How much to spend on house?

Question

How much would you recommend a couple making about 375,000 a year spend on a house without being "house poor"?

Would a house for 700,000 be too much to handle?

How much of your salary do you spend on house payments?

Any tips would be much appreciated.

Answer 1

You make 375,000 a year? Where do you work might I ask? Is the job going to be around for awhile? If so then you should still make wise decisions. Do you need a 700,000 house? I mean really? I would only spend on a house what you average in a year. You say you make 375,000 then don't go over that limit as rule of thumb for your home. Please I gotta know where in the world do you work? You should have an accountant or something that would advice you better on this. Not many people make what you do. Do you give to charity?Ok I now get a better idea...you should buy a smaller less expensive property as a first home and then as you see what your actual income is sell and upgrade.

Answer 2

It depends on how much debt you already have.  For example, if credit cards and car payments already account for a large chunk of change every month, then you should consider a lower house payment.

Further, if you spend lots of cash on recreation and eating out, then you won't want to curb that habit, in all likelihood.  Again, in this scenario, consider a lower house payment.

Lenders themselves will have guidelines on how much you will be allowed to spend on consumer debt and your house payment, given as a % of your gross monthly income.  For conventional loans, this is 36%.  For FHA loans (whose limits vary by county), this number is 43%.  Remember, these numbers represent that % of your gross income taken up by BOTH your proposed house payment and monthly consumer debt payments.

Also, your lender will want to know that your proposed monthly house payment by itself is limited.  Conventional loans generally want to limit this payment to no more than 28% of your gross monthly income.  FHA will ask that it represent no more than 31% of your gross.

If it were me, I would disregard the above limits.  I would instead ask myself these questions:

1) What are my monthly debts, in dollars?

2) How much money do I want to have free every month for recreation and entertainment?

3) How much money do I want to sock away for retirement every month?

4) How much money do I want to place every month in my "rainy day fund"?

5) How much money am I paying in taxes every month?

6) After all of the above, how much is left over every month, and how much of that am I willing to spend on a house?

If you do this, and are honest about it, then the monthly payment that you come up with will probably be a LOWER percentage of your gross monthly income than those percentages shown above, and this would be a very good thing for you.

Good luck to you!