Hey,

If I can get all my debt paid off (except student loans) by around June, I was looking to purchase a house.

Is there a customary amount of house to buy based on salary?

Like if I make 60k a year, should I buy a house worth 150k or less? (luckily I live in TX so house prices here aren't crazy).

A couple of people that I work with have bought brand new houses (never lived in), ~2000-2500 sq ft for btwn 120-147.

Any thoughts?

Thanks!

 

Those rules of thumb for how much house you can afford are silly. For example, as I'm sure you know, real estate taxes in TX are very high compared to many other areas of the country. But your realestate prices are comparatively very low. So for you to buy a house simply based on the purchase price makes no sense, as your RE taxes will make up a MUCH higher percentage of your monthly housing costs than say mine would here in PA.

Just do a spreadsheet of your current budget and then do a spreadsheet of your potential budget with a house and the costs that go with it and figure out what kind of monthly payment you can feel comfortable with and work from there.

Andrew

 

I did this and it works awesome, goodluck on your house search

 

^ I agree...that old formula doesn't work anymore. Do the budget and see what kind of payment you are comfortable with (which may not be the same as what you are "qualified" for). Be sure to take into account additional expenses (maintenance) associated with home ownership. You should buy at least a three-bedroom house (preferably four) if you can swing it. Better investment. Good luck!

 

^Yea I was mainly looking at 4 bedroom houses, but I've looked at a couple 3 bedrooms as well. I'm thinking a 4 bedroom would be easier to sell later, but I'm a single guy right now, and don't want a place that's too big.

 

If this is a "starter home", then I'd say buy the cheapest house you can stand to live in. You'll accumulate equity faster so that when you are ready to buy a "real" house, then you'll have a good amount of equity that you can roll into your new house.

 

Payments aren't the real issue. I think that 3x your annual salary is realistic. If you just focus on the payments then you end up in a mortgage that you will simply never pay off.

I suggest 3x with a payment no larger than 1/3rd your after tax take home. The idea is to pay it off some day.

 

yea I like your train of thought here. The areas I'm looking at are a little more rural, as opposed to the college town I live in now, so the houses are better for the money.

I'm thinking like 120-130 should be easily doable, maybe a house built in 2005 or later.

And then as far as paying it off, I'll throw in ~200 extra a month to go towards paying down the principle.

 

Isn't there a magic formula/number to follow to get it paid off in half the time when paying extra towards principle? Like make extra payments that equal a total of one extra payment by the end of the year or something?


And it's kinda disgusting that you can get a 4br 2005+ house for $120-130k

 

The simple approach is to calculate the payment for the same loan at the same interest rate with half the maturity; for example, if you take out a 30-year loan, calculate the payment for a 15-year loan and make that payment.

Make sure that the additional amount you pay is credited as principal; not all lenders will do that automatically.