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/biz/ - Business & Finance

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18429892 No.18429892 [Reply] [Original]

I don't understand how buying a house works. I have like $30k in savings and make about $100k even. Some calculators I'm using say I can afford up to $350k worth of house, and some are saying I can afford like $150k worth of house. I don't know how this shit works. Can anyone help?

>> No.18429908

>>18429892
Just rent for now, prices will plummet when we go to war with China

>> No.18429909 [DELETED] 

>>18429892
sergay betrayed us all, we were supposed to be all in this together

>> No.18429970

>>18429908
but i want a house

>> No.18430369

>>18429892
If you listen to the idiots and their banker masters, they'll say you can afford a house far beyond your means. The idiots get a commission through loan brokering so a larger loan means a bigger commission for them. Meanwhile, banks' balance sheets show mortgages (debts) as assets on their books.

For you, the proper price for a house should be 20% down payment and a certain percentage of your gross. Historically, you should borrow at most 2x your gross salary, which in your case means $200,000 of mortgage debt and $50,000 of equity (down payment). That's a $250,000 house. About 30 or 40 years ago, the rule of thumb for borrowing in expensive places like California was 2.5x to 3.0x your gross salary.

However, thanks to the Federal Reserve's desperate measures to keep multiple bubbles inflated, mortgage rates are at historical lows and you can actually borrow more money and have the same monthly payment as what was historically normal. Note, however, that if there is a housing price crash, you're screwed. However, if you intend to stay in the house long-term or keep it as a rental, it might work out.

As it is right now, you pay ~3.75% for a fixed rate 30-year mortgage. This is about $450/month for principal and interest, or $5,400/year. Don't forget to factor in property taxes and maintenance (maintaining the lawn, various repairs, larger utility bills compared to an apartment) into your yearly costs.

So, if you're grossing $100,000/year, I'll assume you're putting $18,000/year into a tax-deferred 401K. You'll pay roughly $25,000 in income tax and FICA tax leaving you with $57,000/year. Let's also assume you like to save about $15,000/year for a rainy day fund. That leaves you with $42,000/year for expenses.

To be continued...

>> No.18430461

>>18430369
>This is about $450/month for principal and interest, or $5,400/year.
That can't be right. Do you mean just for interest?

>> No.18430484

>>18430369
Based on my rough calculation of $5,400 of P&I per $100,000 of mortgage debt, I feel you should easily be able to afford a $300,000 house since you'd be paying $1,080/month in P&I ($240,000 mortgage, $60,000 down payment). Depending on where you live, the property taxes will range from 1% to 4% of the property price. States with no state income tax typically have higher property taxes. I'll assume you live in a state with high property taxes and no state income tax. At 4%, that's another $12,000/year you have to pay in taxes.

So, in living costs, you're paying $24,960/year in principal, interest, and property taxes. That leaves you with $17,000 left over from the $42,000 total set aside for expenses. Natural gas, electricity, and water might cost you another $300 per month so that's $3,600/year. Then you need to add in other costs you may have: Internet, phone, home insurance, auto insurance, gasoline, car maintenance, car loans, etc.

It should be doable. Of course, right now, you don't have enough cash for a 20% down payment on such a house. Depending on your location, it might be perfectly fine to buy a much less expensive house.

But if I were you, I'd accumulate cash for another year or two to build up cash for a down payment and a buffer in case of a loss of income. Your $30,000 cash is good for a 20% down payment on a $150,000 loan meaning you could buy a $180,000 house quite easily ($8,100/year P&I) but you'd have ZERO cash to protect you if you lost your source of income.

Ideally, you should be able to cover one full year's worth of all expenses in the absence of any income. Note that banks LOVE to foreclose on houses with a lot of equity. It's free money for them since they can easily flip the house and keep the equity. In the meantime, they got to keep the interest paid previously.

>> No.18430537

>>18430461
No, my numbers are correct. Mortgage rates are extremely low right now thanks to all the Federal Reserve's idiocy. 0% Fed Funds Rate and purchasese of US Treasury Bonds and agency (Fannie Mae, Freddie Mac, Ginne Mae) debt means that mortgage rates are very low. I looked at my credit union, which doesn't even offer the absolute lowest mortgages, and it's 3.375% for a 30-year (360 month) fixed rate mortgage with no points. Per a mortgage calculator, that's $442.10/month for 360 months.

In 30 years, the borrower will have paid $159,156 on a $100,000 mortgage loan. That's where we are with the Fed's pathetic, desperate attempts to keep the housing bubble inflated.

