What''s your PITI?

[Dreamer_D]

My husband and I will be buying our first home in the next few months and we are trying to figure out how much we are comfortable spending... we know how much mortgage the lender will approve us for, but it is much more than we want to spend! But how much *do* we want to spend?

I have done the budgeting to the last dollar, but I am starting a new job that dramatically changes our gross income, and we have a child now, so figuring out exactly how much we will need (or want!) each month is tough.

So I am curious how much your PITI is -- this is the sum of your mortgage payment (principle + interest), your house insurance, and any property taxes you pay, divided by your gross household income (before taxes). I am also curious whether you find the payments manageable or whether you wish you had spent more to get a bigger house, or less to have more spare cash.

Thanks!

 

[MichelleCarmen]

Regardless of what all of us have done because all of us have had different experiences, IMO, it''s best to look for a smaller house which permits the saving of "spare cash." With you having a child now, it''s best to prepare for unexpected costs as your child grows older. Also, what if you decide to have a second child? Then you have to factor in the additional child care costs if you decide to continue working, or if you choose at that time, to stay home, then adjust for the different income bracket you''d be in then.

With my first home, we had a lower payment, small home and spare cash. . .we worked our way up to higher payments, larger homes, and less savings. In the end, we found middle ground, by renting!!! We''re not even sure if we want to buy again. Hearing my friends talk of needing roof replacements and deck refinishing projects is giving me terrible flashbacks. . . Keep this in mind -> Smaller home means less sq. feet = less cost for replacing a roof AND more chances you''ll have the cash in the bank to pay that out front.

 

[laine]

Mine is about a quarter of my income (regular salary, not counting summer money--I'm a new prof too). Its based just on mine, not FI's. If we include his, its more like 15%.

We bought a house that needs updates (kitchen, bathrooms, paint), so it was more affordable. We'll put more money into it up front to do upgrades/updates, and then pay down the mortgage quicker. I'm thrilled we were able to get the deal we got, and though I was willing to spend a little more (but when we were buying, FI didn't have a job yet, so it was still going to be based on only my income), but I was very glad we didn't have to! I also don't expect our salaries to change drastically over the next several years, so I didn't want to be stuck at the top of our budget. If we were going to be making substantially more money in coming years, I probably wouldn't have minded being maxed out for a few years, knowing it was going to change.

Like I said, I'm in the same situation as you, going from grad student to prof with a huge jump in pay. My income is tripling, and my housing costs are almost doubling. Once I pay expenses, I'll still have way more money left than before. Everyone keeps telling me that my lifestyle and spending will quickly adjust to the difference, so I'm curious to see if that's the case. I tend to be pretty frugal, so I'm not expecting my spending habits to change much. In a few years when we have kids, I'm sure that will change!

 

[Clio]

Ours is 23.5%. Honestly, that''s higher than I''d like, but we live in a very high cost area and have a large-ish family.

 

[Dreamer_D]

Date: 7/23/2009 3:01:09 PM
Author: Clio
Ours is 23.5%. Honestly, that''s higher than I''d like, but we live in a very high cost area and have a large-ish family.

This is our situation as well... I don''t think we could buy anything for less than about 20%, and that would be a very small home with little room to grow.

 

[Dreamer_D]

Date: 7/23/2009 2:46:17 PM
Author: MC
Regardless of what all of us have done because all of us have had different experiences, IMO, it''s best to look for a smaller house which permits the saving of ''spare cash.'' With you having a child now, it''s best to prepare for unexpected costs as your child grows older. Also, what if you decide to have a second child? Then you have to factor in the additional child care costs if you decide to continue working, or if you choose at that time, to stay home, then adjust for the different income bracket you''d be in then.

With my first home, we had a lower payment, small home and spare cash. . .we worked our way up to higher payments, larger homes, and less savings. In the end, we found middle ground, by renting!!! We''re not even sure if we want to buy again. Hearing my friends talk of needing roof replacements and deck refinishing projects is giving me terrible flashbacks. . . Keep this in mind -> Smaller home means less sq. feet = less cost for replacing a roof AND more chances you''ll have the cash in the bank to pay that out front.

