the cost of living

[topaz]

As I fill out mortgage applications for moving in to Mosaic Commons I can't help but do the math and see that the cost of our mortgage, condo fees, and property taxes adds up to about 40% of my net take-home pay, without even taking heating costs into account. This seems really high to me but maybe I don't have much to compare it to.

[Poll #1363745]

Comments

[nacht_musik]

Does E have notable income? If not, then 40% of one income going to the cost-of-living for two adults (plus children) seems plausible, if high.

[queenmomcat.livejournal.com]

We paid something like 32% all told, or did before we paid the mortgage off, which is I assume what you wanted to know.

[reesei.livejournal.com]

General "rule of thumb" is that your fixed costs shouldn't exceed about 36% of your gross income (pre-tax) - that is housing + property taxes + insurance + transportation. I believe some sources also include student loans.

Old standards for mortgage approvals is that housing + insurance + property taxes had to be under 28% of your gross income.

Those figures don't include utilities, typically.

One of the fairly common views I see around about the housing crisis is that lenders stopped following those rules, or bending their products to make initial payments fall under those rules with the full knowledge that it would explode later.

[inahandbasket]

Ours is definitely on the high end, especially now that prosicated is not working. Possibly over 60% now actually.

[qwrrty.livejournal.com]

Our household income comes chiefly from me, yeah.

[enf.livejournal.com]

I may be a little off here because I still haven't finished my taxes this year so I don't know quite how the deductions ended up working out.

It makes me very uncomfortable dedicating this much money to housing but there didn't seem to be any reasonable alternative.

[fj.livejournal.com]

I did +80 because, well, not much income came in in the last year.

[catya.livejournal.com]

The typical numbers you hear on the news are gross, not net, fwiw. But I'm surprised yours are that high, all things considered.

[slinkr.livejournal.com]

I'm estimating it's about 20% at this point. But it was more like 30% when we bought our place 5 years ago. When we move to a bigger place, which we'll have to do if we have kids in the next few years, it will probably be more like 30% again.

40% is high, but not insane for the Boston area. It really depends what your other expenses are. K and I hired a financial planner a few years back to help us plan for some big stuff we had going on, and it was really helpful to get an objective sanity check on how we were managing things.

[catya.livejournal.com]

(also i never calc anything off net, esp since i do dependant care and health care spending accounts, so i had to do math and shit to answer your poll)

[harimad.livejournal.com]

What I always heard (including ec classes and business school) was housing costs <= 28%. This means mortgage + RE taxes + house-related insurance. It doesn't include other insurance, utilities, or transportation. Nor did it include the house downpayment, for that matter.

Note this is a post-WW2 standard. Prewar allocations were very different.

[slinkr.livejournal.com]

Oops. I calculated off of gross income, not net. So it's probably more like 25-30% of net.

[catya.livejournal.com]

i want to say that our affordable units are priced based on 33% of income = mortgage + taxes + insurance + condo fees, but i can't find the number now.

[qwrrty.livejournal.com]

Interesting. Those costs are about 25% of gross, then.

[qwrrty.livejournal.com]

Cripes, talk about putting it in perspective.

[ayse.livejournal.com]

Ours are very high because we are in the middle of a lawsuit over some work on our house, and those costs count as housing costs to me. Also, only one of us is earning an income right now, but that's pretty much been the case since we bought the house.

I would like to get it more in the range of 25% for just the house payment. Then taxes, maintenance, and so forth can bring it up to 5%.

[docorion.livejournal.com]

My answer, it should be noted, is accurate for me working full time. It's higher currently, but I'm only working 1/3 time. I also rent, and am single, have no kids, and as a result my housing costs are pretty minimal. Your number seems about right to me for someone in your position, with only one income, spouse and kids.

[randysmith]

You make me feel better; your initial post had me scared.

When you say 40% of net, how are you taking or not taking the mortgage interest deduction into account? That has a real effect on percent of net.

[qwrrty.livejournal.com]

Not taking it into account - I, um, didn't know it existed.

[insert sheepish grin here]

Lots of stuff I am learning about for the first time, having gone about this homeownership thing all bass-ackwards.

[sine.livejournal.com]

my answer is pretty low because our apartment is insanely cheap; right now we're paying about half to two-thirds of what we'd pay for a comparable place in the same neighborhood. we lucked into a good deal on craigslist a few years ago.

[jwg.livejournal.com]

The part of your mortgage payment that goes for amortization isn't really an expense but an investment (yes it affects cash flow). You have tax deductions resulting from the interest and property taxes so you can deduct the value of that from your cash flow (except if you already compensated for that in your withholding calculation). These factors make comparing your percentage to what it would be if you were renting somewhat different.

