how much can I afford?

How much can you put down? Are you looking for condo or co-op? Renting or buying?

For renting, you can quality for rents up to $3750/month (landlords look for incomes up to 40x the monthly rent).

Assuming a co-op, and assuming a 20% down payment, AND assuming no other outstanding debt, you shouldn't have any problem looking in the $350,000 range. With monthly maintenance on that range of property averaging about $900/month, you'd need $70,000 down, plus at least six months' worth of monthly maintenance payments in the bank to satisfy the co-op board ($6000 just to make it even). You'd be financing $280,000 for a monthly mortgage payment of around $1700, plus the $900 monthly maintenance for a total of $2600/month. That would put you at about a 34% net income to housing ratio, which would be on the higher end of what most co-ops would allow.

34% of NET income??? Not usual for most co-ops. (but you are the expert)

sma - just go to manhattanmortgage.com and it will give an estimate of what you can do

on $150k gross with no debt and $900/mo monthly fees, you can do $600k mortgage which equals in total $4,200/mo before tax deductions

Apt. Boy, you are INSANE.

The general rule of thumb for HOUSES in America is 3x your annual income -- which would put OP at $450,000 as an absolute maximum. Here in New York City, that maximum for co-ops is greatly reduced to allow for the monthly maintenance payment.

Also, prospective buyers should never factor in tax deductions when computing what they can afford on a monthly basis for housing. Any tax refund they might get won't come until the next calendar year, during which time they still have to outlay the full expense.

Let's also not forget the wisdom of NOT buying the maximum housing you can afford.

In the wake of this depression we're in, a full one-FIFTH of the working population has personally discovered that the convention wisdom of having 3 to 6 months' worth of living expenses in the bank (and how many of us did really did that much in the first place?) is woefully inadequate for the kind of downturn we're in. In fact, for many, many victims of this economic blowup, even 9, 10, 11, and even 12 months wasn't enough to weather the unemployment storm.

My point is, once the $150K earner blows his entire savings nut on even the $350K apartment, how long will it take him to build up a healthy savings of at least a year's worth of living expenses -- or even conservatively speaking, on his salary, $60,000?

"Any tax refund they might get won't come until the next calendar year, during which time they still have to outlay the full expense. "

Huh? Nonsense. All a buyer needs to do is change their withholding allowances with their employer to reflect the purchase and their paychecks will immediately have more take home pay in them.

r u kidding me?
How close to the bone would you cut it?
This is how folks got in trouble in the first place, by buying over their head.
I like Matt's plan assuming you have a reasonable reserve for closing costs, taxes, charges, moving, minor reno, unexpected finacial suprises. What about you job? feeling good about it? Got some folks back home to back you up if the face of unplaned mishaps? What can I say, belt and suspenders, there's no trusting these pants.

In these uncertain times, I would not pay more for mtge + carrying costs than I would for rent (and I would not include the tax deduction in the calculation). Also, try to get a place that would allow some kind of roommate situation should you lose your job.

Here's the sad part. $150k in most of the world is a very decent salary. But in NYC it buys very little. This is a great example of why real estate is so overpriced in NYC that someone with a good salary can't live in more than a studio apartment. So sad. In the old days he would buy that studio and in a few years it would have increased in value and he could have traded up a bit. But now, he better be sure he likes his studio because he may be there for a while.

the key is how many prada shoes do you "need" vs. housing cost index....

don't buy a coop! buy a condo with low CC's and a tax abatement. totally doable in brooklyn. can get a nice one bed with central A/c, washer dryer hook up and new everything - just move in. don't have to worry about the coop requirements. also, tax deduction is relevant.

"on't buy a coop! buy a condo with low CC's and a tax abatement."

I love how everyone assumes that tax abatements last forever ...

