Buying a house responsibly is really hard.

by redoran

I make $130k – After taxes, mandatory retirement contributions, and health insurance, I take home about $7,050/mo. My household expenses (2 adults, 2 young children) including $1,300/mo in rent amounts to $4,300/mo. We’ve been saving for a house, and have about $34k so far for downpayment + emergency fund. My income will likely go up in the next few years, but let’s assume it won’t.

Following the “rule of thumb” that your home cost less than 25% of your take-home, I should be looking to spend no more than $1,762/mo on mortgage, insurance, taxes, maintenance, and PMI (if applicable).

If we are able to save a 20% downpayment, following the rule of thumb above, we would be able to afford a $214k house on a 15-year note, or a $278k house on a 30-year note.

If we only save a 5% downpayment (and have to pay PMI) we would would only be able to afford a $179k house on a 15 year note, or a $232k house on a 30 year note.

Houses in our area (MCOL) that interest us are in the $350k – $450k range, so even if we do save the 20% downpayment we are going to have to ‘break the rules.’ Assuming we buy a $400k house with 20% down (which would take us another 18-24 months of saving…) on a 30 year note, we would be spending roughly 40% of our take-home on housing expenses.

How do people actually make this work? Before doing the math, I was under the impression that we would easily be able to afford a house in the range that we’re looking. After we buy, I would like to be more aggressive with saving for retirement, and we would like to take a vacation each year, so I definitely don’t want to stretch too far on housing expenses.

Any thoughts or insights would be much appreciated.