poll: how much can we afford?

You can afford to rent a very nice place.
Monthly rent x 45 = not to exceed annual income.
No one can afford to buy today.

IMO, anything over $975K is a stretch. The main constraint is the downpayment, especially if you go over $1MM and waste $10K on mansion tax. In theory, your housing ratio could be an issue, but in practice it's probably OK as long as you get a decent rate. It will also depend on the monthlies and what Congress ultimately does about the caps on conforming loans.

By the way, given the imbalance between your incomes, the disagreement over affordability and the reference to your partner as your "girlfriend", you might consider buying on you own. That's assuming that you're providing the bulk of the downpayment too.

West81st has made an extremely good point here. Purchasing a home with someone you are not married to is very risky. I've seen such situations go wrong in all sorts of ways and they can be enormously difficult (not to mention costly) to resolve.

West81, I thought mansion tax is 1%, would be 100K, not 10k, and yes, you're right it's constrained by the downpayment, but assuming a 25% downpayment he can assume to get a loan for up to 500K (if purchasing single) or 740k (if joint). Debt-to-Income ratio should not exceed 28%

As a rule of thumb, monthly P&I should be 25% of monthly gross and when you include all your standard monthly expenses these should be around 35% of your monthly gross income. Don't forget to include your common charges. Again, these are ballpark figures but given the tight lending standards, leverage isn't your friend.

The mansion tax is 1%. 1% of 1 million is 10K, 10% is 100K.

oops. Not awake yet. I knew that number didn't sound right.

My personal rule of max is 3 times $247,000 (your income-I used base pay) / 80% (for 20% down) = $926,000. That would leave you with approximately $65,000 for closing costs and reserve liquid savings. Of course you could leverage your $85,000 (guaranteed and assumed bonus pay) but the banks might haircut or disallow some of this in today's lending environment. This puts your total monthly housing expense, estimated with maintenance or common charges and taxes at approximately 25% of your combined base pay--well within the range of "affordability". You could certainly leverage more, but you will start with lower reserve savings. The nice thing about borrowing less, is the budget will work if your girlfriend loses her job or the relationship fails. If her income is guaranteed to rise, and your relationship is assured, you might consider borrowing more. But like w81 says, you will be deposit constrained.

I'm right with amateur on the numbers, though I'm going to add "holy cow, professors at private universities make $195K??"

Also, I once co-purchased a co-op with someone that I was engaged to, and it did not work out. I urge you to follow the path of prudence and prenup the co-purchase -- if it works out you will never need to go back to that piece of paper, but better safe than sorry.

ali r.
{downtown broker}

I agree with west81st, as it seems to make sense to keep the purchase under $1 million to save the mansion tax, allow for 25% down and keep the mortgage under $729,750. Also, good points were made by several about the potential obstacles of buying with a girlfriend/boyfriend.....probably not what you wanted to hear, but also what you need to hear (as if often the case with the best advice).

You should not be buying real estate now-- await and you will have a much better selection at a much better cost. you should very much reconsider buying with a non spouse ever -- set the contribution and agreement stats up front....

a pre-pre nup.

50,000 dollar bonus for IBankers in this recession? yea right....

I would agree with most commenters - you should be looking to spend around $950 which is prudent given your income. Abatement, unfortunately, most bankers that are still employed cleared $50K bonuses easily. This does not factor the 20% or so that lost their jobs, but most (particularly at the boutique firms, i.e. Greenhill, Gleacher, etc.) still took home 5 or 6 figure bonuses. As for next year, many banks are already starting to ratchet up base salaries to make up for the expected bonus shortfall. But I digress...

As for whether or not it's a good time to buy, that it a personal decision. And as for buying with a girlfriend, TERRIBLE idea. Even if she's your fiance, it's risky. Wait until you're married, what's the rush?

I think you should figure out what is so-called "prudent" ($950k), and then downsize that by about 1/3, so that you will be living well within your means, with less stress, and a comfortable buffer if your financial picture changes (whether by choice or not). The problem in America today (myself included) is we are trying to max-out our consumption of real estate - using most of our savings for the down payment, figuring out if we could survive with the monthly mortgage payment (forget about putting away any savings!). Which is a very stressful way to live.

Therefore, I think $600k is the right price point for you if you want to live a happier, low-stress lifestyle, and not worry what would happen if either one of you lost your job. You will have more money for vacations. You could even take a sabbatical and write a book. In short, you will have much more freedom, and not be a slave to your home.