>> No.18430600

>>18430461
>>18430537
BTW, sorry, my numbers aren't quite right. Thanks to the shitty keyboard I'm using, the interest rate in my original posting is wrong.

The going rate for a fixed-rate, 30-year mortage is 3.375%, not 3.75%. Due to the missed keystroke, there is a 0.375% interest rate difference. However, the monthly payment isn't going to vary too much. It's still remarkably low, historically.

>> No.18430653

>>18429892
you cant buy a house you will buy a loan

>> No.18430703

>>18430484
the $30k cash is an estimate while keeping my rainy day fund. I actually have about $50k cash on hand, but I figured $30k was a good amount that I could use.

This is some good info, thanks. I'm basically making plans for the near future, so we'll see what I do.

>>18430653
Thanks Weisenheimer

>> No.18430868

>>18430703
Good luck. You need to have a good grasp of how much money you save on a year basis with your current income. If you're careful with your money, not spending on stupid trash that you don't need and probably don't even want, affording a house shouldn't be too difficult unless you live in a bubble area or if you live in some place where you have to buy a very expensive house to get into a neighbor is good and will STAY good.

Just be careful. There are many fiscally reckless people in the US who cannot make ends meet on six figure salaries. An acquaintance of a friend grosses over a million dollars a year and is constantly at risk of getting his fancy car repossessed, among other stupid things.

>> No.18430904

>>18430868
I live well below my means, but in a highly inflated area. I'm currently looking at cities in the midwest to move to, places with a growing tech industry that needs people like me but is still relatively cheap. I'm mainly looking at Des Moines right now, which has many places that fit my budget.

>> No.18431122

>>18430904
OK. Just do good research into the neighborhoods you are interested in. Unfortunately, one of the reasons housing costs so much is because affordable housing is typically invaded by a criminal element, who get in thanks to easy money and "diversity." People instinctively understand that very expensive neighborhoods are far less likely to have criminal elements in them. I have friends who live/lived in neighborhoods full of professionals (college educated, white collar office workers who are accountants, engineers, etc.) who ultimately had to move because of an influx of crime. They are now living in fairly expensive houses (they live in a state with high property taxes) and are probably paying over $20,000/year just in property taxes.

Unless you're a fairly wealthy person or a person who makes a very high salary, imagine the pressure of coming up with $20,000 year after year just to be able live in the house; and that's assuming everything else is free. Add in a mortgage, maintenance costs, etc., and you're looking at another $40,000/year. A lot of that cost is to improve one's odds of not having thugs as neighbors.

>> No.18431250

Holy shit just fucking rent. Who actually feels good about buying when shit like this is how it works >>18431122
Keep making money and either retreat to some rural area or leave the country. God damn this is nuts.

>> No.18431299

>>18431250
Renting sucks and there are many hobbies that you cannot practically pursue if you rent. Beyond that, unless you rent directly from an owner of a property (not a corporation), you're going to face fairly aggressive rent hikes. Renting in the US, for the most part, is highly unpleasant.

>> No.18431320

>>18430484
Stop taking adderall

>> No.18431377

>>18431299
>Renting in the US, for the most part, is highly unpleasant.
So is buying. What the fuck do we do?

>you're going to face fairly aggressive rent hikes
So far I've only rented one apartment myself and my rent hike was $20 per month for 1k per month rent when I renewed my lease. Is that what you mean or it gets much worse?

>> No.18431557

>>18431377
>So is buying. What the fuck do we do?
Not every affordable place is going to be invaded by criminals. My point of reference just happens to be one of America's sanctuary cities. Of course it's a shit hole and in addition to the high prices decent people have to pay to get away from criminal trash, the high property taxes are then used to pay the politicians who promote this idiotic policy with a portion going to the illegal aliens.

The other thing is this. You can buy into a good neighborhood for a somewhat sane price. Just be vigilant and watch for any encroaching housing projects or new apartments filled with criminals. Be one of the first to bail out of the neighborhood and you'll avoid being a victim of a violent crime (as my friend was) or the victim of a housing price crash.

>Is that what you mean or it gets much worse?
It can be far worse. I speak from the perspective of someone who knows what it's like on the landlord side. There are apartment complexes that get bought up by private equity and then they renovate the places and raise the rents quite a bit. In the past, the rents went up 30% or more over a period of years. This started happening after the 2008 financial crisis.

