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"Safe" ratio of housing expenses to income

 
 
Igor Chudov
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      02-12-2011, 05:02 AM

What, would you say, is a safe ratio of all housing expenses
(mortgage, insurance, utilities, taxes) to income? No other debts etc.

Due to housing crisis, we were considering a little upgrade. Right now
we run with the above ratio at 15%.

One concern that I have, being a worrywart, is whether the current
income is sustainable. Without getting into details, do you think that
people become less productive after 40?

i

 
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Avrum Lapin
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      02-12-2011, 02:53 PM
In article <(E-Mail Removed)>,
Igor Chudov <(E-Mail Removed)> wrote:

> What, would you say, is a safe ratio of all housing expenses
> (mortgage, insurance, utilities, taxes) to income? No other debts etc.
>
> Due to housing crisis, we were considering a little upgrade. Right now
> we run with the above ratio at 15%.


I think that you could go to 25% but it depends. Are you making
provision for retirement and the kid's education. Would you trade down
from 500 channels and a Blackberry if necessary. Do you shop at WalMart
or Nieman Marcus

>
> One concern that I have, being a worrywart, is whether the current
> income is sustainable. Without getting into details, do you think that
> people become less productive after 40?
>


Are you a professional athlete or a lawyer.

 
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Ron Peterson
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      02-12-2011, 04:24 PM
On Feb 11, 11:02*pm, Igor Chudov <(E-Mail Removed)> wrote:
> What, would you say, is a safe ratio of all housing expenses
> (mortgage, insurance, utilities, taxes) to income? No other debts etc.


Bill Gates is probably at 0.1%.

> Due to housing crisis, we were considering a little upgrade. Right now
> we run with the above ratio at 15%.


Now is the time to upgrade because in many areas existing houses are
selling below replacement costs even though you may have to sell your
current house at less than you think that it's worth.

A good rule of thumb is to consider any house that you buy will cost
you 12% of its purchase price to live in each year.

If you can get something good for a third or less of your investable
assets, you should be safe.

> One concern that I have, being a worrywart, is whether the current
> income is sustainable. Without getting into details, do you think that
> people become less productive after 40?


People become more productive as they age until they go senile or get
other medical problems.

Office politics and age discrimination are going to be the major
problems of older employees. Remember, there is no affirmative action
for older employees.

--
Ron

 
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bo peep
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      02-12-2011, 11:45 PM
On Feb 11, 10:02*pm, Igor Chudov <(E-Mail Removed)> wrote:
> Without getting into details, do you think that
> people become less productive after 40?


No, they are usually more productive, unless it is a very physical
job. They work smarter instead of working harder. However, they will
often be paid less, and have less job security.

Been there, done that, got the T shirt...

 
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JoeTaxpayer
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      02-13-2011, 04:35 PM
On 2/12/11 12:02 AM, Igor Chudov wrote:
> What, would you say, is a safe ratio of all housing expenses
> (mortgage, insurance, utilities, taxes) to income? No other debts etc.
>
> Due to housing crisis, we were considering a little upgrade. Right now
> we run with the above ratio at 15%.
>
> One concern that I have, being a worrywart, is whether the current
> income is sustainable. Without getting into details, do you think that
> people become less productive after 40?


Igor - the old, tried and true ratio for mortgage approval was 28% of
income can be used for PITI, (principal, interest, taxes, insurance) and
36% or so for the total debt service including the prior mentioned. If
this is used with 20% down the risk to buyer and lender is minimized.

More than this is tough to discuss. There's a lot that missing, car
expenses? Even if paid in full, the cost to operate 2 cars is far
different than the cost of public transportation for two. The rest of
your lifestyle? You eating out twice a week? Once a month? Vacations? Kids?

25% has a good feel to it. It's a week's pay, and should leave enough
for all else. Our PITI is at 23% of our base salaries (we make more but
budget the base income). Utilities run about 4%.

Ok, no details. Over 40, depends on type of work.