PJC, academic sabbaticals are usually paid.

pjc, exactly. It's time to stop spending what we CAN afford for housing, and think more of what we SHOULD afford for housing. The can portion can change far too easily. Besides, as you say, who wants to live like that?

evnyc - sure, academic sabbaticals are usually paid, but what if the university did not agree to pay? If paul10003 was slave to his mortgage, then I guess he has to forget about the sabbatical. Whereas, if he had cash reserves, and a low mortgage payment, he could tell the university that he is OK with taking unpaid sabbatical. I am not sure how that stuff works, and it doesn't really matter. The point is: he'd have a lot more freedom and a lot less stress.

I have a place for you :D

I would not recommend buying with someone your not married to. If you do want to buy, I would not include the summer bonus as income and instead put that money on the side in case your girlfriend loses her job. Also, are you tenured professor, or can you get laid off?

Tenured faculty get a pretty good employment deal; the university would not refuse to pay, it would simply say "no sabbaticals for anyone this year." I am assuming OP is tenured or tenure track. And for those of you aghast at the salary: many private schools pay $40-60k for tenure-track candidates (not so much in the city, however).

Well, on the flip side, one's home is one's castle. I am not saying leverage yourself to the hilt, forgo savings, and live in fear of losing your next paycheck. But you gotta have somewhere you love to come home to. Generally the trade-off is neighborhood. A great place in a great hood that you can grow into is still gonna cost you.

Using the affordability calculator from CNN, if we assume average gross income of $258,500, down payment of $200,000, mortgage rate of 6%, and annual property tax of $10,000, then the conservative spend is $1,060,352 and the aggressive spend is $1,240,001. The gross income I used was both bases plus the good professor's 3 year guaranteed bonus of $35,000 divided by 3 (I assumed this amount was to be paid over 3 summers).

If I were in this situation, I would feel comfortable with a purchase of $950K (direction of market not being considered) and take vacations, etc. on the bonus monye from wifey as it came in.

Sure, they can spend $600K, or even $300K, but how much are you willing to sacrifice? $950K right now will buy you a very decent 2-bed in a great neighborhood.

paul10003: I know an unmarried couple who purchased an apartment together. One had the downpayment money, the other had the income to cover the monthlies. They were turned down by multiple lenders, because the lenders wanted each of them to qualify for the mortgage independently. They finally found a lender, but paid an above-market interest rate.

Depends on how you look at it. Assuming that the $250K will go towards down and based on the your income excluding bonuses you can afford a monthly payment (mort + main) of $5500-6000/month (28%) of income. It also depends on what interest rate you want to pay --conforming or jumbo rates. To get a conforming loan assuming a $250K down then your limit is $667,000. If your going for a jumbo then your limit is $900,000 anything over a $650K mortgage you will not be able to obtain financing.(super jumbo) and will need more down.

Plus you should always have a cushion. You should always exclude bonuses from your calculations as they are not guaranteed income. However, if you receive the bonus use it towards the down.

I dont' agree with some of the calcs above as they are not taking into account the mortgage financing. Also believe within 6 months you'll be able to find a good 2bed for $650-800K depending on location etc.

Great question. We are pretty much in exactly the same situation, except my girlfriend and I have a child together and thinking of another one.

One reason for us not to get married is that we both make about the same amount (mid $100s, all base, no bonus) and we are cautious that if we got married, based on the current tax proposals, we would be taxed at a much higher rate.

We are renting on the UWS and looking to buy a 3br/2bath, 1250-1400 sq ft coop/condo in the 70s or 80s a year from now (we considered 90s, but not sure how safe it would be). Although since we want to stay under $1M, we may have to settle for a 2br/2bath, 1200sq ft. We also have about $300K cash, but with the economy the way it is and being in a legal field, we just don't know what will happen.

One reason we want to stay under $1M is that we would like to avoid a jumbo loan, which I think is $625K. If we can save another $50K this year, we could do $925K with $300K down, $625K mortgage and $50K for closing costs. But we are also worried that the board may not approve as we won't have money left. Or maybe we can put less down and do a jumbo loan at a 5 year arm and refinance to fixed once we save more money in a few years.

A conforming loan is up to $417K Jumbo up to $650K

There are no longer any banks I know of offering super jumbo -- over $650K

Someone just pointed out that conforming amount in NYC is now about $730K but that it doesn't apply to coops just condos. Is that correct?

ncy10025: what do you mean banks are not offering jumbo loans over $650K? Why $650K?

