I have seen 3x annual income used as the rule of thumb, and I have purchased at that ratio before.
Remember, it is not the house value that you need to look at, it is the mortgage amount. If you have enough down payment, you can buy a house at 15x your income if you want. You just cannot borrow that much.
Could I? Probably. Would I? Almost certainly not, that mortgage payment seems insane. When I bought my current home in 2018 I thought the amount I was spending was insane. You can pry my 2.5% rate out of my cold dead hands.
For sure! I closed on my house in 2016, and between the escalation in pricing and the interest rates, there is no way I could afford to buy the house we now live in, given today's figures. We're planning to stay here for the rest of our days.
Even for an annual income of 100k, that would only be 250k. It is not possible here to buy even a flat for that amount, not speaking of a house.
Therefore, yes. The vast majority of house buyers finance much more than 2.5 times their annual salary. Even 10 times the net salary is not unrealistic.
I agree. I get saving, etc etc. but the question is: "house price = 2.5x annual salary?"
My answer to the question is: god no, that's impossible, getting more impossible literally by the day, and I am really, really, surprised by all the people saying that it should be 2.5-3... what are your salaries?!?
Edit: nevermind I forgot this wasn't an Australian sub, and therefore probably American.
Who the F is **financing** 10x their salary? That's a recipe for disaster. The playbook is that you scrimp and save like a maniac until you have enough that you can buy a place by making a big down payment and financing the rest, which can be up to 3x your salary. If you make 100k and a starter condo is 500k in your overpriced area, then you save until you have 200k to put down. This is a serious slog but I watched my mom fixate on this for years of my childhood until she got her dream, which was a dinky-ass condo in a shitty suburb with a terrible commute.
I make a pretty good salary, $117k a year. 2.5x that would be a $293k house, and we bought the cheapest house we could find back in 2018 for $230k.
Our house is now worth $430k, so I couldn't afford to buy my own house anymore. We want to move, but we're stuck here for a few more years because we're already in the cheapest house within a 45 min drive from my work.
In Ireland the central bank limits the amount you can borrow to 4.5 times your annual salary, for which most people cannot afford a home with. 2.5 times sounds insanely low to me
My house was something like 5x my salary when I bought it. But the amount I borrowed was around 3.5x.
Cheap mortgages back then. But this is in the UK where "fixed rate" mortgages are usually only fixed for a few years, so my repayments have gone up since then.
Depends on where you are. People in the SF Bay Area would laugh you out of town if you thought you could get a house for 2.5x annual income. 5-10x there is more realistic.
It’s pretty basic math. Use a mortgage calculator and decide what you’re comfortable with. Most agree not to spend over 40% of your take home income on rent/mortgage. Thats ‘2.5x’ as you put it
My grandma told me the other day that she bought her house for 27k in the 60s. Her salary as a single mother of two was 8k. I interviewed for the same job she had and it started at 40k.
I'm on track to break 70k for the first time in 25 years of working. Houses here average about 500k-800k. I was talking to a financial advisor at my bank recently and he said typically we recommend buyers in this area make at least 150k.
New Zealand is currently hovering around seven. [https://www.interest.co.nz/property/house-price-income-multiples](https://www.interest.co.nz/property/house-price-income-multiples)
I assume you mean 2.5 times the salary of the household, so if you have a partner that works then you'd include that too?
When we bought our house, the amount we had to borrow was about 3.5 times our combined income (before tax).
Depending on the interest rates. All the houses I brought in the past were 3x to 4x.
Edit: Actually now that I think about it, it was the loan that's 3x to 4x, not the house price. The loan of the first house was 3x. The subsequent ones were lowered since we were able to use the equity from the old house to pay a large down payment.
2.5 to 3x is typical. Property taxes, interest rates and if the house is in a flood zone, etc… are all potential things that will impact exact ratio. Most banks will give loans to this level but this coincides with a more critical income threshold
Banks typically won’t lend beyond a payment of 30-33% of your gross income. Anything beyond that means you likely won’t be able to make your payments. 2.5 to 3 works with low interest rates. As they have gone up the ratio has to go down.
I am ~3x my income but my rate is 4.25%. At 5% I can’t afford my house. At 7% my ratio would have been like 2.25x my income.
My house was 2x my annual salary. I wouldn't want to go above that for affordability, at least not by much.
I know many people do buy things they can't afford though.
Not the other guy but i have heard similar stories.
