"Safe" ratio of housing expenses to income

Discussion in 'Financial Planning' started by Igor Chudov, Feb 12, 2011.

  1. Igor Chudov

    Igor Chudov Guest

    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
     
    Igor Chudov, Feb 12, 2011
    #1
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  2. Igor Chudov

    Avrum Lapin Guest

    In article <>,
    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%.


    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.
     
    Avrum Lapin, Feb 12, 2011
    #2
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  3. Igor Chudov

    Ron Peterson Guest

    On Feb 11, 11:02 pm, 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.


    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
     
    Ron Peterson, Feb 12, 2011
    #3
  4. Igor Chudov

    bo peep Guest

    On Feb 11, 10:02 pm, Igor Chudov <> 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...
     
    bo peep, Feb 12, 2011
    #4
  5. Igor Chudov

    JoeTaxpayer Guest

    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.
     
    JoeTaxpayer, Feb 13, 2011
    #5
  6. On Sat, 12 Feb 2011 10:24:26 CST, Ron Peterson <>
    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.
     
    HW \Skip\ Weldon, Feb 14, 2011
    #6
  7. Igor Chudov

    Ig_r Chud0v Guest

    On 2011-02-13, JoeTaxpayer <> 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
     
    Ig_r Chud0v, Feb 23, 2011
    #7
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