew up in apartments) prefers a house. 

 

Whatever you decide, good luck!

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#24 of 60 Old 09-20-2011, 10:23 AM
 
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We rent, we won't be buying until we have cash to buy or build. This works for us because we still don't know where we want to live when we are finished with our PhD programs. DH will be done with his Summer 2012 and I will go back to finish mine Fall 2012. We currently rent a very nice duplex, for the college town we live in, and rent is 16% of our take home. If you include utilities it is 24% of our take home pay. DH is an Electrical Engineer though who works full time in addition to his PhD program so his salary is much higher than average around here. This semester I started teaching at the local university again, just 1 class, to give myself something to do outside of the home.

 

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#25 of 60 Old 09-20-2011, 05:33 PM
 
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We do.  I think our city has a pretty moderate cost of living, and we have bought forclosures, which are way below your average listed "fixer upper".  The most recent house had plenty of cosmetic stuff, but just needed to be cleaned for us to move in.  We arranged a 15 year fixed loan with my dad, and the mortgage is about 25% of dh's take home pay from his job, but probably about 20% of total income since we also have a little extra coming in from rents.  Our income is below the national average, and well below what most people in our area consider "liveable".

 

I am sure that there are areas where it is impossible.  But I would encourage you to look at all your options before you decide it is.  I've heard a couple of people in our area (moderate COL, with incomes double or triple ours) say "Oh, if I only spent that much, I'd end up with some shack in the 'hood".  I don't know if they just aren't aware of what's available, but that's simply not true.  So it's worth digging a little deeper to see if you could possibly get housing for less. :)

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#26 of 60 Old 09-20-2011, 07:06 PM
 
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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.

 


I always wonder how true this is. I mean, if you make $250k per year, you're paying a significant amount of taxes. You have a higher marginal rate, plus many of your deductions are reduced or taken away. Plus your second biggest expense is probably 401k, and the recommended amount for that is based on a percent of your income, not a dollar value. It seems to me like 33% of gross pay is still the maximum you could pay for a house for most people, especially since many young people with $250k plus salaries had to take student loans to get there.
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#27 of 60 Old 09-20-2011, 07:28 PM
 
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I always wonder how true this is. I mean, if you make $250k per year, you're paying a significant amount of taxes. You have a higher marginal rate, plus many of your deductions are reduced or taken away. Plus your second biggest expense is probably 401k, and the recommended amount for that is based on a percent of your income, not a dollar value. It seems to me like 33% of gross pay is still the maximum you could pay for a house for most people, especially since many young people with $250k plus salaries had to take student loans to get there.

 

If you're making $250,000, your taxes are probably around $88,000/year, you may put $30,000/year into retirement, and your estimated take home pay is $11,000/month.  With those figures, you would be perfectly fine spending a larger percentage on your home than someone who takes home $3,000/month.  Now, other debts, cost of living, and lifestyle choices play a part in what you can afford and what you want to purchase, but income makes a big difference.

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#28 of 60 Old 09-20-2011, 08:12 PM
 
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I had figured more like $10,000 take home pay, after insurances and maxing out retirement contributions. Thats absolutely plenty to pay a 33% gross mortgage payment ($6500). I just often hear people say that people who make $250k+ can afford like, 45-50% gross. That's just not feasible, since that would mean a mortgage payment of $9500-$10500/month.
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#29 of 60 Old 09-20-2011, 09:48 PM
 
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When we purchased our house in 2007, we were within the 33% recommendation.  At the time, we were a two income family with no kids. We had assumed our incomes would go up and that this was a reasonable mortgage to take on. Our house is a modest size (2 bdrm, 1400sf, 1 car garage), but in a great location with a great school district. We could have bought a cheaper home elsewhere, but felt our quality of life would suffer with long commutes, bad schools, and/or high crime. Our downpayment was money made from my husband selling his previous home, which had been purchased with zero down before the housing market topped off.

 

Fast forward 4 years ... After a plunge in the housing market, loss of my job, birth of a son, and several very costly unexpected home repairs (totaling over 20k), we are probably now closer to 50%. It's hard and the house needs a lot more costly work which we can't afford. A lower mortgage would take off a lot of stress, but we can't sell our house since it's worth less than we owe and I have yet to see a place that I think we'd be as happy and safe that would save us enough money to make it worth the move. For now, we are just hanging on hoping it will work out in the long run. 


 Mom to one happy Senorcito (06/09) ... allergic to wheat, nuts, dairy, eggs, sesame, peas and soy.

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#30 of 60 Old 09-21-2011, 07:58 AM
 
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I remember back when we were obsessing about buying a house. It was around the time the SHTF (2008-2009). I would read financial blogs, run numbers, and drool over MLS.ca every day. Our living situation was awful at the time and buying a house would solve everything. Part of me wanted to buy the first house I saw but I was so scared. (It was scary back then!)  We looked intensively for 8 months before finding a house that was right for us. Even at that point, it was a giant leap of faith, wondering how steady the economy was, how stable DH's job was etc. We fell in love with our house, but also, a HUGE deciding factor was that it was so cheap. When deciding how much we could afford, we only based it on DH's income (because mine was so random) and bonus if we could afford to make payments if he was on unemployment getting 55% of his gross pay. Yes, did I mention we were scared?! lol.gif We live in a LCOL area but that also meant that in general, jobs pay less too. Thankfully DH's pay is decent for his field (welder). I would place us at the low end of middle class. 

 

The house was cheap because it's a fixer upper. It was technically livable as is.... if you have low expectations out of life. Counting mortgage, taxes, home insurance, our living costs were way under 33% of DH's income. When you throw in renovations and home repair costs.... that # jumped to over 50% (my brain won't even go there to calculate it). After a year and a half of pay as you go + a leaking roof, we refinanced and it was sooooo nice to have that extra pile of money to work with. We kept our mortgage to 15 years and even now our costs are just about 33%. We're nearing the end of major home repairs and DH and I have firmly decided to up our weekly automatic savings. Without that extra money being poured directly in the house we're going to feel so rich and don't want to blow it all! lol.gif

 

We didn't buy our house until we were 28/30. We were in apartments for a good 10 years. :/ My advice would be to bloom where you are planted. If you have to live in an apartment, do what you can to make it unique. Get rid of dorm furniture. Buy a couple of nice pieces of furniture now, don't wait for when you buy a house. For a long time, I put off doing so much for "when we have a house". In the end, I realized life wasn't worth living that way. It really sucked,  but I'm glad we waited to buy a house. 1) We couldn't have truly afforded it before, 2) the house our 20-25 year old selves would have chosen is not the type of house we actually would have wanted to live in long term. It would have been too expensive to maintain, would not have made sense for our lives etc. 


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