How much mortgage is too much?

[townie_80]

Just want to bring up one more huge expense that you may not have thought of (or may be completely irrelevant to you). We currently pay just over $2,000 per month for daycare. Which is pretty much a mortgage payment. I always tell my childless friends to keep this in mind when purchasing a home. I dream of the day when I have an extra $2,000 every month. But until then I am glad we planned for it.

[Bill Bumface]

Another big consideration is transportation. Depending where I've lived, my transport costs have been between $1000/mo to $100/mo

[tvp2003]

Originally Posted by malcolmk14

I know this answer varies for everyone, but I'm just curious if people are willing to share what position they are in with their mortgage.

We are thinking of purchasing a home and putting 15% down, once we do that, our mortgage would be about 28% of our monthly net pay (take-home) and about 17% of our gross pay. I'm in a position to grow my salary by about $4,000 a year for the next eight years, unless the teacher salary grid changes, and my significant other is pretty much topped out for the foreseeable future. She's in the oil/gas industry, but feels relatively secure because of her position in the company.

I feel like it's slightly high, and I don't like the idea of getting ourselves into a position of being over-extended. People I ask tend to be pretty split, with some telling us to go for it and that the time is right, and an equal amount saying that it sounds like it's too much and to lower our budget a bit. My dad, who I would consider very conservative, told me to put away the calculator and take the plunge. That really threw me off.

Just curious if people would be willing to share, what % of income do you commit to your mortgage?

A couple of things you haven't mentioned:

1) What are you currently paying in rent? i.e. if you're already paying 25% of your net pay in rent (as an example), paying 28% for a mortgage seems like a no-brainer.

2) Have you budgeted for maintenance costs? If it's a new home, you probably won't need as much; if you're planning on doing renos/maintenance, you'll obviously have to factor that in as well.

I'm not a financial planner but it seems like your situation is as good as any for home ownership. Some other factors to consider is kids (i.e. losing your wife's income temporarily/permanently) and contingencies for that.

Realistically, if you wait a year for your income to increase, what will that push your ratio to? 24% 26% Will that make you feel any more secure compared to 28%?

I think the numbers have to make sense but the numbers aren't the be all and end all either...

EDIT: One other option -- if you're not comfortable with the size of the mortgage, consider a less expensive house? (sorry if that comes off wrong -- just pointing out the obvious).

[polak]

Originally Posted by Northendzone

percentages aside, do you feel comfortable with however much your mortgage payment is per week, bi-weekly, monthly relative to your other payments?

don't forget to think about stuff like will you need a vehicle upgrade in the next few years? what about vacation plans? what about other stuff?

If I was alone it'd be tough but doable. Just wouldn't be able to do as many trips and stuff. This year would've been brutal and I'd have to pass up a lot of fun bachelor parties and trips.

With the gf and her chunk of rent I'm able to live pretty much the same lifestyle I did when I was living with my parents but a little more reigned in. Buying a place has obviously made me way more financially responsible which has in turn helped me get some solid footing (although not nearly where I want it to be) which in turn helps pay for some of these bachelor parties and trips. It's a nice little cycle.

Definitely a better way of looking things. Not just numbers but actually applying it to your life. Think about if you took a pay cut what would happen not what you can afford based on best case scenario.

[llwhiteoutll]

I put 20% down and all my fixed expenses (mortgage, internet/TV, cell phone, all utilities, home/car/life insurance) are about 40% of my net pay. This is after I invest 15% or so of gross pay. No car payment and I use a $100 tank of gas each month.

I also have a roommate paying me about $1000/month. This is not factored into the rest and is directly put against the mortgage.


The biggest thing you won't think of is all the little odds and they add up quick. Snow shovel, ice melt, rake, lawn mower, hose and sprinkler, gass seed/feed all seems pretty cheap until the Visa bill comes.

[DoubleF]

Originally Posted by Fuzz

It says right there at the bottom of the calculator:

So most lenders won't require it, thus saving 1.25%

Well... all I know is that they paid this fee and waived admin fees even though I was below 20% down payment.

This was very different to the situation I ran into for my other property 5-6 years ago.

[GP_Matt]

Originally Posted by DoubleF

Err... I think the rules changed recently.

http://www.cmhc-schl.gc.ca/en/co/buho/buho_023.cfm

At 20%, you're paying a premium rate of 1.25%, at 15% 1.80%.

I don't think the rules changed. CMHC simply offers to insure loans beyond 20% down payment. Banks are not obligated to obtain insurance on those loans however. I didn't pay it on our last house.

[DownhillGoat]

To answer the OP, my minimum mortgage payment is 17% of net. I'm paying it down aggressively so I'm sitting at about 25%. That's base, no overtime or bonuses or anything factored in, because all those things can fluctuate. When you're figuring this out, best low ball everything, and don't use best case scenarios.

Originally Posted by DoubleF

My wife and I can afford the mortgage and our lifestyle on a single income.

That is the single best piece of advice in this thread, IMO. When we bought our house I did all the "can we afford it" calculations based on my income alone. It turned out to be a pretty good call, since we're now split.