Very interesting.
Could someone explain jumbo v. super jumbo?
Thanks

I practically spit my coffee on my laptop at the revelation that a professor at a private university has a guaranteed salary of $195K per year!

Good on you, Paul1003! I tip my hat to anyone who can work in education and be paid well for it.

Though I have to say this data point puts the ever increasing, astronomical college tuition rates in an entirely new context.

The Jumbo for NYC where rates go up to the 6 7/8 area is anything over $625,500. From $417-625K is in the 5 1/4 range. These numbers are what I was quoted yesterday from Chase. You can get quotes above $625,500 as well.

Jumbo is a loan amount over $417K rate now around 5.25% 30 yr fixed. Jumbo is now at a limit of $625k and change and is running a little over 7% for a 30 yr fixed. Super jumbo are for loans over the jumbo limit (in 08 was $650K) if they were available. I know of no specialized lending program specifically for NY coops that bumps that up to 730K. The jumbo loans were created for high $$ markets like NY and California.

West 80's - I mean no lenders are writing super jumbo loans (over $650K) why $650? cause that's the limit of the jumbo so the next level up is super jumbo -- and the risk is high and there's no secondary market for these loans.

Thanks guys.

IMO, over 7% for a 30 yr fixed isn't cheap.

Also should be noted that may lenders add .25% to the rate for NY Coops.

Also, you didn't mention kids, which you may not have now, but may have sometime in the future. I mention this because kids are expensive and your monthly expenses will shoot up (nanny/daycare/school/food/etc.) At your current I'd look at 2 beds no higher than 999K with building monthlies no more than $1,400. Any higher and you may be courting with beingf 'house' poor.

grunty - he can't afford $999K unless he up's his down from $250K to `$400K. He won't be able to finance $799K.

oops I meant $749K

I think you guys that advise the professor to pay $900k+ or even $1 million are missing the big picture. Why should anyone max out their potential real estate exposure - particularly in a collapsing market? Using up your life savings, going deep into debt, and scrimping and saving to make a monthly mortgage payment is stressful enough even when the underlying property value is going up! At least in a good market you would be building equity (rather than putting your money into a black hole, as prices are in freefall).

We need to bring some sanity back into our real estate choices. As nyc10025 noted above, you will be able to get a decent 2BR in the $650-$800k range soon enough, and you can already get a 2BR at this price in nice areas of Brooklyn, now. Normal people should not be paying $1 million+ for their home.

My point is: the American dream of homeownership can be the American nightmare if you blow your life savings, and take on a mountain of debt to get there. And now is the worst conceivable time to try this! Go for something around $600k, and enjoy life.

Paul 10003 - bottom line if you really want to know what you can afford call your lender and see how much a)your qualified for and b) how much they're willing to lend you and at what rate.

Here' the scoop on jumbos - although discussing Boston market

While plunging mortgage rates have spawned a frenzy of refinancing, borrowers with larger, so-called jumbo loans are still seeing interest rates in the 7 percent range, prompting many to abandon refinancing plans altogether or resort to creative transactions.

The high rates are particularly an issue in Greater Boston, where expensive housing forces many people into jumbo-loan territory, which is currently $465,750 and above. In 2006, more than 10 percent of borrowers in Massachusetts took out jumbo mortgages.

Borrowers with conventional mortgages - those at or below $417,000 - are getting rates as low as 5 percent, while the national average for a jumbo loan hovers around 7 percent.

There is a new, third category of mortgages between jumbo and conventional loans, created last year by Congress, called conforming jumbos, which now average about 5.6 percent, according to a provider of industry data, HSH Associates.

Jumbo mortgage rates are higher because lenders who initiate the loans are having trouble selling them on the secondary market, where the resale of mortgages provides funds for new loans. The banks and investment groups that buy mortgages are reeling from the credit crisis and the subprime mortgage debacle, and are steering clear of any loans that smack of higher risk. The major players on the secondary market, government-sponsored Fannie Mae and Freddie Mac, do not purchase jumbo loans

10025: I'm a little rusty on terminology (hung up my PITI calculator ten years ago), but I think you mean conforming, not conventional. "Conventional" - counterintuitively - strictly refers loans with no federal involvement, which are most commonly NON-conforming. The term "conventional" is so confusing that it's usually best to avoid using it.

pjc: I don't think anyone is advising the professor to go all-in. He asked how much he can afford, so we're answering his question. Whether it's a good idea to max out on real estate is a separate issue. I do wonder, though, whether the disagreement with his girlfriend is really over affordability or prudence.

