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How much home can I afford?

9,753 Views | 93 Replies | Last: 3 yr ago by Maximus Johnson
Maximus Johnson
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AG
I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here

AgCPA95
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Every situation can be different, but we tried to be very frugal buying our first home allowing us flexibility to travel and max out things like Roth IRA's early on adding in other investing pretty quickly as well. Now we were not doing a land deal and building so that could change things but we want to be any where near "house poor". Location can drive a lot of this as well due to land costs.
John Francis Donaghy
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Shallowminded14 said:

I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here




Take whatever budget a lender gives you, and cut it in half. Anything over that number needs to be a calculated decision based on a detailed budget to make sure you don't end up over your head.

Also, job market is rough right now in Covid world. I wouldn't commit to anything with an expectation of your wife's income. If that's a dealbrealer for now, you're better off renting than in over your head with a mortgage you can't afford on just your income.

And for the love of God, don't underestimate childcare costs. A BIG chunk of what your wife will make when she goes back to work will go straight to daycare. Go tour and get prices in your area now. That will be a MAJOR factor in your budget going forward.
Maximus Johnson
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AgCPA95 said:

Every situation can be different, but we tried to be very frugal buying our first home allowing us flexibility to travel and max out things like Roth IRA's early on adding in other investing pretty quickly as well. Now we were not doing a land deal and building so that could change things but we want to be any where near "house poor". Location can drive a lot of this as well due to land costs.
I am not stuck on the idea of building.

My current mindset is I can either go one of two ways on my first purchase:

Buy at the top end of our realistic amount and it be a semi-forever home (until our kids move off) or...

Buy at the lower end and sell in 5+ years when our incomes go up.

I am leaning closer and closer to option one as the weeks go on simply because I feel that even if we struggle a little for a year or two our incomes are only going to go up in time. Thoughts??
Aggiemike96
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I don't know how you'll be happy, with a happy wife and newborn, if you're working a full time job and trying to build a house. That's a LOT of irons in the fire.


Find a house that fits your budget, location, etc. I wouldn't recommend a fixer-upper, but you could make improvements yourself as time goes on. Enjoy your soon-to-be wife and newborn.

Congrats on both!
AggieGunslinger
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We have always lived in a house where one of us can easily pay all the bills but my job isn't super stabil. It has saved us more than once. It is probably a bit overkill at this point but as a new graduate I think it's probably good advice. And when I say bills I mean the mortgage as well.
Martin Q. Blank
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Shallowminded14 said:

I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here
1. How much is going into savings every month?
2. What is your rent?
JP76
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Based on 65,000 income


~ $250,000 house


If you want to build then you will need 20% down for conventional financing

Also in Texas technically the owner can not be the general contractor

Kenneth_2003
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If it were me, I wouldn't dream of going anywhere near the amount some online calculator or even a lender says you're good for. I'd stay well, well below that. Covering the mortgage is great. Just doing that, and you're not living.
The bigger the house, the more furniture you've gotta buy to fill it or stare at your empty dream house.

1) Emergency fund of 6 months to 1 year expenses
2) 401Ks to at least company match
3) HSA's
4) Living expenses -- food, utilities, car payments (they drive better paid off in my opinion)
5) Ooops... car repairs, AC takes a dump,
6) Vacations? Some travel?

I presume you're young, potentially in your 20s. If it were me, focus on your future, especially now, and not on the right now. Long term saving and retirement comfort is far far easier the earlier you start when it comes to compounding.

That all said, I'd find a place I can put a down payment on, pay the note with a short term, and when the time comes to size up or move, you've got some equity to take with you. Bigger place, same size note?
SteveBott
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When I'm talking to first timers I always ask how much can you pay each month and sleep soundly at night? I also ask what their rent payment is. Between those answers is how much mortgage you can afford and what price range they should be in. I never discuss how much they qualify for. As said I can qualify much higher then the answers for those questions.

So I work backwards. For a very rough estimate I use 800 in payment for every 100k borrowed. That number can move based on interest rate and area they want to buy. So 220k home with 10% down, 200k loan, 1600 full payment that includes both P&I and escrow account.
TXTransplant
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Make sure you also factor in homeowner's insurance and property taxes.

For me, on a relatively modest house (valued <$350k), and those two things combined total about $10k a year. That's on top of the $1500/month I pay for my mortgage.

I don't escrow, but if I did, that would add about $800/month to my monthly payment.

When you do the online calculators for what you can "afford", they don't typically figure that in.
TXTransplant
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Also, make sure you have an exit strategy. I know you think this will be your "forever" home, but sometimes life has other plans.

I was making $65k when I got my first job and bought my first house - for $155k. After 6 years, I moved out of state because my job forced me to. It took me 9 months to sell that house (paying $800/month for the mortgage and $1600/month in rent in the new city).

