Comments on: Buying a New House? 10 Tips for First Time Homebuyers http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/ Where inspirational quotations meet practical life tips, and live happily ever after. Fri, 19 Mar 2010 14:06:19 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Bryan http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8969 Bryan Wed, 24 Feb 2010 17:29:50 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8969 Thank you both again for your insight. I will be sure to post my results (hopefully this spring)! Thank you both again for your insight. I will be sure to post my results (hopefully this spring)!

]]> By: Laurie Pawlik-Kienlen http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8902 Laurie Pawlik-Kienlen Fri, 19 Feb 2010 23:33:16 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8902 When you're buying a new house, you also need to take into account where you live (urban versus rural), your lifestyle (big spender versus frugal), your occupation (do you need designer clothes or do you work from home in your pajamas?), your love and family life (are you married with 5 kids, or are you single?), etc. I think that those are the differences that may account for the difference between the "34% of gross income" theory and the "2.5 times your salary" theory. Like Rick said (or alluded to), each person is different, and each potential home buyer needs to calculate his or her own mortgage and housing costs. Just to confuse things further :-) here's another set of calculations that I found: 10% of your income should be going to savings or investments 25-40% to mortgage or rent 8-15% to home-related expenses (utility bills, etc) 10-20% to food 15-25% to transportation 8-15% for medical expenses 3-5% for clothing 5-10% to personal or miscellaneous less than 5% to personal debt such as student or personal loans Again, these calculations depend on the person's lifestyle. For instance, 3-5% is WAY much for me to spend on clothes each month -- I don't even think I spend that in a year! And, I'm Canadian with extended health coverage through my husband's work so I don't spend 8-15% on medical expenses. So I can shift those monies over to paying off my mortgage, going on exotic vacations, etc. I think it's also important to sit down with a few mortgage brokers and bankers, and see what they say about interest rates and being a first-time homebuyer in your area. Of course, it also depends on your line of credit and amount of debt! I hope this helps.....and please do come back and let me know what you end up doing -- if you bought your first new house and if it was within the 35% theory or the 2.5 times your salary theory. Laurie When you’re buying a new house, you also need to take into account where you live (urban versus rural), your lifestyle (big spender versus frugal), your occupation (do you need designer clothes or do you work from home in your pajamas?), your love and family life (are you married with 5 kids, or are you single?), etc.

I think that those are the differences that may account for the difference between the “34% of gross income” theory and the “2.5 times your salary” theory.

Like Rick said (or alluded to), each person is different, and each potential home buyer needs to calculate his or her own mortgage and housing costs.

Just to confuse things further :-) here’s another set of calculations that I found:

10% of your income should be going to savings or investments

25-40% to mortgage or rent

8-15% to home-related expenses (utility bills, etc)

10-20% to food

15-25% to transportation

8-15% for medical expenses

3-5% for clothing

5-10% to personal or miscellaneous

less than 5% to personal debt such as student or personal loans

Again, these calculations depend on the person’s lifestyle. For instance, 3-5% is WAY much for me to spend on clothes each month — I don’t even think I spend that in a year! And, I’m Canadian with extended health coverage through my husband’s work so I don’t spend 8-15% on medical expenses. So I can shift those monies over to paying off my mortgage, going on exotic vacations, etc.

I think it’s also important to sit down with a few mortgage brokers and bankers, and see what they say about interest rates and being a first-time homebuyer in your area. Of course, it also depends on your line of credit and amount of debt!

I hope this helps…..and please do come back and let me know what you end up doing — if you bought your first new house and if it was within the 35% theory or the 2.5 times your salary theory.

Laurie

]]> By: Rick http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8899 Rick Fri, 19 Feb 2010 19:10:50 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8899 There are no hard and fast rules to the amount you can afford. These general rules of thumb, 35% of gross, 2.5-4.0 times salary, etc, are there to provide guidance. Different lenders use different formulas based on what their experts predict. Sometimes the percentage of gross income might be 30% to 35% depending on interest rates and general economy. Other experts may be very conservative and suggest you never put yourself at financial risk so they may say 20% (which is close to the 2.5 times salary). You need to determine what you can afford and are comfortable with. Make a budget and allocate all your income verses expenses: food, entertainment, car, utilities, savings, insurances, etc, being as detailed and accurate as possible. Consider whether your income will increase or decrease based on your employment prospects and career plans. Then look at how little or how much is there at the end of the month/year. Use an online calculator from the bank or mortgage company website to determine the total cost to borrow various amounts of mortgage money ($300,000, 400,000, etc) until the amount of monthly payment fits your budget. Those calculators should also show the amount of mortgage insurance you pay based on the down payment. The higher the down payment the cheaper the insurance so put as much down as possible. One bit of advice I have is buy almost as much as you can afford, living frugally, and with every left over penny pay down your mortgage with penalty-free prepayments. There are no hard and fast rules to the amount you can afford. These general rules of thumb, 35% of gross, 2.5-4.0 times salary, etc, are there to provide guidance. Different lenders use different formulas based on what their experts predict. Sometimes the percentage of gross income might be 30% to 35% depending on interest rates and general economy. Other experts may be very conservative and suggest you never put yourself at financial risk so they may say 20% (which is close to the 2.5 times salary). You need to determine what you can afford and are comfortable with. Make a budget and allocate all your income verses expenses: food, entertainment, car, utilities, savings, insurances, etc, being as detailed and accurate as possible. Consider whether your income will increase or decrease based on your employment prospects and career plans. Then look at how little or how much is there at the end of the month/year. Use an online calculator from the bank or mortgage company website to determine the total cost to borrow various amounts of mortgage money ($300,000, 400,000, etc) until the amount of monthly payment fits your budget. Those calculators should also show the amount of mortgage insurance you pay based on the down payment. The higher the down payment the cheaper the insurance so put as much down as possible. One bit of advice I have is buy almost as much as you can afford, living frugally, and with every left over penny pay down your mortgage with penalty-free prepayments.

