Yes another.....What can I afford

[misery]

Ok looked through the forums for the past hour and can't find a decent answer.

How much house can I afford. My mortgage lender says I can do 160k comfortably on my new to come intern salary of around 43k.

Here's the kicker, my car I've been driving since I started college bit the bullet, so I did what any self respecting newly matched idiot (i matched early) would do, I bought a sweet new ride. Flame me all you want, I don't regret it, it's awesome and I don't look like trailer trash anymore.

Car Loan = 458/mo

I'd like to save a little while in residency, I have no CC debt. My school loans will be deferred. So what do you think, did I buy my way into renting?

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[cpants]

That car loan is gonna take a huge chunk out of your salary. You could probably still pay a mortgage, but don't count on saving much. My advice is sell the ride and buy something used, cheap, and reliable (think something '04 Civic-ish). There will be plenty of time for nice cars in a few years and for the rest of your life.

Depending on where you live and what the housing and rental markets are like, renting can actually make more sense than buying. Rents are plummeting in a lot of places, and you don't have to pay the taxes, the maintenence, etc.

Whether you buy or rent your housing, car loan payments are about the worst investment you can make with that resident cash.

 

[dragonfly99]

I agree the car loan was a bad plan. You should have gone and gotten a 5-7000 car for a cheaper payment.

160k house sounds high for a 43k residency salary. I'm thinking of getting a 120k-150k condo but that will be on a PGY4 fellow salary. You could probably make the payment on a 160k house, but with homeowners's insurance, etc. plus a 500-something month car payment, you won't be saving much.

It might be better to either rent or to get a cheaper house and try to pay a few hundred/month on your loans. If you are going into radiology, derm, ortho or gas later, it probably doesn't matter to try and pay your loans now, since you'll have lots of money later, but if you're doing some other specialty I don't think it makes sense to let your loans balloon to an even higher value. That is just my personal opinion.

 

[schwab]

There are a lot of calculators on the web to help you out. First, here's a MAXIMUM mortgage calculator: http://dinkytown.net/java/MortgageMax.html Use an interest rate around about 5.25% for an estimate.

Remember, that's the maximum, though, and you probably should get close to that number. A figure I've always been comfortable with is about 2.5x times your annual gross (before tax) salary. This is what I've adhered to and it makes the mortgage payment an afterthought - it's not big enough to hurt each month.

Another option may be to purchase a duplex and let your neighbor (tenant) pay part of your mortgage. You also get a lot of fun tax breaks for half the property.

You should also ask yourself if you really want to be a homeowner. As was stated upthread, it's a big investment in both time and money. Especially if you're only going to be there for 3-4 years and plan to sell on the way out. Renting isn't a waste of money - you're paying for the convenience of not having to mow lawns, replace the HVAC system, and the ability to leave anytime you want.

Here's a rent vs. buy calculator that may help: http://dinkytown.net/java/MortgageRentvsBuy.html

 

[dragonfly99]

Great post, administrator.
Good point about the rent vs. buy. I'm still debating for fellowship,since I'll only be there 3-4 years, perhaps.
I think the 5.25% is a very optimistic estimate for the interest rate...especially if you don't have 20% to put down, the rates I've been quoted are more in the high 5% range, like 5.75 or 5.9, at least right now. And that's with paying 1 point usually.

 

[The White Coat Investor]

Ok looked through the forums for the past hour and can't find a decent answer.

How much house can I afford. My mortgage lender says I can do 160k comfortably on my new to come intern salary of around 43k.

Here's the kicker, my car I've been driving since I started college bit the bullet, so I did what any self respecting newly matched idiot (i matched early) would do, I bought a sweet new ride. Flame me all you want, I don't regret it, it's awesome and I don't look like trailer trash anymore.

Car Loan = 458/mo

I'd like to save a little while in residency, I have no CC debt. My school loans will be deferred. So what do you think, did I buy my way into renting?

That depends on what else you spend money on. I would never take out a mortgage that was 4 times my salary. My personal limit is 2-3 times my salary (currently at about 0.7 times). I would also never take out a loan to purchase a depreciating asset. But if you don't plan to do any saving for retirement, make any charitable contributions, eat out much, or travel much you can probably swing it.