West 81st - agreed thanks

don't you get a great deal on housing as a tenured prof? that's the case in columbia, not sure if in nyu too. the deal is so good that buying makes no sense at all.

thank you all for your very informative comments. on the most part, they lean towards the kinds of things i was hoping to hear.

first, the obvious: right now is not a good time to buy, so why bother? i 100% agree. second, the numbers you offered are closer in line with what i had in mind (around 900k), and certainly not in the $1.0-1.2mm range (as my girlfriend has been considering). (it's true i could've called up a bank to give me these numbers, but why trust them and deal with giving them SSN etc, when i have you nice informed people on streeteasy?)

the only thing i was hoping not to talk about was the girlfriend vs wife thing. most of you seem to pushing me towards marriage, which is really not something i want to talk about with my girlfriend, let alone you random people! :)

Paul: It's not a moral issue or a lifestyle debate. Your marital status affects your borrowing power. Your reasons for buying an apartment are your private business, as are your reasons for not "buying the cow". Once you apply for a $700K loan, however, it all becomes the bank's business.

I'd guess Paul is in the business/sciences/law/medicine. Averages there run much higher than in, say, the humanities. It's the American Association of University Professors, I think, that does an annual survey of salaries. Interesting reading for your kids if they're inclined that way, though all the academics I know fell into their disciplines for reasons other than the money.

as far as i know you should drop the "sciences" from your well paid list. it's more of a trilogy: business/law/medicine, and has much less variation in business than in medicine. if you are among the very best in your area you will likely get paid more in medicine than in business (salaries are more homogeneous in biz).

the people who bought my apartment are professors. Make much money by any standards. Wont say what disciplines but not exactly business/law/medicine. The school is very in demand for many reasons

I accepted their bid and jumped through hoops for them as they're as far from Wall Street as one can possibly be, and in recessions more kids generally stay in school and grad schools are big big business

I don't think Paul should use all his savings and should do a pre-nup but I also think he's in a great bargaining position. If he wants to buy a coop; board members generally have kids--if it's a great state school or a land grant school, they will be all over him

I made sure the people in my building were properly psyched. This was after Bear Stearns and just before Lehman. The board meeting was pro forma.

If he's going to a new building--they know the mortgage and carrying charges will be paid.

But I think he's not really wanting to do something so non-liquid with his girlfriend hence the question

thanks all for your comments. slightly different question now. again given the numbers above, how would the numbers change for a CO-OP? (original question was re: condo.) i assume they'd want more money down and require more in reserves, etc. but thought i'd ask you guys for a ballpark number of what we'd be able to get.

actually, a side note: do co-op boards have an issue with the whole girlfriend vs wife thing? i would think in this day and age, NO, but this thread has already given me some advice on this re: a condo.

btw, NTW is correct that i am in business/science/law/medicine. not tenured yet, but certainly tenure-track. but i have a friend that is much more successful than me in a history department that makes less than half what i do. so these salaries are really all over the place.

you're doubly correct re: reasons for getting into the profession are not money-driven. i have told many people that if it was money that was the driving factor, it is probably irrational to go into this line of work -- the ROI (money, time, effort, permanent head damage) is much higher getting an MBA or other grad degree.

Paul, the one board I'm familiar with doesn't distinguish between the four varieties of couple. Other boards I hear about don't care, either, but I don't know how representative any of those might be.

Come to think of it, marital status isn't indicated anywhere except on your tax returns, and even that says nothing re: same-sex couples.

Even 950k sounds like putting all eggs into one basket without much of a cushion if something goes wrong.

The monthly salary at $247,000 (no extra income included) is $20,583. At a 40% all-in tax rate, you are left with $12,350. Putting $200,000 down to make the mortgage $750,000 and using a 6.875% referenced above = monthly of $4926. I'm guessing you get a 1200 s.f. place for $950k? Maintenance I would guess is $2100 conservatively? So you're monthly outlay is over $7,000, well over half of your after-tax net income and you've exhausted most of the liquid savings. Granted i didn't bother to go through the math on your mortgage interest tax deduction but you're likely still at or over half of after-tax.

It looks like you are well-incented to get the loan below the 625,500 super-conforming which at 5.5% if real would mean a monthly payment of $3,550. Unless you have a great beat on your girlfriend's job situation, you have to wonder how iffy it gets with a 950k place and 750k mortgage if she loses her job.