The rent increases are not as dramatic today because all the blood has been squeezed out. However, the private equity money is looking into new places where they can try to repeat the previous decade's performance. I'm not sure how successful they'll be as it's difficult to see how much harder Americans can be squeezed.

>> No.18431735

>>18431557
They can squeeze us way harder, they just need to increase taxes on the upper and middle class and they can transfer it to the poor.

>> No.18431979

>>18430369
>>18430484
>>18430600
>>18430868
>>18431122
>>18431299
>>18431557

Very wise anon.
Im in Los Angeles in a expensive historic district property overlay. Very safe and very desirable. $850+ per square feet is cheap, $950-$1000 is normal.

I bought many years ago when it was closer to $350 per square foot.

Im in a good position but worried about potential failing market.
Last recession all of Melrose and sunset had vast commercial real estate vacancies and that led to a somewhat drop in prices throughout residential and commercial real estate but has more then recovered since. Took some time though.

I had planned to sell in 2021 to move closer to my family. Now I’m concerned.
My homes valued at $3.7M
Who has that kinda $? Im worried it won’t sell . Ive been making repairs and upgrades sine January.

>> No.18432012

>>18429892
You're a fucking moron if you buy now when prices are set to drop at least 30% in the next 1-2 years.

>> No.18432144

>>18431979
>My homes valued at $3.7M
>Who has that kinda $? Im worried it won’t sell .
There are two types of buyers for your house: 1) the wealthy, who might be Chinamen looking for houses outside shithole China 2) the people who might be well off enough to be able to get some sort of a loan. Considering that the Fed is looking to make all sorts of easy money loans, there's a good chance that a Chinaman or a stupid borrower will buy your house. The people who are going to be most hurt by the Fed's economic policy are the poor. They'll get no bailout money and they probably won't qualify for cheap loans.

>> No.18432308

>>18432144
So even if I buy my house cash I have to pay annual property taxes on it forever?

>> No.18432346

>>18431979
You'll be fine, put it on the market ASAP though, before it loses 40+% of its value. If I were you I'd put it on the market for 10-15% under value just to get it off your hands before shit gets weird and you're stuck with a depreciating asset.

>> No.18432436

Crazy to buy now. In 1-2 yrs the market will be smashed. If u r a still making your 100k u will be one of the rare ones. You should have saved another 40k by then. Try and save 100k deposit. Rwmember u r buying a loan not a house. The bigger the deposit the less u actually pay by a very large margin. It will ppssibly become a renters market soon anyway.

>> No.18432497

>>18432308
Yes, that is correct. You could owe nothing on the house but the taxing authority will demand its yearly property taxes. If you are unable to pay, they will take steps to seize the house from you. That is one of the dangers of living in a state with a high property tax: property taxes must be paid no matter what your income is. If you lose your job and have zero income, you pay zero income tax. If you lose your job and have zero income, property taxes still must be paid. Or else.

Note that I do not disagree with the idea of a property tax. The schools must be funded, the roads must be maintained, and politicians and other government workers are a necessary evil. However, home price appraisals and property taxes have an unfortunate element of corruption in them and it's very tiresome for a regular person to deal with it.

>> No.18432564

Can anyone explain why housing will be "smashed" in 1-2 years? I understand there's a lot of bubbles going on and such, but people have said everything is a bubble for years - and I don't think it's going to stop being a bubble until China stops buying overpriced properties.

>> No.18432652

>>18432564
SMEs are going out of business, nearing record employment, destruction of the middle class, and now banks are significantly tightening their lending standards. Many of the small-time real estate 'investors' with 1-20 doors are over leveraged so they'll be forced to sell off properties when enough of their tenants can't keep up with rent payments. Plus boomers are starting to die off which was going to inevitably result in millions of homes beginning to hit the market with or without a virus.

>> No.18432735

>>18432564
For starters, the US might take steps to make it much more difficult for Communist Chinese to gain permanent residency or citizenship. Secondly, the US might prohibit Communist Chinese from buying US assets. In light of all the money laundering, spying, and now the China virus, there would be strong support from the general populace for the US to sever all economic ties with China. The businessmen may disagree with that but with the current bailout of corporations that squandered all their money on stock buybacks when stocks were at an all time high (do CEOs take /biz/ advice?), they're going to feel quite a bit of pressure from the government.

>> No.18432754

>>18432564
Population decline combined with minimal to no immigration.