I would spend $450k plus $900/mo in maintenance on a one-bedroom co-op in the best neighborhood you can find in Manhattan or Brooklyn. They do exist. Put at least 20% down. Be sure to get a 30-year fixed rate, as they are so incredibly low right now.
What about this? Ask is $499k, but I bet you can get them down to $450k. Good 'hood, low maint, high enough floor to be quiet. Plus it faces away from 79th, southwards, which is nice.

http://www.streeteasy.com/nyc/sale/465740-coop-308-east-79th-street-upper-east-side-new-york

p.s. I have nothing to do with this apt!

i make 540K and spend 9% of my income on rent and my apt is just fine. i rent because Manhattan real estate prices are ridiculous and have yet to become attractive. I will buy when the cost of buying is 15 times the annual cost of renting. I believe it is absurd to spend anywhere near one third of your income on rent. I like to eat, dress, travel, rent a summer house, own a car and LIVE. I suppose I will continue renting and will now enjoy a significant mark up in quality of life since rents are way down. When the foreclosures start I will buy. Am I alone in my thinking?

No you are not, I agree, it would be absurd to spend 180K a year on housing. Now if only I could earn a third of that 540K...

"i make 540K and spend 9% of my income on rent and my apt is just fine. i rent because Manhattan real estate prices are ridiculous and have yet to become attractive."

OK, that's your story and I'm sure you're sticking to it. But I'm not buying it. Anyone who makes $540K would understand the overwhelming tax advantages to owning rather than renting, as well as the overall reduced cost.

I have a friend who makes $800K/year and often comes to me to help him pay his ConEd bill. Really. The guy burns through his cash like nothing, his credit score is in the toilet, and not only does he not qualify for a mortgage of any kind, he couldn't even get a car loan (had to pay for his Audi with cash).

Oh yes ... and he works on Wall Street!

800K and can't pay his Coned bill? Sounds like either he's super irresponsible or is drug addict. Anybody who can burn through that much cash (30k/month) has to be doing something really really wrong.

NYCMatt: The tax benefits of ownership (even for very high income individuals) are more than offset by falling values in this market. Regardless whether thewiseking is full of shit or not about how much money he makes, I agree with his thinking. Plenty of great opportunities to rent in NYC. Why catch a falling knife?

Max $562k, representing 20% down ($99k) and loan at 3x salary ($450k). Assumes you have cash to cover closing costs and one year of expenses in reserve after your purchase.

No, the usual multiplier is 3x the salary for the loan, but 3x the salary for the entire purchase price.

And that's really for homes outside of NYC.

For NYC apartments, it's more like 2.5x your salary for the entire purchase price.

Half a million on only $150K salary is absolutely insane, and is precisely the reason why we're in this mess to begin with.

I meant to say, of course, that the usual multiplier is NOT 3x the salary for the loan, but 3x the salary for the entire purchase price.

Of course the more you borrow, the more of a tax deduction you receive from Uncle Sam. But you are still paying cash out each month in net interest expense. Matt, what you are indicating is that rich people would prefer to pay a higher interest rate since that would allow them to have a larger tax break. Paying interest is paying interest and that is money out the door. Smart people, both rich and poor, try to minimize their expenses like WiseKing has done. How is the cost reduced by owning unless the market is appreciating and you are netting the expenses against the gains?

RE mom, I just crunched your numbers, and I have no idea how you expect someone making only $150K to afford a $2400 mortgage payment PLUS at least $900 monthly maintenance for a grand total of $3300/month. That's two full weeks plus one day into the THIRD week each month just to pay for the apartment. And the buyer hasn't yet paid for insurance, utilities, or food!

Further, if the buyer is making full contributions to his 401(k), it's more likely going to take three whole weeks of paychecks just to pay for the apartment -- financially irresponsible by any measure indeed.

patk14, I don't understand your point.

Tax deductions make sense only for things you HAVE to pay for. If you can avoid paying for them in the first place, that offsets the benefit from any tax deduction.

In other words, you always come out ahead borrowing as little as possible.

Take home pay for a NYC resident @ $150k/yr is $7.5k/mo...so $4.2k a month is fine for housing, leaving $3.3k for living, which is more than enough

Wrong. Take-home pay for a NYC resident at $150K/year is closer to $6750/month. $4200/month for housing is an insanely high portion of take-home pay at that point.

Matt, give up with math already, not your thing, I am sure you are great at art or music or something, be proud of that!