After renting for one year, I built my "dream house" for just under $250k (by then my salary was up to about $90k). Just over a year after moving in, my company went bankrupt, and I was unemployed for several months. Thank goodness I had more than enough in savings to pay the mortgage. It sold quickly, but the College Station market hadn't yet taken off. So, I sold it for only $4500 more than what I paid. After paying the buyers' agent's fees, I lost money. Thank goodness it was a great house in a desirable location and I didn't go overboard with the upgrades, or I would have lost even more money.
SteveBott
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The 800 per I posted includes taxes and insurance
TXTransplant
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SteveBott said:

The 800 per I posted includes taxes and insurance


I saw that...you're doing it right. Most online estimators/banks don't.

I nearly choked a couple of years ago when my bank said I was preapproved for almost $700k. The taxes and insurance alone would be $20k+ a year!
SteveBott
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Gotcha. And OP the 800 is just for internet searching. I need critical data to get an actual payment. Credit, taxes, insurance to get an accurate paument
AggieGunslinger
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Something I wish I had done was buy my first house on an ARM. Most folks these days don't last 5 years in their first home.
TXTransplant
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AggieGunslinger said:

Something I wish I had done was buy my first house on an ARM. Most folks these days don't last 5 years in their first home.


Funny you say that...I actually did! Not necessarily intentionally...I was trying to work with a local credit union, and that's all they offered. I also only had to put 10% down.

It was a 7-year arm, and I did it knowing I would refi, which I did somewhere around the 5 year mark. Refied to a 15 year at about the same interest rate (at the time, they were in the 4s). Sold the house about a year later. Should have just kept the arm (thankfully, the refi didn't cost much).
Keeper of The Spirits
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Don't count on the wife going back to work, you never know how they will feel
ATM9000
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I'll be blunt here... it sounds like you should be renting still. If you are credibly considering buying land and building yourself, it sounds like you've got dream home on your mind... and that's not going to happen on your 65k salary. Couple that with an economy that's probably gonna be sputtery for a while, I also wouldn't bank your wife working and doing so at some salary in your equation.

There's no shame in renting. I'm 18 years out of school and just went from home owner to renter a few months ago due to job relocation somewhere that I'm almost certainly not going to be for more than 3 years.

And I also remember 10 years ago when my wife was going to go back to work in 2 years... but circumstances both personally and financially changed where it wasn't best nor necessary for her to go back.
Maximus Johnson
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Martin Q. Blank said:

Shallowminded14 said:

I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here
1. How much is going into savings every month?
2. What is your rent?
As of now with only my income we are putting away roughly 1,500 a month. Since I have graduated in May I have paid off 8K in student loan debt and bought an engagement ring for another 8K so I am trying to build my savings back at the moment.

Currently we are living rent free. My fianc's mom was recently re married and is letting us live in her house for free for another year and a half.
Martin Q. Blank
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Shallowminded14 said:

Martin Q. Blank said:

Shallowminded14 said:

I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here
1. How much is going into savings every month?
2. What is your rent?
As of now with only my income we are putting away roughly 1,500 a month. Since I have graduated in May I have paid off 8K in student loan debt and bought an engagement ring for another 8K so I am trying to build my savings back at the moment.

Currently we are living rent free. My fianc's mom was recently re married and is letting us live in her house for free for another year and a half.
As of now, you can afford $1500/mo in PITI. Do not buy unless you have:
-rented for that amount and your check book is balanced
-experienced a two income household for a year. Sometimes women change their mind after going back to work and leaving their child. Especially after #2 where daycare costs may exceed income.
Maximus Johnson
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Martin Q. Blank said:

Shallowminded14 said:

Martin Q. Blank said:

Shallowminded14 said:

I just graduated from A&M in May, I make $65,000 gross a year and my fianc is projecting to make around the same. She is currently staying home with our newborn but should be working in the next year. I am thinking about buying land and building as I have an extensive construction background and feel like I can manage the work myself. Our only current obligation is my truck payment at $480 a month.

I want to be relatively conservative with our mortgage but don't want to hate where I live. Nerd wallet says I can afford a $477,000 home?? Our families have historically made horrible long term financial moves so they are essentially no help and only muddy the waters. Looking for some solid forum 59 advice here
1. How much is going into savings every month?
2. What is your rent?
As of now with only my income we are putting away roughly 1,500 a month. Since I have graduated in May I have paid off 8K in student loan debt and bought an engagement ring for another 8K so I am trying to build my savings back at the moment.

Currently we are living rent free. My fianc's mom was recently re married and is letting us live in her house for free for another year and a half.
As of now, you can afford $1500/mo in PITI. Do not buy unless you have:
-rented for that amount and your check book is balanced
-experienced a two income household for a year. Sometimes women change their mind after going back to work and leaving their child. Especially after #2 where daycare costs may exceed income.
Understood. Thank you all!
Agilaw
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AG
Agree with Steve. Don't go anywhere near max of what you can borrow and best to not bit off new construction at this point. Rent is a fine option and buying a duplex and living on one side is a great option. You don't any financial pressure at all as you start out on your journey. I would also stay away from an ARM. They may actually be at a higher rate and if something were to happen with the economy, jobs, etc., you would be in great position as you would be locked in at historically low rate on a 10, 15 or 30. For your situation, I would probably also stay away from a 30.
Diggity
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Others have mentioned it, but I would not consider building in your situation (relatively low budget, first time owner).

