How Much House On A Six Figure Income?
As you know my wife and I have been talking about how much is a wise amount for us to spend on our new home given our financial goals. I found this very interesting discussion on people struggling on six-figure incomes over at FMF. As you read the comments a couple stand out to me.
From commentor JD:
Our income is $101k:
$21k goes to income taxes
$10k goes to church/charity
$23k goes to retirement savings
$5k is property tax, homeowners and car insurance
$10k goes into savings (college, cars, vacation, house prepayment)
$2600/mo --> $32k/yr are our everyday expenses including daycare
We are 30 with 2 kids. We will have our house paid off in 4 years and be able to retire at age 40. It's all about your priorities and what you choose to spend your money on.
Impressive -- the commentor doesn't provide enough details about house price, current assets to determine how they can retire at 40, but the cash flow seems reasonable.
I thought this would be a another yardstick to give me a ballpark. Based on my calculations with lumping property taxes, home & car insurance into everyday expenses I believe we need to keep our everday expenses (PITI, food, gas, insurance, utilities, gifts, etc) to $3000/mo when we get back.
At $3,000/mo we could approximate $1,400-$1,800/mo to PITI and still be making significant progress in our financial goals each year (although not at the rate I am getting used to).
I used this calculator to ballpark what mortgage amount we could get for this:
At the high end of a $1,800 PITI payment we could get a 30yr mortgage for $269k-$284k (6.0%-5.5%)
At the low end at a $1,500 PITI payment we could get a 30yr mortgage for $219k-$232k (6.0%-5.5%)
Add a ~$60k downpayment to these ranges.
$279k-$344k -- so this is the monthly payment range (assuming 5.5%-6.0% rate on mortgage) we could afford to make given our need to have a reasonable amount of remaining free cash each month to spend, save, or invest as desired to reach our financial goals. Obviously the less we spend the quicker we reach our financial goals.
This is a bit more than the $250k I was initially thinking we could reasonably afford. I would prefer to stay at that level, but given the cost of housing in our area I just don't think thats feasable. This rule of thumb is perhaps a more realistic figure for my wife and I to use as we looking for a home that meets our needs. I'm optimistic we could find something in this price range.
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