How many square feet would you consider small? Just curious! I worry about puying a small house and outgrowing it while the market is still crummy.

 

[musey]

I''d love to see the results as this is something we''re starting to educate ourselves on, but I don''t want to mess up your results by voting for something since, well, we''re renters

 

[Dreamer_D]

Date: 7/23/2009 2:56:56 PM
Author: laine
Mine is about a quarter of my income (regular salary, not counting summer money--I''m a new prof too). Its based just on mine, not FI''s. If we include his, its more like 15%.

We bought a house that needs updates (kitchen, bathrooms, paint), so it was more affordable. We''ll put more money into it up front to do upgrades/updates, and then pay down the mortgage quicker. I''m thrilled we were able to get the deal we got, and though I was willing to spend a little more (but when we were buying, FI didn''t have a job yet, so it was still going to be based on only my income), but I was very glad we didn''t have to! I also don''t expect our salaries to change drastically over the next several years, so I didn''t want to be stuck at the top of our budget. If we were going to be making substantially more money in coming years, I probably wouldn''t have minded being maxed out for a few years, knowing it was going to change.

Like I said, I''m in the same situation as you, going from grad student to prof with a huge jump in pay. My income is tripling, and my housing costs are almost doubling. Once I pay expenses, I''ll still have way more money left than before. Everyone keeps telling me that my lifestyle and spending will quickly adjust to the difference, so I''m curious to see if that''s the case. I tend to be pretty frugal, so I''m not expecting my spending habits to change much. In a few years when we have kids, I''m sure that will change!

Congrats on getting a job! I know it is hard, so good for you.

We unfortunately couldn''t buy anything but a 2 bedroom condo using only my income in the area we are going to be living in, and with a baby and DH working from home, that would never work!

 

[Dreamer_D]

Date: 7/23/2009 3:11:29 PM
Author: musey
I''d love to see the results as this is something we''re starting to educate ourselves on, but I don''t want to mess up your results by voting for something since, well, we''re renters

Vote for the 5% category! I''ll know it is you! I forgot to add a show me the results option...

 

[NewEnglandLady]

We are in the midst of house hunting and live in a high-cost area, but are continuing to save for our downpayment in an effort to get the PITI down to 10% - 12% (or around 20% of our net income after investing and that is on a 15-year-mortgage). Our rent is less than 8% of our gross incomes right now, so we're content to stay and keep saving until we find something that we are head over heels in love with. We know that our budget will keep us from buying something large and we will most likely have to make updates, but it guarantees that I have the option of being a SAHM if that's what we decide to do. And if I don't, we can accelerate paying off the house. It's so easy to keep upping the budget in high-cost areas, especially if you have room in the budget, but the idea of going that far in debt scares the bejeesus out of me. We've been saving for our downpayment for 10 years, so I really hate to let it go!

 

[D&T]

I voted for the 16-20% range but it is 20% and Its ok if you don''t have many bills, I would really like to stay under 10% come next time around

more disposable income I guess

 

[steph72276]

I think you should count your income after taxes because after all, that is what you are going to be actually bringing home every month. I think a good rule of thumb is to have your monthly payment be no more than a quarter of your take home pay. That is what we always go by rather than before taxes.

 

[Giada]

Ours is about 20% of our take-home income (after taxes). We felt comfortable going with a higher percentage because we have no debt other than home and vehicles.

What is "right" for a person depends on so many variables.

ETA: Keep in mind that unless the house is just as you want it, you'll want to save some wiggle room in your budget for decorating, landscaping and upkeep.

 

[packrat]

Our house payment has our insurance and taxes rolled into it. It''s less than 25% of our (well husbands, really, my 1 day a week doesn''t count for much!) take home pay. Our house is small-1000 square feet on main floor and 800 in the basement-I''m pretty sure those are the measurements. Might be 1100 on main..regardless, it''s little!