]]> By: Bryan http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8869 Bryan Wed, 17 Feb 2010 15:30:43 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8869 Thanks, Rick and Laurie. If you don't mind, another question. 35% of gross income is one theory and then there are some who say you can afford 2.5 times what you make (assuming annual income). To illustrate how different these theories are let's say I make $100,000. If you divide that number by 26 pay periods, my monthly income would approximately be $7,700. Multiply this by 35% and you have about $2,700 to spend on a house monthly. Take away $200 for PMI and insurance and another 500 for taxes (assuming $6K a year) - leaves you with $2K. Based on mortgage rates right now, I would be able to afford a house somewhere around $370K. If you go with the theory that you can afford 2.5 times your salary, well $100K x 2.5 = $250K. A difference of over $100,000. I am obviously missing something here. Your thoughts and feedback are appreciated. Thanks again. Thanks, Rick and Laurie. If you don’t mind, another question.

35% of gross income is one theory and then there are some who say you can afford 2.5 times what you make (assuming annual income).

To illustrate how different these theories are let’s say I make $100,000. If you divide that number by 26 pay periods, my monthly income would approximately be $7,700. Multiply this by 35% and you have about $2,700 to spend on a house monthly. Take away $200 for PMI and insurance and another 500 for taxes (assuming $6K a year) – leaves you with $2K. Based on mortgage rates right now, I would be able to afford a house somewhere around $370K.

If you go with the theory that you can afford 2.5 times your salary, well $100K x 2.5 = $250K. A difference of over $100,000.

I am obviously missing something here. Your thoughts and feedback are appreciated.

Thanks again.

]]> By: Laurie Pawlik-Kienlen http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8808 Laurie Pawlik-Kienlen Sun, 14 Feb 2010 02:51:28 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8808 Interesting -- I would've thought that "housing expenses" do include the cost of utilities! But, I've heard from Rick here on Quips and Tips before, and his financial advice was solid. Interesting — I would’ve thought that “housing expenses” do include the cost of utilities! But, I’ve heard from Rick here on Quips and Tips before, and his financial advice was solid.

]]> By: Rick http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8769 Rick Fri, 12 Feb 2010 15:49:11 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8769 The rule of thumb is that housing expenses should be <35% of gross income and that housing expenses include mortgage payments (principal & interest), property taxes, house insurance, mortgage insurance. The 1% of purchase price per year maintenance is relative to the condition of the house since a newer or completely remodeled house generally needs less maintenance. And the home owners ability/inability to do repairs can make a huge difference. It is smart to recognize the cost of utilities as well and estimate them in your monthly/yearly budget but they are not typically included in the magic 35% number. The rule of thumb is that housing expenses should be <35% of gross income and that housing expenses include mortgage payments (principal & interest), property taxes, house insurance, mortgage insurance. The 1% of purchase price per year maintenance is relative to the condition of the house since a newer or completely remodeled house generally needs less maintenance. And the home owners ability/inability to do repairs can make a huge difference. It is smart to recognize the cost of utilities as well and estimate them in your monthly/yearly budget but they are not typically included in the magic 35% number.

]]> By: Bryan http://theadventurouswriter.com/blog/quipstipsachievinggoals/home/buying-new-house-tips-first-time-homebuyers/comment-page-1/#comment-8754 Bryan Thu, 11 Feb 2010 17:20:03 +0000 http://theadventurouswriter.com/blog/?p=2127#comment-8754 My question pertains to #6 Don’t stretch your financial budget too far. Standard guidelines call for keeping housing expenses below 35 percent of total income. Can you clarify total income to equal one's monthly gross income or monthly net income? Also, should "housing expenses" include what one would pay for utilties (i.e. gas, water, cable, etc.)? Thanks for your help. My question pertains to #6 Don’t stretch your financial budget too far. Standard guidelines call for keeping housing expenses below 35 percent of total income.

Can you clarify total income to equal one’s monthly gross income or monthly net income? Also, should “housing expenses” include what one would pay for utilties (i.e. gas, water, cable, etc.)?

Thanks for your help.

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