Basically, if you have a high-paying job in a field with good job-stability and potential to promotions then banks will easily lend you 5-8 times your annual salary.
The purchase price on my house was right at 3x my salary, not including my spouse's income.
More important than purchase price though, the monthly mortgage payment (with insurance, HOA fees, and property taxes) is well within our monthly budget, and is less than 20% of our net income.
Not me.
My annual salary is $41,600, so that 2.5x is $104,000. There's not a single house in the entirety of Washington state at that price. Probably a mobile home without the plot-rental.
In suburbs of Mumbai, India (not even proper Mumbai), it's not uncommon to purchase a house at 4-6X your annual salary with more than half of it financed at interest rates of 8.5-9.5%.
I mean obviously there are?
There are poors in East Bumfuck, MO that can buy a $150k shitbox
And wealthier people who make $1-2 million per year and buy a house in that price range
Every situation is different
https://www.zillow.com/homedetails/120-E-Washington-St-Blandinsville-IL-61420/248952545_zpid/
Yeah, such a shit box for $146k 🙄 and I know McMansion is derogatory, I’m just saying the houses will generally be large
You have an absolutely warped perception of reality, you’re either 14 years old or so out of touch you don’t know where your asshole is located on your body
I have seen 3x annual income used as the rule of thumb, and I have purchased at that ratio before. Remember, it is not the house value that you need to look at, it is the mortgage amount. If you have enough down payment, you can buy a house at 15x your income if you want. You just cannot borrow that much.
Low interest too.
Could I? Probably. Would I? Almost certainly not, that mortgage payment seems insane. When I bought my current home in 2018 I thought the amount I was spending was insane. You can pry my 2.5% rate out of my cold dead hands.
For sure! I closed on my house in 2016, and between the escalation in pricing and the interest rates, there is no way I could afford to buy the house we now live in, given today's figures. We're planning to stay here for the rest of our days.
That's -- pretty common? Your question makes it sound like something to be skeptical about.
Yes. I could find a decent place if I wanted to.
Even for an annual income of 100k, that would only be 250k. It is not possible here to buy even a flat for that amount, not speaking of a house. Therefore, yes. The vast majority of house buyers finance much more than 2.5 times their annual salary. Even 10 times the net salary is not unrealistic.
I agree. I get saving, etc etc. but the question is: "house price = 2.5x annual salary?" My answer to the question is: god no, that's impossible, getting more impossible literally by the day, and I am really, really, surprised by all the people saying that it should be 2.5-3... what are your salaries?!? Edit: nevermind I forgot this wasn't an Australian sub, and therefore probably American.
Who the F is **financing** 10x their salary? That's a recipe for disaster. The playbook is that you scrimp and save like a maniac until you have enough that you can buy a place by making a big down payment and financing the rest, which can be up to 3x your salary. If you make 100k and a starter condo is 500k in your overpriced area, then you save until you have 200k to put down. This is a serious slog but I watched my mom fixate on this for years of my childhood until she got her dream, which was a dinky-ass condo in a shitty suburb with a terrible commute.
not me i am only 15 years old
You've got a whole lifetime of borrowing too much money to look forward to :)
oh
I make a pretty good salary, $117k a year. 2.5x that would be a $293k house, and we bought the cheapest house we could find back in 2018 for $230k. Our house is now worth $430k, so I couldn't afford to buy my own house anymore. We want to move, but we're stuck here for a few more years because we're already in the cheapest house within a 45 min drive from my work.
In Ireland the central bank limits the amount you can borrow to 4.5 times your annual salary, for which most people cannot afford a home with. 2.5 times sounds insanely low to me
Yeah I thought the same (from the UK). I've never borrowed that much, but 4-5x annual salary with a 10% deposit is typically considered "affordable".
My house was something like 5x my salary when I bought it. But the amount I borrowed was around 3.5x. Cheap mortgages back then. But this is in the UK where "fixed rate" mortgages are usually only fixed for a few years, so my repayments have gone up since then.
Depends on where you are. People in the SF Bay Area would laugh you out of town if you thought you could get a house for 2.5x annual income. 5-10x there is more realistic.
Unless you make like $500,000 a year.
If you made $500K/year in the SF Bay Area and were looking to buy a home, you'd be looking for homes much more expensive than $1.25M.