Net Pay $7,776.12 (minus a few hundred more for NYC)

Salary Paycheck Calculator
Your Pay Check Results

Monthly Gross Pay $12,500.00

Federal Withholding $2,928.84
Social Security $775.00
Medicare $181.25
New York $836.19
NY SDI $2.60

Net Pay $7,776.12

Calculation Based On
Tax Year 2009
Gross Pay $150,000.00
Pay Frequency Monthly
Federal Filing Status Single
# of Federal Exemptions 0
Additional Federal W/H $0.00
State New York
Filing status Single
Allowances 0
Additional State W/H $0.00
NY SDI Yes
NYC Allowances 0

Particularly, of course, as we've all seen in this economic blowup, if that $150K/year person loses his job and fails to find another $150K/year job to replace it. What if he can find "only" a $120K/year job? Taking even a modest pay cut would force him either to sell or default (especially since you've not allowed for any significant SAVINGS in his budget).

modern, I don't give a rat's ass about your salary calculator.

I remember my take-home pay when I made $150,000/year -- in New York City -- and my weekly paychecks were always around $1600.

It's not my calculator, and maybe yours was lower due to the wage garnishing from defaulting on your coo-op maintenance. You have already told us someone with that salary can't afford to own, so you must have been missing a few monthlies.

Nice try, modern. Go back to your hole now.

"and my weekly paychecks were always around $1600."

1600x52/12 = $6,933 per month, not the $6,750 you claimed a few minutes ago. Hopefully you bring a calculator to your co-op board meetings so you don't turn down good applicants with simple math errors.

Of course, I haven't had a paycheck in 20 years, having decided working for others was not for me, so I am using math to calculate this, and not a foggy memory and snatching numbers out of thin air, so I could be wrong.

With no take-home pay, I am afraid I would never qualify to buy in your building. What a shame.

Indeed.

Tell us, what's it like living in a treehouse?

$6750 monthly net on $150K annual salary would put you in the rarely seen 54% net tax bracket. If anyone is paying that, you should first consult a tax advisor efore seeking real estate advice.

NYCMatt - I disagree that it's 3X the entire purchase price. Whatever the multiplier is, it has to be for the mortgage.
You use your savings to figure out how much you can put down (with leftover for a safety net as discussed above)
You use your income to determing how large a mortgage + maintenence you can take on.

"$6750 monthly net on $150K annual salary would put you in the rarely seen 54% net tax bracket."

It's actually more like 46%.

No.

It's 3x the entire purchase price of the home, assuming 20% down.

wishhouse, you are of course correct.

Under NYCatt's logic, someone who paid cash for a $500k apt, with no mortgage, could not afford to live there on "just" $150k per year.

It may be that his building allows 100% financing, in which case his point might apply. And also why he is worried about his shareholders paying their maintenance, if they are that close to the edge.

Actually, NYCMatt, Historically, the standard wisdom was to spend no more than 3x your annual gross income on the purchase of a house, minus a 20% down payment One of the reasons we got into the housing bubble mess is because people started to depart from this rule of thumb. Where did this number come from. One commentator offers the following account:

Where did this number come from? Well, think of your annual income as a pie. It has 4 slices: taxes, savings, needs, and wants. For most people taxes chew up about 25% of their gross income. In an ideal world you are saving 15% of your gross income. So that leaves you with 60% of your gross (or pre-tax) income for everything else. Your housing costs, your transportation costs, your health care, your childcare, your food, your entertainment, etc.

If you buy a house with a 20% down payment and a 30-year fixed rate mortgage—in an average interest rate environment the way the math works out is that you will end up spending about 30% on your total, all in housing costs (think: mortgage, insurance, property tax, maintenance, upkeep). That leaves you with 30% for everything else in your life. If you buy a house for significantly more than 3x your annual income, the bite that housing costs take out of your budget pie grows—and that's when the financial trouble starts. You will either have to cut back on your wants, or what happens more often—is you end up cutting back on your savings. The way housing prices got so out of control is that we all collectively bid them up WAY past the point of 3x the national average income by thinking we could keep eating at the financial buffet without getting financially obese.

"I remember my take-home pay when I made $150,000/year -- in New York City -- and my weekly paychecks were always around $1600."

So, that is $6,933 per month and most likely included healthcare ($250/mo maybe) and 401k deduction ($500/mo after tax maybe) and BOOM, you are over $7,500/mo.

So, at a take home of $6,933, you already paid for healthcare and saved for retirement and have $7k for monthly expenses, so $4k for housing and $3k for eveything else is not out of the question

Paying more than 50% of your take-home pay for housing IS out of the question.

