How much total "House" are you comfortable with?

Question

All of us are familiar with the "rule of thumb" ratios for how much your house payment should be as a % of your net income, used to be 25%, seems to have creeped up in recent years. But, how much of your net worth are you comfortable with as your RESIDENCE.

We've both always been pretty conservative financially. When we bought our last primary residence in Houston the Realtor and loan officer looked at us pretty funny as the purchase price was about 83% of one year's GROSS INCOME. Heck, we felt stretced as it was about twice what we paid for the place we were living in and the payment was going to reflect that!

Anyway now that we're considering relocating to OR we seem to have widely divergent ideas on how much we can afford to spend on our next house. I doubt that either of us would purchase until we've got a pretty solid contract on the TX house (not yet listed) although if a true "slam dunk" appeared we might!

We still have income, she gets about $1300/month SS and I get about $1K/month from the sale of my old company 7 years ago, about 3 years left on that but I'll be getting my (early) SS by then, about $1400/month. We also have about $4K/month income from seller financed mortgages and we'll either have that income stream or the payoff of those mortgages.

In addition we have pretty decent financial assets, stocks/bonds,mutual funds. We would likely just spend out of those assets to purchase the next place.

Give us some ideas here guys!

all cash

Ryan Arth · Answer

i am currently comfortable with the least amount tolerable, but i am at a different stage in my life than you are (26yr old).

we currently pay $800, with $580 of that coming from two roommates. the girl wants to lose the roommates though. we probably gross about $5200/mo together.

i was considering losing the roommates and downgrading to a 55K condo (900 sqft), but i think the double closing costs to get there washes the deal.

but being able to invest the 11K each we would have left over after the switch certainly peaks my interest. . .

i would suggest to you to buy what i would in your situation: the least amount that makes you happy, no marble mansions necessary.

Connie Brzowski · Answer

I'm only comfortable with about 30% of net for our personal residence.

Any more than that and I break out in hives :goofy:

Account Closed · Answer

All Cash,

I am not sure if there is a clear answer. The idea of being house rich and cash poor is an issue. I still do not see a clear answer.

Look at is this way. Say you buy in OR and for what ever reason the value rises over a number of years. Assume the value rises faster than the value of the stocks and bonds. There is no easy way to sell part of the house to rebalance. You could take out a loan but that is not really the same.

I would say that you need to consider your income needs independent of housing. Also plan for some medical expenses. Pick a house that will work for you (location, style, etc). If it then works out that the house goes up or down in value just ignore its value unless you are willing to sell.

Having a bedroom on the main level or other factors could be more important to your future happiness than trying to keep the value of the house under X% of your net worth.

Flip it around. Assume your stocks boom and no one pays off the mortgages. You end up underweight in housing. Are you going to buy a bigger home to restore the ratios or just stick with a home you like?

John Corey

Richard Warren · Answer

I am a former Certified Financial Planner (CFP) with over 15 years of experience in that field. So I will give you a real professional answer: It depends!

Seriously, it depends on your stage of life. For a young couple just starting out on their career path and just starting to accumulate assets almost their entire net worth could be tied up in their primary residence. As people enter their maximum earning years they should be diversifying into other investments, retirement plans, etc. and their residence should become a smaller and smaller percentage of their net worth.

As people enter their retirement years it should be a very small percentage of their net worth. Many people who failed to accumulate a lot of assets fall into the category of “house rich and cash poor”. The reverse mortgage was created to help those people. How much you commit to your house really depends on your lifestyle and how much money you need to support it. It used to be that people only lived a few years in retirement before they died. Today people routinely live into their 80’s and 90’s and can anticipate a couple of decades of retirement years. Twenty plus years of retirement requires a lot of capital.

In your case I would imagine that you will always be looking for deals and will continue to generate income. That makes it easier than someone who is looking to hang out the “gone fishing” sign for the rest of their life. Bottom line is, buy as much house as you are comfortable with.

8)

How much total &quot;House&quot; are you comfortable with?

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How much total "House" are you comfortable with?