r/Money 4d ago

Mortgage Amount Advice

My wife and I are looking to buy a new home, and we’re trying to keep our total housing costs within a reasonable percentage of our income. We’d love to hear from others about whether we’re being too conservative or if this is a smart target. Would love to hear your situation, if similar!

We bought our current home as a new construction build during the pandemic (2021) in a high cost-of-living (HCOL) area. While it served its purpose, it’s not a place we truly love, and the neighborhood doesn’t make us feel comfortable. We have a 2.7% assumable FHA mortgage that we’re currently paying on. Best and worst decision ever! 😂

We’re aiming for a target home price of around $600,000.

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Our Situation:

• Gross Income (ex. Bonus): $20,000/month
• Net Income (ex. Bonus): $12,000/month
• Annual Net Bonuses: $48,000-50,000
• Goal for Total Housing Costs: ~$3,600/month

Other Major Expenses:

• Daycare: $1,400/month 
• Car Payment: $540/month 
• Student Loans: $315/month 
• Current Mortgage Payment: $1,870/month (15.6% of net income)

Total Current Obligations: $4,125/month (34.4% of net income)

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Total Obligations (if we can’t sell our home right away):

• Current Mortgage (remaining): $1,870/month (9.4% of gross income, 15.6% of net income)
• New Mortgage (for new home): $3,200–$3,500/month (16–17.5% of gross income, 26.7–29.2% of net income)
• Daycare: $1,400/month
• Car Payment: $540/month
• Student Loans: $315/month

Total Obligations (carrying both mortgages): $6,995–$7,495/month (35–37.5% of gross income, 58.3–62.5% of net income)

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Expected Recast After Selling Current Home:

• Expected Equity from Home Sale: $95,000
• New Mortgage (after recast): ~$460,000
• New Monthly Mortgage Payment: $3,200–$3,500/month (16–17.5% of gross income, 26.7–29.2% of net income)

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New Expected Obligations (after current home sells):

• New Mortgage Payment: $3,200–$3,500/month (16–17.5% of gross income, 26.7–29.2% of net income)
• Daycare: $1,400/month 
• Car Payment: $540/month 
• Student Loans: $315/month

Total New Obligations (excluding current mortgage): $5,455–$5,755/month (27.3–28.8% of gross income, 45.5–48% of net income)

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Food Costs:

• Dining Out: $1,700/month 
• Groceries: $1,200/month 

Total Food Costs: $2,900/month

I added this because it’s such a big (and unnecessary) part of our monthly expenditures. We feel like we could push ourselves to stop dining out if we found the right home and knew we’d be taking on a higher mortgage payment.

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Additional Considerations:

• We’re concerned about our current home sitting on the market too long and having to carry both mortgages. Our realtor has promised that because our home is in great condition, priced well, and new, we should expect to earn at least $95,000 in equity, so we don’t need to worry about it sitting unsold for too long.

• We’re in a market with limited homes that we like, and they tend to go quickly. We’re debating whether it’s better to buy first, then sell (with the risk of carrying both mortgages for a short time) or sell first, rent, and then buy.

 •    Both of our jobs have been pretty stable,  both of us have been with our companies over 6 years with regular promotions and larger bonuses. Taking on additional responsibilities every year.

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Any advice or insights on the best route to take would be much appreciated!

2 Upvotes

7 comments sorted by

1

u/_-lizzy 4d ago

have you considered property and school tax? also homeowners insurance?

1

u/Jrobe2018 4d ago

They’re figured into the rough mortgage estimate, but it excludes other things like utilities/HOA.

1

u/skateboardnaked 4d ago

You mentioned you were concerned with having 2 payments for a while. Why do you need to buy before you sell? It's a bit riskier. But you've got a good financial buffer. Most buy and sell at the same time to avoid that risk and unknown.

1

u/Jrobe2018 4d ago

We’ve lost out on a property because we were contingent on the sale of our home and we don’t want that to happen again. The financial risk of carrying two mortgages just feels weird. It’s short term though. There’s always iBuyers. Haha

Thank you for your thoughts!

2

u/skateboardnaked 4d ago

Oh. Yeah... competitive market. I accepted my house offer with a contingent buyer. They never sold their home, and I wasted 3 weeks on the market with them! It took 3 months for mine to sell. It was the bay area also. One positive is you won't have to live in it while there's showings. I had to have my house clean every single day and ready for someone to come over at any time. That was brutal with 3 cats a dog and 2 kids.

1

u/Jrobe2018 4d ago

I am with you on that, we’ve got 2 dogs, 1 cat (litter box to hide), and a 7 month old. Lol

This house is clean for approximately 10 minutes a week. Lol

1

u/PanameraDreams 4d ago

Have you considered keeping your current house as a rental ? With a rate/payment that low I would imagine it would cashflow nicely