A few months ago my husband and I decided to start looking at houses. With great excitement, I took on the project of figuring out THE question. How much house can we afford?
We currently live in a 2 bedroom condo that we will most likely outgrow in the next couple of years. If we lived in NYC, we could practically raise a whole family in this space. But where we live, people have been asking us when we are going to buy a house ever since we got engaged.
I’ll cover the framework I used for determining our home buying power in another post. After I came up with our price range, and we had already agreed on a general location, I thought to myself, how hard could this be? Then we started looking at houses and I realized that deciding on how much house you can ‘afford’ is a lot more complicated than looking at your current savings and income. Here are some of the questions that have come up for us:
1) We like our jobs but do we like them enough to commit to doing what we are doing now, or something similar, for the next 30 years? The conventional way to buy a house in the United States is with a down payment and a 30 year mortgage. However, this requires you to make a massive commitment, 30 years, to a certain level of income. Needless to say we’ve been spending many hours to address the question of what we want to be when we grow up.
2) How much of our savings are we willing to have tied up in a down payment?
3) Will we always be a two income household?
4) Do we want a house we can only afford with two incomes? This one was actually pretty easy, we quickly decided no.
6) How house poor do we want to be? How much of our income do we want to have left over for vacations, eating out, day care costs, private school tuition if we want that to be an option, college savings, and other general savings?
I quickly discovered that how much house you can ‘afford’ is only partially related to savings and income. By far the biggest topic of conversation for us has been tied to our jobs. We both like our current jobs, but the idea of being stuck in them, just because we have a house, is very unappealing.
So, almost five months after we first started looking at houses we have not even come close to putting an offer on a house. The options as I see them for us now are one of two things. 1) stay in our current location for a lot longer, save more money, and perhaps start to have some more clarity on all of the above questions or 2) buy a house that is much cheaper than the amount any bank is going to tell us we can afford. This leaves us the option to not have the above questions answered , but still have room in our budget for job changes and school options.
In relating this back to my last post, the world of personal finance has changed a lot from previous generations. Housing prices are up, mortgages are longer, and job stability is not what it used to be. I think before a person buys a house it is prudent to have a heart to heart with yourself and whoever you may be buying a house with, and discuss what is really important to you before you even begin to think about price point. If you are at all like me, this conversation may be a bit of a can of worms, but I think it will put you in a better place in the long run.