As far as outgrowing...I think it''s all relative. I''ve seen House Hunters shows where a couple is pregnant so they want to find a place bigger than the 2000 square feet (plus basement and 3 car garage) they currently have and I think HUH?? Don''t get me wrong..my husband takes up a lot of space with all his hobbies and I''ve been feeling the walls closing in on me as of late. It does take some finagling around, but it can be done. Especially if it''s going to save you money!

 

[MustangGal]

We''re at 18% now, but when we bought 6 years ago it was more like 25%.

That''s as high as we''re comfortable going. We bougth a 2 year old house, so it didn''t need much done to it, other than landscaping the backyard, which we did ourselves. Our home is 1524sf, and is actually starting to feel a bit small. One bedroom for us, one for the baby, and office/guest room, and a den with a pool table. If DH would just get rid of the damn pool table it wouldn''t be so bad (although it is coevred with baby stuff now

)

One thing to keep in mind is how much company you''ll have. We''re a 4 hour drive from both sides of the family, so we have guests pretty often, and most times it''s 3 or more people. With just the 1 bed, someone gets stuck sleeping on the couch.

 

[Dreamer_D]

Date: 7/23/2009 3:29:09 PM
Author: NewEnglandLady
We are in the midst of house hunting and live in a high-cost area, but are continuing to save for our downpayment in an effort to get the PITI down to 10% - 12% (or around 20% of our net income after investing and that is on a 15-year-mortgage). Our rent is less than 8% of our gross incomes right now, so we''re content to stay and keep saving until we find something that we are head over heels in love with. We know that our budget will keep us from buying something large and we will most likely have to make updates, but it guarantees that I have the option of being a SAHM if that''s what we decide to do. And if I don''t, we can accelerate paying off the house. It''s so easy to keep upping the budget in high-cost areas, especially if you have room in the budget, but the idea of going that far in debt scares the bejeesus out of me. We''ve been saving for our downpayment for 10 years, so I really hate to let it go!

Wow, that is dedication waiting 10 years! Unfortunately for us, renting is almost as expensive as buying, so it makes it an unattractive proposition. Plus we''d need to save about 100k to make a real difference in our mortgage. That would take so long that the market will be in another universe! LOL!

 

[Dreamer_D]

Date: 7/23/2009 3:56:01 PM
Author: steph72276
I think you should count your income after taxes because after all, that is what you are going to be actually bringing home every month. I think a good rule of thumb is to have your monthly payment be no more than a quarter of your take home pay. That is what we always go by rather than before taxes.

I''d like to stay at this level if possible, but it could mean compromises that are very unattractive -- a busy road, a long commute, or less than 1200sq. ft. Not sure yet if the trade off would be worth it or not!

 

[Dreamer_D]

Date: 7/23/2009 4:02:22 PM
Author: Giada
Ours is about 20% of our take-home income (after taxes). We felt comfortable going with a higher percentage because we have no debt other than home and vehicles.

What is ''right'' for a person depends on so many variables.

ETA: Keep in mind that unless the house is just as you want it, you''ll want to save some wiggle room in your budget for decorating, landscaping and upkeep.

Ooog... I forgot about that!

 

[Dreamer_D]

Date: 7/23/2009 4:14:16 PM
Author: packrat
Our house payment has our insurance and taxes rolled into it. It''s less than 25% of our (well husbands, really, my 1 day a week doesn''t count for much!) take home pay. Our house is small-1000 square feet on main floor and 800 in the basement-I''m pretty sure those are the measurements. Might be 1100 on main..regardless, it''s little!

As far as outgrowing...I think it''s all relative. I''ve seen House Hunters shows where a couple is pregnant so they want to find a place bigger than the 2000 square feet (plus basement and 3 car garage) they currently have and I think HUH?? Don''t get me wrong..my husband takes up a lot of space with all his hobbies and I''ve been feeling the walls closing in on me as of late. It does take some finagling around, but it can be done. Especially if it''s going to save you money!