[docstrange.livejournal.com]

(Taking into account fed tax break on mortgage interest and tax)... We used to be close to 30% but made some major changes to bring it back to just about 22%, though I admit we pour a lot into (elective) improvements. But the 22% is necessity.

[(Anonymous)]

Our answer is probably about 15% of gross. Can't do net because I don't know what that means (see Catya's answer).

[ghislaine.livejournal.com]

Yes, that's correct.

[maebeth.livejournal.com]

I was using 33% for my own calculations, but the affordable units actually use 30%

[maebeth.livejournal.com]

Me to. As in never do net. I just can't remember it.
So I answered based on my present net income (31%). But I'm dropping my hours to 3/4 time as soon as I get the mortgage so its not really relevant.

(Then it will be 34% of gross.)

Both of those are just my income and my half of the mortgage.

[jss]

Using your definitions, I'm at 23% of gross or about 37% of net.

[primal-pastry.livejournal.com]

Including utilities, housing is 63% of my net income monthly. If I had to pay taxes and insurance, etc, it would be more.

[mrf-arch.livejournal.com]

I pay something over 55% of my "net", but my take home is not only less taxes, it's less my other pre-tax expenses, particularly the money I give the 401K. And I could lower that percentage to more like 45% if I cut back to minimum payments on the HELOC, but I'd rather pay the damn thing off one of these years.

[harimad.livejournal.com]

In which case, does MA have a homestead deduction? That's a break you get when the house in question is the primary residence of a state citizen.

Also some states have a limit to how much property taxes can increase each year, find out if MA has one, what it is, and then check each year that they haven't goofed. There are exceptions to the limit, such as when the house changes hands or major improvements.

Finally, when your first Mosaic tax bill arrives, make sure the premeses are correct: square footage, type of home, # bathrooms, whatever it is the state uses to calculate valuation for tax purposes. Given this is Mosaic, perhaps have everyone do it together and make sure similar homes are valued similarly.

[malefica-v.livejournal.com]

During the Poverty Era, my first paycheck of the month covered rent and a grocery run. The second paycheck of the month was for electricity & phone, with a 50-50 chance of late payment, plus groceries & saving toward clothing. No health insurance, so health care was a saving-up thing. Looks like 70%, more or less.

As of 2003, the rent has stayed low but the first check covers rent and all the bills, and there is health insurance too! The second check goes to savings and occasional treats. I'm probably at 35-40% for housing costs.

[maebeth.livejournal.com]

Its 30% in the spread sheet you sent me once, used for calculating mortgage payments.

[psongster.livejournal.com]

I always think it is an error for homeowners not to include maintenance as part of the cost of housing. Maintenance varies a lot from year to year, so it's sort of hard to budget for, but it can be a real budget-breaker for people who don't take it into account. (As my friends who bought a house and promptly needed a $6K roof discovered.)

When we were looking for a mortgage (in 2001) one broker was willing to have our housing expenses (just mortgage, insurance, and taxes, not including maintenance or utilities) go up to 44% of our income. We weren't!

[reesei.livejournal.com]

Yes, that's the second of the two designations listed. The lenders also wanted some way to assess that you weren't squeezed by other obligations that would impact the amount you had available for housing, which is where the higher percentage that I listed for all fixed debt came from (factoring in the transportation, student loans, etc).

Downpayment doesn't matter in either of the calculations, because it doesn't factor into the ability to make monthly payments.

I know absolutely nothing about pre-WW2 standards =) All of my research is from pre-house-buying in 2005. I had this vague impression that pre-WW2, you were supposed to buy the house cash-down and this mortgage stuff just wasn't involved.

[reesei.livejournal.com]

There will be all sorts of fun things to look into then!

Mortgage deduction does all sorts of weird things to the calculations. For example, when determining which loan to apply extra to each month, the effective rate of your mortgage can be reduced by your income bracket - this often means a car loan, for example, is a better loan to pay off first even if the face-value interest rate is higher.

If you will have a dedicated home office, you can look into deductions for that as well. There are some rumors the rules on those will get easier under Obama because of his support for small business - currently home office rules are very strict.

[reesei.livejournal.com]

Hah - in 2005 when we were looking for a mortgage, we made the mistake of going to one of those "first time homebuyer" seminars, where they told us to get an interest-only ARM for 100% of the home value, no-documentation, and that "95% of homebuyers have no trouble making their payments!"

We cringed, and ran away to find a more reputable group of loan people.

[chaiya.livejournal.com]

We pay the bank an extra few hundred each month toward the principle, which bumps us up a bit in the percentage bracket, but I think it's worth it, to have the mortgage done a few years earlier. :)