I've lurked here for a while and wanted to ask the opinion of you more seasoned readers here about how much apartment you think my wife and I can "afford". By afford, I mean reasonably and conservatively take on given the state of the market. I am, and have been for a while, bearish on real-estate and due to that, dodged a bullet in '08 but my wife is convinced now is the time. We are in our... [more]
I've lurked here for a while and wanted to ask the opinion of you more seasoned readers here about how much apartment you think my wife and I can "afford". By afford, I mean reasonably and conservatively take on given the state of the market. I am, and have been for a while, bearish on real-estate and due to that, dodged a bullet in '08 but my wife is convinced now is the time.
We are in our early-30s, design professionals and make just over $200k per year, a 60/40 split between us. Neither of us really want kids in the foreseeable future, maybe never. We have about $200k in savings and liquid assets and about $30k in retirement accounts. Job security is about as good as it gets these days I suppose. Given a stable and sustainable recovery, income growth of about 25-50% over the next few years is pretty likely although we do not want to base current decisions on that. If we were to buy soon and do see a sizable income bump, it would probably go towards a little place upstate so we don't feel we need max out our purchases in the city.
Thanks for your input.
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Response by NYCMatt
over 15 years ago
Posts: 7523
Member since: May 2009
The rule of thumb these days -- as it has been for quite some time, although we tossed it out the window over the past several years -- is that you can comfortably afford roughly three times your annual household income as the total purchase price of a home.
In your case, that would be about $600,000, breaking down thusly:
-- $120K down, with a good solid $80K in post-closing liquidity
-- $480K 30-year fixed rate mortgage, with payments of about $2800/month
-- $1700 monthly maintenance (approximately) on an apartment of this value
-- Total combined mortgage and monthly maintenance of $4500/month, putting you safely within the "45 times the total monthly housing carrying cost" of household income requirement that most co-op boards use to evaluate affordability.
-- Regarding post-closing liquidity above, most co-op boards want to see at least one year's worth of combined mortgage and monthly maintenance -- in this case, $54,000 -- and with $80,000, you're well within the margin.
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Response by isittime
over 15 years ago
Posts: 3
Member since: Apr 2010
Thanks NYCMatt. I was hoping you would reply. My wife and I moved from Manhattan to Brooklyn about 6 years ago and will probably just stay here as $600k goes a hell of a lot further this side of the river. $600k is also about the range I had decided on but with avg. Brooklyn maintenance, we are seeing our monthlies much closer to the $3500 range. $12k a year is not THAT big a difference but it does make the 3x income equation a little ambiguous given the huge range of maintenance costs. I've seen maintenance fees on a few places, particularly in Manhattan, approach what we pay in rent currently and that certainly does not encourage one to embrace the "ownership" mentality and get off the sidelines.
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Response by NYCMatt
over 15 years ago
Posts: 7523
Member since: May 2009
You're welcome, isittime.
There does come a point at which you really are simply paying for the premium of living in a particular Manhattan neighborhood.
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The rule of thumb these days -- as it has been for quite some time, although we tossed it out the window over the past several years -- is that you can comfortably afford roughly three times your annual household income as the total purchase price of a home.
In your case, that would be about $600,000, breaking down thusly:
-- $120K down, with a good solid $80K in post-closing liquidity
-- $480K 30-year fixed rate mortgage, with payments of about $2800/month
-- $1700 monthly maintenance (approximately) on an apartment of this value
-- Total combined mortgage and monthly maintenance of $4500/month, putting you safely within the "45 times the total monthly housing carrying cost" of household income requirement that most co-op boards use to evaluate affordability.
-- Regarding post-closing liquidity above, most co-op boards want to see at least one year's worth of combined mortgage and monthly maintenance -- in this case, $54,000 -- and with $80,000, you're well within the margin.
Thanks NYCMatt. I was hoping you would reply. My wife and I moved from Manhattan to Brooklyn about 6 years ago and will probably just stay here as $600k goes a hell of a lot further this side of the river. $600k is also about the range I had decided on but with avg. Brooklyn maintenance, we are seeing our monthlies much closer to the $3500 range. $12k a year is not THAT big a difference but it does make the 3x income equation a little ambiguous given the huge range of maintenance costs. I've seen maintenance fees on a few places, particularly in Manhattan, approach what we pay in rent currently and that certainly does not encourage one to embrace the "ownership" mentality and get off the sidelines.
You're welcome, isittime.
There does come a point at which you really are simply paying for the premium of living in a particular Manhattan neighborhood.