Whatever you do, don't let the person loaning you money tell you how much you can afford. All he can do is tell you how much he'll lend you.

If you have a salary of $40k/12=$3333 and a loan of $160K at say 6% (if you're lucky), you're looking at a payment of $960 per month. Add another $200 for taxes and insurance, and another $200 on average for repairs and upkeep and you're looking at $1360 a month. Add on your car payment at $458 and you're up to $1818 a month. That is about 55% of your income. That's way too much. You need a roommate or a spouse with a job if you want to buy. Otherwise, you're a renter. Sorry that's too much house and the car loan was stupid.

 

[DrYoda]

I've heared ~33% of gross salary quoted as the maximum you should be paying for (house payments+taxes+insurance). With a car payment on top of that it's probably too much. Unless you have someone else contributing.

 

[Bobblehead]

Depending on where you end up after residency, bear in mind you may need to sell whatever you buy at the end of residency. I'd take into account the buying/selling costs of the house plus whether in your particular market it's likely you'll see home prices go up/down or stay flat.

In addition to the mortgage remember there are utilities, taxes, insurance and maintenance to pay on a property.

 

[schwab]

I was thinking about the question some more and I made a post on my blog that goes into more detail than my original response and includes more things to consider when making the rent vs. buy decision. Hopefully it's helpful! Rent Vs. Buy for Residents and Fellows

 

[nontrdgsbuiucmd]

Ok looked through the forums for the past hour and can't find a decent answer.

How much house can I afford. My mortgage lender says I can do 160k comfortably on my new to come intern salary of around 43k.

Here's the kicker, my car I've been driving since I started college bit the bullet, so I did what any self respecting newly matched idiot (i matched early) would do, I bought a sweet new ride. Flame me all you want, I don't regret it, it's awesome and I don't look like trailer trash anymore.

Car Loan = 458/mo

I'd like to save a little while in residency, I have no CC debt. My school loans will be deferred. So what do you think, did I buy my way into renting?

Hi,

I am a finance guy. Unfortunately did not read Schwab's blog yet but it likely has some add'l great info. The web site referred to by SCHWAB looked quite good.

In response to your QUESTION (rather than providing an opinion on what you've already done)

The way that lenders look at mortgages is your debt-to-income ratio. There will be a max total debt percentage and a max housing cost percentage. In the past, the percentages were something like 33% max housing percentage, and 40% max total debt percentage (housing + cc + student loan, etc). I am not sure how a deferred student loan would be considered.

A current lender is the only entity that can tell you what you qualify for; the rules are changing too fast for anyone outside the industry to correctly advise you on. Sounds like you have one now; I'd suggest first finding out what you CAN qualify for, and then deciding what you WANT TO qualify for.

My opinion would be to steer clear of buying a larger unit and renting part of it out, or buying a fixer upper, or any type of older unit due to the time and money required to keep it going -- I found quite a few unexpected multi-hundred dollar expenses for my older house. But if this is where you're OK spending your spare time and money when not working... why not?

 

[CuriousKat]

Ok looked through the forums for the past hour and can't find a decent answer.

How much house can I afford. My mortgage lender says I can do 160k comfortably on my new to come intern salary of around 43k.

Here's the kicker, my car I've been driving since I started college bit the bullet, so I did what any self respecting newly matched idiot (i matched early) would do, I bought a sweet new ride. Flame me all you want, I don't regret it, it's awesome and I don't look like trailer trash anymore.

Car Loan = 458/mo

I'd like to save a little while in residency, I have no CC debt. My school loans will be deferred. So what do you think, did I buy my way into renting?

So...what did you get?

 

[The White Coat Investor]

A current lender is the only entity that can tell you what you qualify for; the rules are changing too fast for anyone outside the industry to correctly advise you on. Sounds like you have one now; I'd suggest first finding out what you CAN qualify for, and then deciding what you WANT TO qualify for.

While a lender is the only person who can tell you what you qualify for, it doesn't take any kind of special knowledge to figure out what you can afford. Understanding the difference between those two is very important.

 

[misery]

So...what did you get?

tricked out toyota tacoma. I love it, much better than the pos I was driving. I may just move into it. Thanks for the advice.

 

[nontrdgsbuiucmd]

very cool. glad you love it.

as a friend said -- "you can have everything, just not at the same time".