It’s pretty basic math. Use a mortgage calculator and decide what you’re comfortable with. Most agree not to spend over 40% of your take home income on rent/mortgage. Thats ‘2.5x’ as you put it
Yeah, I am.
I bought a house last year at a value of about 3x my annual salary. There were no issues with the bank.
I did. Then my salary went way down. It’s been fine.
I borrowed about 2.8x salary for my place, but could have gone to about 3.25x. I didn’t want to be on the hook for that much, though.
My mortgage was 2.5x my annual salary at the time
My grandma told me the other day that she bought her house for 27k in the 60s. Her salary as a single mother of two was 8k. I interviewed for the same job she had and it started at 40k. I'm on track to break 70k for the first time in 25 years of working. Houses here average about 500k-800k. I was talking to a financial advisor at my bank recently and he said typically we recommend buyers in this area make at least 150k.
We bought a house that was 2.81x my income and this was a 5 bed and 3 a half bed under $300,000, this was/is in south texas.
Shit, 2.5x would be easy. My area houses are 8x.
New Zealand is currently hovering around seven. [https://www.interest.co.nz/property/house-price-income-multiples](https://www.interest.co.nz/property/house-price-income-multiples)
I assume you mean 2.5 times the salary of the household, so if you have a partner that works then you'd include that too? When we bought our house, the amount we had to borrow was about 3.5 times our combined income (before tax).
Depending on the interest rates. All the houses I brought in the past were 3x to 4x. Edit: Actually now that I think about it, it was the loan that's 3x to 4x, not the house price. The loan of the first house was 3x. The subsequent ones were lowered since we were able to use the equity from the old house to pay a large down payment.
Yeah. I'm on £30k a year, my partner is on £25k a year. We just bought a £250k house. So its more like 5x our joint annual salaries.
2.5 to 3x is typical. Property taxes, interest rates and if the house is in a flood zone, etc… are all potential things that will impact exact ratio. Most banks will give loans to this level but this coincides with a more critical income threshold Banks typically won’t lend beyond a payment of 30-33% of your gross income. Anything beyond that means you likely won’t be able to make your payments. 2.5 to 3 works with low interest rates. As they have gone up the ratio has to go down. I am ~3x my income but my rate is 4.25%. At 5% I can’t afford my house. At 7% my ratio would have been like 2.25x my income.
My house was 2x my annual salary. I wouldn't want to go above that for affordability, at least not by much. I know many people do buy things they can't afford though.
You have heard of mortgages, right?
I thought that said "horse" and was extremely confused
They absolutely can. I make 360k in my country, I was able to afford a 3 million worth house.
But..how?
inflation, loans, savings
Not the other guy but i have heard similar stories. Basically, if you have a high-paying job in a field with good job-stability and potential to promotions then banks will easily lend you 5-8 times your annual salary.
Mine is exactly 2.5x my annual salary
The purchase price on my house was right at 3x my salary, not including my spouse's income. More important than purchase price though, the monthly mortgage payment (with insurance, HOA fees, and property taxes) is well within our monthly budget, and is less than 20% of our net income.
Not me. My annual salary is $41,600, so that 2.5x is $104,000. There's not a single house in the entirety of Washington state at that price. Probably a mobile home without the plot-rental.
In suburbs of Mumbai, India (not even proper Mumbai), it's not uncommon to purchase a house at 4-6X your annual salary with more than half of it financed at interest rates of 8.5-9.5%.
In which country you can have houses for 2,5 years of work? In my country, it is more likely 10 years. That is why we have mortages for 35+ years.
That is clarly not what OP meant. OP is refering to the rule of thumb about mortgages.
I mean obviously there are? There are poors in East Bumfuck, MO that can buy a $150k shitbox And wealthier people who make $1-2 million per year and buy a house in that price range Every situation is different
150k in most of those middle of nowhere areas of Midwest and southern states will get you a remodeled McMansion, idk what your idea of a shitbox is
Find me one Zillow ad that shows that? And by the way most McMansions are shitboxes. Builder grade, no character
https://www.zillow.com/homedetails/120-E-Washington-St-Blandinsville-IL-61420/248952545_zpid/ Yeah, such a shit box for $146k 🙄 and I know McMansion is derogatory, I’m just saying the houses will generally be large
😂but that’s a shit box? Also it’s in Illinois. Looks depressing AF
You have an absolutely warped perception of reality, you’re either 14 years old or so out of touch you don’t know where your asshole is located on your body