 
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HW \Skip\ Weldon
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      02-14-2011, 02:10 PM
On Sat, 12 Feb 2011 10:24:26 CST, Ron Peterson <(E-Mail Removed)>
wrote:

>> One concern that I have, being a worrywart, is whether the current
>> income is sustainable. Without getting into details, do you think that
>> people become less productive after 40?


My experience is that many of us lose some of our vigor and enthusiasm
for work. It varies, but I usually see it starting mid-50s.

It often evidences itself in a reduced ability to deal with change in
the workplace. The best fix is early retirement - if the person has
made good choices and can afford it. Otherwise, it leads to stress, a
sense that "the boss wants to get rid of me" and reductions in
productivity.

 
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Ig_r Chud0v
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      02-23-2011, 09:51 PM
On 2011-02-13, JoeTaxpayer <(E-Mail Removed)> wrote:
> On 2/12/11 12:02 AM, Igor Chudov wrote:
>> What, would you say, is a safe ratio of all housing expenses
>> (mortgage, insurance, utilities, taxes) to income? No other debts etc.
>>
>> Due to housing crisis, we were considering a little upgrade. Right now
>> we run with the above ratio at 15%.
>>
>> One concern that I have, being a worrywart, is whether the current
>> income is sustainable. Without getting into details, do you think that
>> people become less productive after 40?

>
> Igor - the old, tried and true ratio for mortgage approval was 28% of
> income can be used for PITI, (principal, interest, taxes, insurance) and
> 36% or so for the total debt service including the prior mentioned. If
> this is used with 20% down the risk to buyer and lender is minimized.
>
> More than this is tough to discuss. There's a lot that missing, car
> expenses? Even if paid in full, the cost to operate 2 cars is far
> different than the cost of public transportation for two. The rest of
> your lifestyle? You eating out twice a week? Once a month? Vacations? Kids?
>
> 25% has a good feel to it. It's a week's pay, and should leave enough
> for all else. Our PITI is at 23% of our base salaries (we make more but
> budget the base income). Utilities run about 4%.
>
> Ok, no details. Over 40, depends on type of work.
>


Thanks, guys. I have been thinking about this all that time. Just was
not sure of the answers.

My type of work is computer programming. I work as a computer
programmer, plus I have some income from websites. I am not sure how
my abilities will be impacted going forward.

There are no other debts besides the current house. Right now our PITI
(as you said) is under 9%.

We are considering buying something to bring that number up to
approximately 20%, after considering mortgage interest deduction.

However, if I exclude my website income due to being less certain,
this percentage jumps to 31%. Considering that house expenses include
utilities and other home care, this becomes more concerning.

In addition to this, I would like to retire early. Retirement does not
mean no work at all, it just means that I will work on my own stuff
(like websites) on my own time and my own schedule. I could always
make money from a lot of things.

Clearly, plopping a bunch of $$$ down towards a bigger house, does not
bring me closer to that goat AT ALL. In the end, it boils down to what
I really want to do with my life, of course, to live in a bigger home
or to be able to not go to work every day. I actually love my job, but
do not like waking up early and the commute.

There is an additional investing consideration. I was very highly
invested in stocks since the winter of 2008/2009 (80% or so), and
almost not at all before that.

This is partly what lets me consider bigger homes. However, with the
latest runup in stocks, and continuing rise in long term yields, I am
sure that future stock returns will not be anything like what we have
seen recently -- the "value" just is not there and they are almost
completely fairly priced.

With this in mind, I look at the real estate market of somewhat higher
end homes, and see tat they have fallen in price below replacement
costs. That cannot last forever and I expect prices to eventually
correct.

In other words, I perceive value in the real estate market. With the
transaction costs involved, I would not buy a home just for
appreciation, but if I could also enjoy a nice house and see it
appreciate moderately, I would be happy. Stocks are no longer as
attractive as they used to be, and higher end houses are cheaper than
ever in recent history.

i

 
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