>> No.18432887

>>18429970
Values will start going down by the end of the month.
>No one is buying
>Massive unemployment
>Brick and mortar retail and small businesses are going bankrupt.
>1/3 of rent is not being paid
>No one is using airbnb
>Flippers are sitting on empty properties.
>Illigal immigration has been halted from the virus.
>Interest rates are already near 0 and can't really go much lower.
>JPMorgan has bumped its loan requirements to 20% down and 700 credit score.
>The jumbo mortgage market is disappearing.

>> No.18432936
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18432936

>>18429970
then rent a house

>> No.18432956

>>18432144
Thx anon.

>>18432308
Yep. For instance, I paid $1.5M on my home in 2001. Property taxes are $19,600
House is Paid for, No mortgage since 2016. My property tax was rolled into my monthly mortgage payment so basically 12 monthly installments.
Since it’s been paid off I know have to pay my property taxes in 2 installments.
I fucking hate coughing up $9800 for some I really thought I owned.

>> No.18432961

>>18430461
>>18430484
>>18430484
>$5,400 of P&I per $100,000 of mortgage debt
Ah, I didn't catch that part. Thought you were saying $5,400 of P&I per year for a $200,000 mortgage.

>> No.18433073

>>18432887
>he doesn't think the fed will just brrrrrr and buy up all the houses to prop up the market in a election year

>> No.18433312

>>18430904
Milwaukee. I just bought a $175,000 house in cash from LINK gains, and am gonna get another one in Door County soon.

Chicago is overpriced and only a 90 minute drive from MKE.

Also, buy some CKB and put it in the Nervos DAO for 4%. Thank me in 2022 when you buy your second house.

>> No.18433487

>>18433312
what

>> No.18433784

>>18430369
>As it is right now, you pay ~3.75% for a fixed rate 30-year mortgage. This is about $450/month for principal and interest, or $5,400/year.
The monthly P&I is about 900 on a 30 year mortgage of 200k. Where'd you get those numbers?

>> No.18433865

>>18433784
Use any mortgage calculator such as this one:

https://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx

Note that they try to roll in homeowner's insurance and property taxes into the total amount. Read the output carefully.

My statement was for a 30-year fixed rate mortgage with an interest rate of 3.375%. The monthly payment for principal and interest is $442.

>> No.18433915

>>18433865
No, it's about 900 on a 200k mortgage. I realized later after reading your following post that you were computing P&I on a 100k mortgage. It's quite misleading to explicitly refer to a 200k mortgage debt before stating the numbers and not saying anywhere in the same post that those numbers are for a 100k debt.

>> No.18434006

>>18433915
My posting requires more careful reading because it is meant to be general purpose. Being that I don't know exactly how much a person is going to borrow, it's easy enough to specify the P&I for $100,000. A person can then multiple the P&I to suit the size of the mortgage he makes.

Being that I'm not selling anything (nor could I here even if I were selling something), I am hardly being misleading when it is stated quite clearly that the P&I I calculated was for $100,000. A person interested in the same things as the OP would have read my postings carefully and clearly understood that the P&I is on a $100K basis. I subsequently worked through a few examples with house prices of $300,000 and $180,000. In both instances, I very clearly stated the P&Is for those two house prices and they very clearly different from the ~$450/month P&I for a $100,000 mortgage.

Thing is, the knowledge I offer is free and it's ephemeral. If you don't like the way I wrote it, well, that's your problem. I'm almost certain you're a fellow American. Bitching and moaning about something even though it's free and never taking any responsibility for himself.

Learn to read, you lazy fuck and take some responsibility for yourself.

>> No.18434122

It is much better to buy an apartment than it is to buy a house isn't it?
There's more rent seekers in the city

>> No.18434334

>>18434006
You don't know how to write, you don't know how to read, and you don't know when to own up.
This is the second time I have to repeat something I already wrote. I won't repeat a third time, so better "read carefully".
>>18430369 does not mention anywhere that the $450 P&I figure you calculated is on a 100k mortgage debt. The only mortgage debt referred to in that post is a 200k one. The first mention of a 100k mortgage debt is in >>18430484.
Your post is misleading because your content is segregated poorly, and no amount of careful reading can fix your incompetence in choosing to omit critical information in the required place. A simple mention in your first post of the new mortgage debt figure you're calculating off of would've sufficed.
It is entirely irrelevant whether quoting a P&I computed from 100k is easy to specify because the issue is of poor writing.
Trying to cover up your mistake by trying to spin things around and justify how your giving "knowledge" for free makes up for your dysgraphia is pretty illogical. And for that matter, there are millions of free resources out there giving actually useful information which aren't written by a foaming downie.