We live in about 900 no and with a kid it isn''t enough. Our friends have 1200 and I still think it is tight, they need one more common area room -- like a family room/rec room -- so that the kids toys are not all over the place! We are considering buying a smaller home in that range that has a garage we can convert into a family room. You don''t need a garage there, and the extra space would be great.

 

[Dreamer_D]

Date: 7/23/2009 5:27:17 PM
Author: MustangGal
We''re at 18% now, but when we bought 6 years ago it was more like 25%.

That''s as high as we''re comfortable going. We bougth a 2 year old house, so it didn''t need much done to it, other than landscaping the backyard, which we did ourselves. Our home is 1524sf, and is actually starting to feel a bit small. One bedroom for us, one for the baby, and office/guest room, and a den with a pool table. If DH would just get rid of the damn pool table it wouldn''t be so bad (although it is coevred with baby stuff now

)

One thing to keep in mind is how much company you''ll have. We''re a 4 hour drive from both sides of the family, so we have guests pretty often, and most times it''s 3 or more people. With just the 1 bed, someone gets stuck sleeping on the couch.

Or it could force the out of town guests to stay somewhere else, or to stay only a short while

 

[MichelleCarmen]

Date: 7/23/2009 3:09:41 PM
Author: dreamer_dachsie

How many square feet would you consider small? Just curious! I worry about puying a small house and outgrowing it while the market is still crummy.

Sorry I haven''t answered. All the pink avatar shoes are kind of confusing

Anything under 1,500 sq feet I would consider small for more than three people. With You, your DH, and child, that size could work for the time being. Right now, with my kids and pets, we found that a 2,400 sq foot is just right for us. It''s 4 bed. 2.5 bath. Keep in mind that my kids are 7 and 8 so we need more room for them and for their friends (we have company over often). Before this house, we lived in a townhome and it was the *layout*, not the square footage that made the place too small. The design was awkward.

Our previous home was 2,600 sq feet and it was slightly more space than we needed.

As along the lines of you thought, what size *is* considered small to you? How big of a home are you looking to get? Be sure to look at yard size too! Don''t get stuck buying a great house on a 5,000 sq foot lot where there is no room for your child(ren) to play!!!

 

[Haven]

Before we bought our home we mapped out all of our expenses (including what we expected to spend on driving to work, utilities, garbage pickup, etc.) and then added in how much we wanted to be able to save every month, and THEN figured out what we could afford to spend on our mortgage, taxes, and insurance based on what was left.

The key, for us, was that we figured it all out using only my income, which is considerably less than DH''s. We wanted to have the freedom to change jobs, leave jobs, or have one of us stay at home in the future.

I''m really happy we did this, as I am currently contemplating leaving my job, and having the freedom to make that choice feels very good.

 

[Mara]

Ours is about 20% and we also live in a very high-cost area.

When we chose this house and cost, my main requirement was something that we easily could pay on one salary. That way if one of us lost a job, or we had a child and I was out for a period of time or something happened, then we would not be worried about having to cover our most immediate needs. I included all our expenses as well as savings when we were calc'ing.

We don't have a lot of other expenses, no other loans or cards except for one car payment ...so the house is our big thing. But even though it's only 20%, I hate paying that much for a mortgage on what kind of house we have honestly (small).

My two cents on size. We moved from a 1850 sq ft townhouse to a 1550 sq ft house with a yard (it was 1750 when we bought it but we converted a family room back into a 1car garage and lost 200 sq ft), it's 3/2.5 like our old townhouse BUT the loss of the sq ftage makes a BIG difference. Honestly we could put one kid in here but that would be IT. It is already 'crowded' feeling to me with just us 2 and our dog who is only 20 lbs.

So definitely be realistic about your square footage and layout needs. I love the house, it's super cute and we adore our yard which we didn't have at the TH but sometimes I am wistful thinking about all the crazy amts of random space we had at our old place. Oh and closet space is important. And storage space (basement or attic or garage)...is just as important as living space. I hate clutter so I require everything to be stored if we don't use it. If you don't have a lot of space that is hard.