Some folks like to have a certain lifestyle that eats up a lot of money. I agree with wishhouse's perspective. Because in the end, you are paying yourself when you buy, rather than paying someone else when you rent. And condos are not as restrictive in terms of resale if you do decide to sale it.

I think with $150k/yr you can get approved for a $525K mortgage. Anything above that would be the downpayment, closing costs,

What a big muddle. Some of you people are completely number challenged.
The rule of 3 means pretty much nothing here. You shouldn't spend more than 28% of your gross income on housing (that's mortgage+tax+insurance). I recommend you go to bankrate and use their calculator. Better yet, create an excel spreadsheet to calculate the affordability of each listing, you will quickly realize how the price, downpayment and maintenance amount impact your budget.
Keep in mind you don't want to spend all your cash on a downpayment. Not only you need some at closing, but you also need to keep 6 months of living expenses in a savings account.

And let's not forget other incidental costs like MOVING! Or other surprises at the new apartment.

My last move ended up costing me (including tips for the moving crew) about $2100. Of course, since the new place was still empty, I figured now was the best time to slap some color up on those walls before i moved all my stuff in. Another $2000.

Then there was the kitchen window over the fire escape that didn't have a security door. Of course I didn't want to install one of those cheap-ass "accordion" style gates -- this was going to be featured prominently in my kitchen, so I bought one of those latched steel "door" gates (in the "Sunshine" design, so it didn't look like a prison cell). $800, including installation. Oh yes, and since I didn't want it black (I wanted it white), another $100 for the paint job.

Of course, after I moved in I couldn't help but notice that my door was conspicuously lock-free -- only one deadbolt under the doorknob, whereas everyone else had multiple locks. Regardless of how strong that single deadbolt is, if you were a thief, which apartment would you try to break into first? That's right. Tack on another $225 for an additional deadbolt.

One day after I moved in, I realized bare windows weren't going to cut it, and I didn't bother bringing the curtains and drapes from the old apartment, knowing they would be too small anyway given the new apartment's larger windows. Even just putting up sheers over all the windows, including hardware, ended up being $250.

I also didn't realize how *hot* south-facing, top-floor apartments could get. Despite my October move-in date, with air temperatures only in the 60s, the thermometer inside my apartment read just a notch under 85 degrees! Two air conditioners (including installation) and a window fan: $850.

So ... additional out-of-pocket expenses, after down payment, after closing costs, and after satisfying the co-op's liquidity requirements: $6325.

And that was for a "turn-key", gut-renovated apartment. Imagine if I needed to replace wiring, light fixtures, appliances, or do any repairs!

nycmatt, you are assuming people want to be responsible/conservative and live below their means and perhaps build some wealth. face it, we are a gambling/postpone the reckoning/someone else's problem/bail me out type of society.

Our country's leaders have already spent many future generations' money without any hope of it getting better anytime soon and worse: we want to spend more and handout more. the biggest irony is: where is our country's 3-6 months of reserves? Our country is borrowing on stated income!

You know, it's interesting that you say that, aifamm.

Remember when it was actually chic to live in a "shabby" (but clean) New York City apartment? Appliances were old. Linoleum floor tile, as long as it was kept clean, lasted for 60 years, and you didn't replace it until it actually wore out. Same thing with kitchen cabinets and countertops.

People didn't feel the "need" to renovate just for the sake of keeping up with the latest issue of Architectural Digest or Metropolitan Home.

It seems that about 10 years ago, *everybody* absolutely HAD to have brand-new (not to mention top-of-the-line) everything: kitchen appliances. cabinets. countertops. fixtures. hardwood floors. window treatments. Homeowners happily justified maxing out their home equity lines of credit to transform their homes into miniature palaces by rationalizing that they were adding "value" to their "investment".

matt--you were away for a while? i forgot how stupid you are. now you're stating the obvious---yet again.

sma202, if you don't want to calculate this by hand, I recommend using this handy calculator that tells you how much you can get based on $150k gross:

https://www.hauseit.com/mortgage-affordability-calculator/ (how much mortgage)

https://www.hauseit.com/home-affordability-calculator/ (home much home you can get, plus how much you need to have saved to make it happen)