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can net worth be used to determine how much house to buy?


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2011 Aug 1, 10:41pm   2,623 views  1 comment

by Hysteresis   ➕follow (0)   💰tip   ignore  

if you have been working 10 years, and saved $100k. that's $10k/year saved. assume rent is $10k/year.

doesn't that mean with a 30 year fixed mortgage, the most you could realistically pay towards the mortgage is $600k (30 years times $20k/year)? about half of that is interest, so very roughly the initial house price would be $300k + down payment (equals 20% of price)=$374k.

the low home price is be defined by rent only. mortgage=$10k/year over 30 year = $300k/30year. take 50% for interest. so low home price = $150k + down payment(equals 20% of home price) = $187k

as a rough estimate, every $10k/year of mortgage is equal to purchasing $187k of house.
$10k/year = $190k
$20k/year = $375k
$30k/year = $560k
$40k/year = $750k
$50k/year = $935k
$60k/year = $1,120k
* assume 20% of the total purchase price used for down payment.
* rounded to nearest $5k

gross paycheck assuming annual mortgage amount is equal to total net income
$10k/year = $15k/year
$20k/year = $30k/year
$30k/year = $50k/year
$40k/year = $65k/year
$50k/year = $85k/year
$60k/year = $100k/year
* rounded to nearest $5k
http://www.dinkytown.net/java/PayrollGross.html

as an example, you would need a salary paying $100k/year and all of that income would be needed to pay the mortgage on a $1,120k house. taxes, interest deductions, and other factors haven't been included.

isn't it relatively simple to say i can save $x/year over 30 years, which means i can afford this much house?

#housing

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1   FortWayne   2011 Aug 2, 12:59am  

Expenses in a house are much higher than those when you rent.

there is a lot more to it, insurance, HOA?, repairs, property taxes, water bill usually is much higher, trash bill, electricity bill is usually higher, government harrassing you to get up to code or pay for city fixtures because of your area incorporation status, etc... Depending on where you live there are different weather scenarios you have to account for. Check out patricks rent vs buy calculator. Not sure where the link is, maybe someone can post it.

A lot of it depends on a property and its condition, location, your job stability, your savings. If you lose a job while renting it's not a big deal, if you lose a job while paying for a house you give up several years of your life to the bank.

You shouldn't over-leverage on liabilities.

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