You don't build to save money. Any savings/efficiencies you will gain by going through "u-build it" or the like will be quickly eaten up by the inefficiencies of building a one-off, custom home.
A New Hope
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In the old days when interest rates were higher, the rule of thumb was 2.5 times your annual salary.

These days those multiples are thrown out the window. It's scary to me personally to hear that people I know making $25/hr get approved for $235k worth of home.

Don't be house poor. It's not a good feeling.

That's my advice.

Diggity
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Yep. Low interest rates increase buying power, which bumps up the price of housing stock.

Rising prices are a double whammy in TX, where a lot of folks end up paying 3%+ in property taxes, based on these inflated values.

I'm continually amazed at what builders are getting out in the sticks for new construction.
TXTransplant
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Diggity said:

Yep. Low interest rates increase buying power, which bumps up the price of housing stock.

Rising prices are a double whammy in TX, where a lot of folks end up paying 3%+ in property taxes, based on these inflated values.

I'm continually amazed at what builders are getting out in the sticks for new construction.


I've been wondering the same for the last few years. And I'm not even in the sticks.

I live in a subdivision that has houses from 2007 up to new construction. Most of the houses were built in the last 7 years, though.

Around 2014-2015 new construction prices jumped from about $130-$150/sq ft to $200/sq ft. No noticeable change in construction (in fact, some of the 2012-2013 homes are nicer, IMO, than the brand new homes).

But the newer homes are stuck at $180-$200/sq ft (even on resales), while houses that are maybe just a year or two older are lucky to get $130-$140. And these houses are practically right across the street from each other. Some are closer to the "park" and/or have rear-entry garages, but curb appeal alone can't justify that kind of price difference. No significant difference in lot size (if anything, the newer homes are on even smaller lots). Just white cabinets instead of stained wood, and gray walls instead of tan. Appraisals don't seem to be an issue, though.

I know construction and material costs have increased substantially, but new construction just seems like a huge scam right now.

Edited to add: latest new construction listing is $250/sq ft.
TXAGBQ76
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The real question we asked ourselves was- "how much home do we need".
Guppy
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I don't know what industry you are in but I would save save save. Cash is king. Should everything be better in 6-12 months? Yes. But I would build up a giant nest egg first and then consider building a house. Maybe even wait 2-3 years.

My wife and I are living right now like I'm going to be laid off at any minute. Probably won't happen but feels really good knowing we have a very nice amount in savings should the need arise.

You're young (I assume). Rent. Have fun. Live life for a couple years and stash away a ton of cash. Then go build.
FlowCtlr
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Whoever here said that you cannot be your own general contractor...
Can you point to the part of the Texas law that says that? I've observed several people I know personally build their own houses just in the last couple years. Were they technically breaking the law when they did that?
ForeverAg
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My first home out of school was 187K. At the time I had a base salary of $35K plus sales commissions totalling another I dunno $25K a year. All in $60K, with a 20% down payment and no other fixed obligations as my vehicles expenses were covered in the sales role.

That allowed me to have a great few years going to bars, traveling, and essentially getting my lower 20's out of my system. I wouldn't build my first home as you likely don't know what y'all want. Find you a nice starter home that is well within your budget and enjoy your next 5 years with limited debt.
ForeverAg
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FlowCtlr said:

Whoever here said that you cannot be your own general contractor...
Can you point to the part of the Texas law that says that? I've observed several people I know personally build their own houses just in the last couple years. Were they technically breaking the law when they did that?


I believe the biggest issue here is if you need a bank to finance your home. I've seen where they won't finance a home build if you are your own GC.
Baba Ganoush
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Buy a starter home around $250k. $300 max.
30 year note for payment flexibility.
Live there for 3-5 years.
When wife simultaneously has second child, stops working and wants a bigger home, upgrade (reasonably) and turn current home into rental.
AggieKatie2
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Agree with above....buy a starter home. Learn what you like, dislike, real cost, maintenance, life with kid....then reassess going bigger.

I've yet to own a house that didn't appreciate within 2 years.
mwp02ag
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AG
Baba Ganoush said:

Buy a starter home around $250k. $300 max.
30 year note for payment flexibility.
Live there for 3-5 years.
When wife simultaneously has second child, stops working and wants a bigger home, upgrade (reasonably) and turn current home into rental.


Im a huge fan of the house hack myself. Ill add that a simple duplex in a great blue collar neighborhood could accelerate that timeline and allow you to live mortgage free or at least greatly reduced. Don't forget about the potential income tax savings either.
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