While owning a house is not a huge priority to me, it is something that I think I would like to do one day when it’s time for a family. Being able to work on my own backyard, being able to paint the house the colors I want (okay, the colors my wife wants) and generally being able to do things however I want are all appealing to me.
Unfortunately for me, I live in the San Francisco Bay Area, which is far from friendly for first time home buyers. If you’re curious just how much it costs to buy a decent place out here, check out burbed.com. The site is pretty funny to read, until you realize that the insanity means its harder than ever to find a place to live.
Let’s do a little math. I am unsure of the median home price, but I do know the average homes in our area that we rent go from nine-hundred thousand to over a million. We would have to move to a cheaper area for sure, but I’m not willing to give up a decent commute and buy outside the bay area. I also wouldn’t buy in a bad neighborhood. So I am going to pull a number out of thin air and say an actual house (not a condo) would cost us about $700,000 to buy.
The first hurdle is saving the 20% down-payment of $140,000. If we stuck to our current budget, we could probably save two thousand dollars a month, or about twenty four thousand a year. At a 4% interest rate, it would take almost 6 years to save that much. But that would mean no vacations, no retirement savings, and almost definitely no kids. So more than likely $1k a month is a more reasonable, but still high, amount to save for a house, which means we’re now looking at 10 years to save for the down payment.
Now to affordability. I believe 28% debt-to-income is a recommended amount to shoot for when you consider only your base mortgage. At that debt to income I would need to make one hundred and fifty thousand dollars a year to comfortably afford the mortgage. That is assuming a 30 year mortgage at 6.75%. If you think this is a ridiculous amount, you’re right. But don’t forgot maintenance, HOA fees, and taxes. A 1.25% property tax on a $700,000 house is going to cost you over $700 a month, not a small amount. Even if you increase the debt-to-income amount to something higher, say 40%, we would still require over one hundred thousand a year. Of course that probably means going back to no vacations and very little retirement savings, so it might not be worth it to try and squeak by.
Also remember that it took 10 years to save that down-payment, so we’re likely going to be facing a higher purchase price than we initially planned for, as well as inflation in our budget.
I’m not trying to complain here, I’m simply trying to explain that thinking a home is out of reach is probably the reality for a lot of people, especially those in major metropolitan areas.
As for me, I’m on the fence. I would like to dream that 10 years from now I will be pulling in $150k a year, but it’s not something I will be counting on. In the meantime I will continue to try and make good financial decisions and hope everything turns out for the best as the years go buy. If this blog is still around in 10 years maybe my post will read “I bought a house!”
I hope so.
0 Responses to “Will I ever be able to afford a house?”