Biting Off Too Big A Mortgage Payment ?

[wallywonka]

Is there any type of general rule on how much money should be left over after all your bills are paid ... and I mean all bills?

As a first time home-buyer, I am looking at taking my RENT from 3500 per month to a mortgage payment of ~5600. When added to my current monthly budget that runs against all my monthly debt obligatoins, I will have 4K left over each month. This 4K needs to supply our gas, food, entertainment, grocceries, for the month. 4K left over after all bills paid might sounds good but I am worried I am setting myself to be house broke. I do not want to go back to any sort of living paycheck to paycheck type scenario. 

Any thoughts? 

[sxa001]

The prospects of being house poor are scary and not a position that anyone would want to be in.  Going from a $3500 rent payment to $5600 a month mortgage payment is a huge jump.  Whether or not you can handle that is going to depend on a few things. 

The first thing that I would be looking at if this was me personally is how much was I able to save comfortably with the current rent, and how much was I spending now on living expenses + fun money?  Being able to continue saving even after you get into a house is very important, the last thing you want to do is take on debt for home repairs, or other unexpected expenses.  If you aren't saving 4-5K a month now, then I would probably think twice about spending 2K a month more than my current rent.  At minimum you should be saving 20% of your yearly salary.  While certainly the 50/30/20 rule doesn't work for every situation, it should be considered before you take on a big house payment, IMHO.  

The real missing datapoint in advising you is your actual income, is that 4K left over after savings/401K/Health insurance and other costs are coming out of your paycheck?  I would never tell someone how to spend their hard earned money but I would think very very hard before I took that big a jump in my living expenses.  For me, I think if possible getting into a house that you could afford with less salary than you are currently making should be a goal.  

[Girlzilla88]

If that is Gauranteed income and you can cover ALL expensive if your SO or any other person in your life bills had to be left to you then I say just be careful.     If you can sit comfortably knowing you have that income gauranteed (and a job is not always a guarantee) and can comfortably take on additional bills if need be then again go for it, but like the person above said just be mindful.     You are being cautious for a reason and maybe that is your gut helping you out!?

[iced]

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@sxa001 wrote:

The prospects of being house poor are scary and not a position that anyone would want to be in.  Going from a $3500 rent payment to $5600 a month mortgage payment is a huge jump.  Whether or not you can handle that is going to depend on a few things. 

The first thing that I would be looking at if this was me personally is how much was I able to save comfortably with the current rent, and how much was I spending now on living expenses + fun money?  Being able to continue saving even after you get into a house is very important, the last thing you want to do is take on debt for home repairs, or other unexpected expenses.  If you aren't saving 4-5K a month now, then I would probably think twice about spending 2K a month more than my current rent.  At minimum you should be saving 20% of your yearly salary.  While certainly the 50/30/20 rule doesn't work for every situation, it should be considered before you take on a big house payment, IMHO.  

The real missing datapoint in advising you is your actual income, is that 4K left over after savings/401K/Health insurance and other costs are coming out of your paycheck?  I would never tell someone how to spend their hard earned money but I would think very very hard before I took that big a jump in my living expenses.  For me, I think if possible getting into a house that you could afford with less salary than you are currently making should be a goal.  

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This last part is key. If the $4k is after maxing out your 401k, HSA, etc then you're probably in good shape. If you're dropping your contributions to zero to squeeze through (that is, your $9500/month is your raw net before any contributions), then you may have some difficulties long-term. It's one thing to drop those for a few months while you wipe out some other DTI, but for a mortgage you can't just not save for retirement for the next 30 years.

[tammyjk]

One thing my husband and I have always lived by....Can we pay the bills on one income.  This has served us very well for 20 years.  Sure it's tempting to buy that bigger home or new car but what if one partner becomes hurt or unemployed.  This actually happened to us three years ago.  I had to have an emergency pacemaker and had medical bills of over 200k.  I ended up not only losing my job but finally went into bk.  My husband carried us through.  It wasn't pretty but our bills were paid on time.  After a year, my score was back up and his never suffered.  

[loyalsudz]

I have had to edit my reply after all the struggles that I have had to go through and I concur with the others.  

[805orbust]

If you're making any less than $25k per month, a $5600 mortgage payment is silly. Live on less for a while, save more for your down-payment,  and for heavens sake, don't take out anything other than a stable, fixed rate mortgage in today's market.

[Anonymous]

I concur.

It's stunning to see how people are still willing to overcommit to too much house _and_ consider it an investment that they can never lose on even after everything we've witnessed, and even with the general rule of thumb that total housing expenses should not exceed roughly a third of your total income.

I've seen so many people hit the skids and lose the house and end up in bankruptcy court because their ability to keep paying for it was never solid, even though the loan got approved.

[Anonymous]

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@tammyjk wrote:

One thing my husband and I have always lived by....Can we pay the bills on one income.  This has served us very well for 20 years.  Sure it's tempting to buy that bigger home or new car but what if one partner becomes hurt or unemployed.  This actually happened to us three years ago.  I had to have an emergency pacemaker and had medical bills of over 200k.  I ended up not only losing my job but finally went into bk.  My husband carried us through.  It wasn't pretty but our bills were paid on time.  After a year, my score was back up and his never suffered.  

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This.  This is exactly what my wife and I spoke about.  Make sure we can survive on one income in case Murphy strikes, and guess what, he did and we're still OK because not only did we have this plan in place, we had a Fully Funded Emergency Fund of 6 months of expenses (which gives you a buffer against life so that you have time to get back on your feet when an emergency happens) and we have a strong focus on being Debt Free except the mortgage.

The thing most people don't think of Renting vs Owning a house is when you own, not only is there a mortgage and property tax and maybe even HOA, but there's repair bills that you should save for such as replacing the roof where a renter doesn't have to worry about.  Not to mention if anything breaks, you'll need to either pay to repair or replace it, like a water heater or stove or dryer.

[FICOlearner123]

@wallywonka not sure if you took the homeownership route, but looks like you are from an area where housing is expensive and the key question would be do you plan to stay in the home for enough years for it to make sense.