Although that scenario works for job loss, maternity leave, one of you changing careers or going back to school, whatever. I'd personally make sure you're at least semi-comfortable on a mortgage you can handle on either just hers or just your income, for whatever the reason. I would have had a tough time sleeping at night knowing if either of us changed financially, we wouldn't have been able to afford the house, and (again, not always relevant) my divorce would have been substantially worse not being able to pay my mortgage after the fact.

[Rathji]

When I was in school, my wife and I bought a house. I was not working other than summers, but she was and we only had about a year and change left on my school, so we were okay with the high mortgage, which was 5.45% or something. She went on Mat leave with our second kid, and our mortgage was like 55% of our take home income for that year. It was pretty tough, especially since the crash killed us financially, but it was doable.

We re-wrote our mortgage a couple years after the crash and the interest rate was pretty much 2 full points lower, which, IIRC cut about $500 off our mortgage payments. Right now, I think we are at about 20% PIT, but we are building a new house, so depending on the rate we get when we remortgage, I think that will be closer to 35% again until my wife returns to full time work again when our kids will all be in school full time.

[rain_e]

Originally Posted by townie_80

Just want to bring up one more huge expense that you may not have thought of (or may be completely irrelevant to you). We currently pay just over $2,000 per month for daycare. Which is pretty much a mortgage payment. I always tell my childless friends to keep this in mind when purchasing a home. I dream of the day when I have an extra $2,000 every month. But until then I am glad we planned for it.

You can hire a live in nanny for $1500/month. You're doing it wrong.

[Cecil Terwilliger]

Originally Posted by rain_e

You can hire a live in nanny for $1500/month. You're doing it wrong.

lol. Just replace midwife with nanny.

Originally Posted by heep223

We're going through our first pregnancy and one thing I've learned, is that midwifery is the crossfit of pregnancy. The number one rule of having a midwife is that you have to talk about how amazing she is and how everyone should have one and how the existing system is a failure and how you're screwed if you can't get one etc etc.

Shutup. I don't care.

Originally Posted by Weitz

I find that happens with a lot of stuff these days. If you aren't doing whats popular or what other people are doing you are doing it wrong.

[Johnny199r]

I rent right now, but I'd like to foresee a situation for my spouse and I where one salary pays for all the bills, including the mortgage and other salary just goes to savings.

[Northendzone]

Originally Posted by townie_80

Just want to bring up one more huge expense that you may not have thought of (or may be completely irrelevant to you). We currently pay just over $2,000 per month for daycare. Which is pretty much a mortgage payment. I always tell my childless friends to keep this in mind when purchasing a home. I dream of the day when I have an extra $2,000 every month. But until then I am glad we planned for it.

I used to think that, but surprisingly the scenario never really played out. As the day care costs get replaced by costs for hockey, dance, music or whatever lessons with the exception that day care expenses are tax deductible/a tax credit, while the other stuff is capped at $500.

Your expenses related to kids might go down if your kid is one of those kids that is is only interested in bird watching and playing solitaire.

[V]

Originally Posted by Northendzone

...while the other stuff is capped at $500.

We don't even get that anymore, I don't think.

[malcolmk14]

Thanks everyone for all the feedback and advice. It's much appreciated. A lot of things to go read through and consider here.

[shermanator]

My general rule. If the banks say you can afford X in a mortgage, you cannot. Realistically 0.8X is probably more around what you can afford, unless you wish to be house poor.

My wife and I are pay about 30% of our net income towards the mortgage, but we put a higher amount towards the mortgage than we need to as we want it paid off as soon as possible. That is with me putting 11% towards RRSP and her putting 5% before tax. I've always tried to put a high amount of my net income towards my mortgage though, and not everyone may be comfortable with that.

[blueski]

If possible buy your house close enough for one of you to walk to work so you only need to own one car. Take the extra car payment savings to build up an emergency fund that you can pay down the principle on your mortgage every few years with. Make sure you are comfortable with your life and disability insurance too.

Our you could just live in a van!

[bizaro86]

Originally Posted by Cecil Terwilliger

lol. Just replace midwife with nanny.

To answer the initial question: We tried to take a mortgage we could afford on 1 income, and then made extra payments to get it paid off earlier. I'm glad we did that, since we're now down to zero incomes (wife on mat leave, and I got laid off). It was about 40% of my income before I got laid off.

As for the midwife thing, we did our first kid conventionally, and the second kid with a midwife. It really was better in basically every way.

[Slava]

Originally Posted by blueski

If possible buy your house close enough for one of you to walk to work so you only need to own one car. Take the extra car payment savings to build up an emergency fund that you can pay down the principle on your mortgage every few years with. Make sure you are comfortable with your life and disability insurance too.

Our you could just live in a van!

On the life and disability coverage, don't buy the lenders coverage. Maybe set it up until you set up your own policies, but then cancel it. Its not effective for a number of reasons and just an overall poor deal as compared to your own coverage.

[Ironhorse]

Gee, does everyone on CP have dual income or something?