Best of luck while you are looking, it's fun and stressful at the same time. Oh one more thing, if you have a child think about schools. In our area, it was worth it to spend a bit more to get a smaller house in a very good area for an elementary because we thought we'd want to have a child soon. If you already have a child, and are thinking 5+ year plan, think about the elementary you want them to go to. Unless you plan to pay for private.

 

[MichelleCarmen]

Date: 7/24/2009 3:00:00 PM
Author: Mara
So definitely be realistic about your square footage and layout needs. I love the house, it''s super cute and we adore our yard which we didn''t have at the TH but sometimes I am wistful thinking about all the crazy amts of random space we had at our old place. Oh and closet space is important. And storage space (basement or attic or garage)...is just as important as living space. I hate clutter so I require everything to be stored if we don''t use it. If you don''t have a lot of space that is hard.

If you''re planning to have one kid while in a smaller house (and decide not to have another) one other thing to keep in mind, say you do plan to stay in that home long-term, is there a second bedroom that is big enough for the child once he/she becomes a teenager? Our current home (that we''re renting) has a HUGE master bedroom and a large bedroom (which we use as on office). The other two bedrooms are too small for teenagers, so if we do stay here, even at 2,400 sq. feet, in some ways the house is "too small." One of the two kids will always be cramped in his room.

And 2nd to what Mara said about storage. To me, it''s vitally important to have a linen closet! Without that, all our blankets and sleeping gear gets crammed into the other closets and we loose all that space, so all the kids toys end up scattered and it kind of creates a domino effect of messiness & chaos. Also, little drawers and misc. storage nooks come in handy for games and coloring books, etc.

 

[lyra]

As I''ve said before, we used to live somewhere around where you are going to be. Our first house was 1350 square feet, no basement, no garage, 3 beds 1.5 baths. Once our second daughter was born, it started feeling cramped, so we moved when she was 2. Our second house was 1550 sq ft and had a family room, 2.5 baths and attached garage. This worked well for about another 3-4 years. Then our third house we jumped to 2750 sq ft and I was in heaven. This was 3 bdrms, games room, plus a den and a large lot. It was my dream house, but only one year in my husband lost his job and we had to move across the country. In all our houses there, we had long commutes. That was the only way to afford something of the right size and a nice neighbourhood. It was never even possible to live near where my husband worked!

We always had to keep to the 20% of take home pay range since we''ve only ever had one income once the kids were born. Our current house is too small for me, but we had a second and third job loss, so we had to downscale. You *can* by all means have teenagers in rooms that are small. They have to make do, and so do all their friends for the most part. Our girls are in small rooms and they are in college this year, so YMMV. I would only plan to be in a house for 3-4 years, as this is actually the standard in Canada. I honestly wouldn''t look for something that would last longer than that, or worry about it. Once you''re in the market there, everything becomes relative, right?

 

[ksinger]

Was 11, now it''s 7.

 

[IdLikeToBuyAVal]

My fiance and I bought our first home in November and it was definitely a learning process. We spoke with a financial advisor BEFORE we started looking and it was honestly the single most helpful thing we did. We planned on spending no more than 2.5X our gross incomes at the time and we stuck to that budget. Real estate agents will point you to the higher end of your price range but you need to figure out what you''re comfortable paying and stick to that.

Everything currently works out to be 25% of our current net income (figure everything on net income if possible, you don''t get the government''s share of your check back!) We were comfortable paying that because we were 23 & 24 at the time so still fairly new graduates and our incomes most likely will increase in the next few years. Andrew is actually starting a new job in two weeks so that will help too.

I''m an accountant so I''m constantly fiddling with our budget and money and before we bought we decided what our max purchase price would be and started pretending we had a house payment. We paid our rent at the time (about half of what our current PITI is) and put the remaining amount of our calculated house payment in an online savings account. That way we could see the impact of the house payment on our budget and make sure we were comfortable with that amount before we every bought anything. We did that for six months, on top of the amount we were already saving toward the down payment. That was a big help too and we didn''t get the "sticker shock" that a lot of our co-workers got when they bought their first houses.