Paul, many coops do care very much about your status (marital, lifestyle, employment, etc). Without offering any opinions on whether they *should/should not* care about these things, the simple reality is that the very nature of being shareholders in a private corporation gives them the right to ask anything they want. While a coop board can not legally discriminate based on these factors (see bottom of post for protected classes), there is currently no legal requirement for them to disclose the reason for rejecting a purchaser.

Primarily, the coop board is looking for high stability, low risk (of financial default, of complaints, of drama, etc), and an easy decision. They may not notice, but in all likelihood, they will. If asked, you are not under oath, so you can share with them whatever you feel comfortable. When we prepare buyers for their interview, we advise you to give the shortest answer possible, and don't try to explain anything. If they ask whether you are married, simply say 'No' If they ask if you are intending to get married, you might say something like 'we are very committed to building a life together, which is why we are so excited by the opportunity to buy a home together in this building' (assuming that is comfortable for you to truthfully say). Also, plan ahead for who is going to answer each type of question (she takes the relationship questions, you handle the finance issues, etc), so there is no glancing back and forth, or talking over each other.

Most important thing is to chat with either a broker or a friend who sits on a tough coop board, so that you can get prepped for the questions. Its a one-shot deal, and you definitely will not get a second chance. If you know what to expect, and you have good, succinct answers, then you will likely glide through and have a new home in a good building.

For Reference, Federal law covers:
1. race
2. color
3. religion
4. sex
5. familial status
6. national origin
7. disability

New York State Human Rights Law protects the following additional classes from discrimination:
1. age
2. sexual orientation
3. military status
4. marital status

And NYC adds these three
1. Lawful Occupation
2. Family Status
3. Lawful Source of Income

Onward and upward,

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.

thanks pkiracofe, for the careful informative post.

crescent22, FYI, i'm feeling the same way about this. i just don't feel that we can afford something like 950K. my guess is that the co-op board would feel the same way? i mean, realistically, would a board approve of a $900K purchase given our financials? my gut tells me NO based on the anecdotal stuff that i've heard from people about co-op boards. but that's what i was hoping to hear from streeteasy posters...

You could choose to take the plunge now if you're really into owning a place, and odds are it will work out in your favor provided you stay long enough and the income stays at least stable long enough. However, I would want the market moving up as a tailwind instead of trying to catch this falling knife. The momentum in real estate and stock markets that promulgates from human psychology is easily underestimated.

Given the current market conditions and the noises coming out of coop boards I would base it all on your base, guaranteed salary. You should have been earning just about the same or a bit more a less for the past 2 years.

160K + 87K (hers will be looked at as iffy) = 247K
x 25%(most coops look for that debt income ration)
= $6175 is what you can afford per month, assuming you have no other debt.

I would estimate you could afford an apartment in the range of 550K to 700K
20% down at the high price is 140K 250K + 45K = 295K - 140K = 145K

560K mortgage with a 5.5% rate, 30 year fixed = roughly 3100 per month plus mt of say 800(?) = 3900

A board and a bank would look at you and say...hmmm these are conservative young people. They are not pushing themselves to the limit...they have 3 years of mtg and mt in the bank, just in case...

That is what you could comfortably afford.
You might be able to push it to 750K or even 800K depending are factors you didn't give.

Good luck

In fact, I think this "what if" problem is underreported as holding the market back now. Lots of people are figuring their affordability on the fear that one income disappears. Not a problem in a booming economy when a lost job is easily replaced with another. In a recession where we can't feel out the bottom now, contingency planning has to occur. Brokers have no answer for this except for deflecting the issue to the typical tax benefits and maybe the market will go up blather.

Crescent22 - there is, in fact, an emerging trend to address exactly that 'what if I lose my job' scenario. A number of developers are now offering various forms of job loss guarantees, in which they will cover your mortgage and common charge payments for a period of time (12-24 months) if you lose your job within a limited period of time (say 12-18 months) after closing. I am not presently aware of any private versions of that arrangement happening in the resale or coop market, so it unfortunately does not apply to Paul10003's question.

And in the interest of fairness, I should point out that buyer-oriented guarantee's like this, and similar ones to protect against price drops, are often being introduced *to* the developers *by* the brokers. While there are plenty of valid complaints against certain brokers and practices, this is a perfect example of brokers aggressively working to make condo's more affordable, and helping to reduce the purchasing risks for buyers.

Onward and upward,

- Philip

FULL DISCLOSURE - I am the Chief Technologist at Coldwell Banker and President of Manhattan Association of Realtors. As a leader in the industry and a member of society, I have a vested interest in seeing the housing market and general economy turn around and start rising.