What would your salary need to be to afford a $650,000 home in Northern VA (Alexandria)? With 20% down.

I'll take a very rough stab at it:

$650,000 - 20% down ($130,000) = $520,000 mortgage

A $520,000 thirty year fixed rate loan at 5.75% is a monthly payment of $3,035 (without property tax and insurance).

If the buyer wants to keep their loan payment to 25% of their net income, they have to bring in about $13,000 a month after taxes, or about $156,000 net yearly income.

$260,000 salary per year. Debt ratios are key. You dont necessary have to put as much as 20% down.

This message has been edited. Last edited by: real estate lady,

REL -- Can you provide your figures? I want to see why our totals came out so differently.

Jewel just a rule of thumb. 2 and 1/2 times annual income.

Sorry....WHAT is 2.5x income?

Edited: I'm guessing that it's the home price to income?

If so, there you have it OP: Two different ways to factor the necessary income for a $650k home.

This message has been edited. Last edited by: Jewel,

Rule of thumb is that your mortgage payment should not be more than 25% of your take home pay each month. Pretty much what Jewel has posted - simply common sense that way you can still live a life and own a home.

Thank you for the replys. I was talking with a friend who is moving to the DC area about houses,etc. He could not believe that he needed 3000-4000 per month and possibly more to afford this house. Made an offer that was accepted but is not final yet because of financing (duh). I'd really hate to see his family in a bad situation because of his hard headedness.

quote:

Originally posted by home4good:
Thank you for the replys. I was talking with a friend who is moving to the DC area about houses,etc. He could not believe that he needed 3000-4000 per month and possibly more to afford this house. Made an offer that was accepted but is not final yet because of financing (duh). I'd really hate to see his family in a bad situation because of his hard headedness.

After reading your post my heart sank for your friend. I had a friend that did the same thing. Bought way too much house than she could afford. Back in the day of the housing boom she was approved for a 400K mortgage making 30K a year. Fast forward 18months and she is now in the process of filing bankruptcy.

If your friend is going to live in NoVa, the price of the house is not all they have to worry about. Depending on the county, the taxes can be quite high - and then the price of many other things are high, as well. Now, if you want your nails done - that is actually alot less expensive than it was in CT, but it really depends on where your friend is going to work (sometimes $600K is worth it so you don't have the expense of longer commute for less expensive house). There are, however, a ton of houses on the market here - and I do hope he looked at all his options and really thought about it. If he doesn't know the area, it is really easy to make a big mistake. I hope he had an amazing realtor that walked him through everything......

quote:

Originally posted by Debid:
If your friend is going to live in NoVa, the price of the house is not all they have to worry about. Depending on the county, the taxes can be quite high - and then the price of many other things are high, as well. Now, if you want your nails done - that is actually alot less expensive than it was in CT, but it really depends on where your friend is going to work (sometimes $600K is worth it so you don't have the expense of longer commute for less expensive house). There are, however, a ton of houses on the market here - and I do hope he looked at all his options and really thought about it. If he doesn't know the area, it is really easy to make a big mistake. I hope he had an amazing realtor that walked him through everything......

I agree with this! I lived in Annandale, VA for many years. It's near Alexandrea and you definitely need to add in taxes and insurance in figuring your monthly mortgage because it will probably go up 300-400 dollars a month in addition to the P&I.

Everything is expensive there.... food, utilities, schools etc.
If he has children he should seriously look into private schooling. If he can find one for 8k a year/child he'll be lucky.

In NOVA there's much more to consider than the P&I of your house...that's just the tip of the iceberg.

Isn't it 33 percent (a-third) of your pay?

The 25 percent sounds a little low and unreasonable to me.

Here in the DC area, no neighborhoods I'd want to live in has houses that inexpensive.

This message has been edited. Last edited by: clbselah,

25 percent is correct. It's better to live slightly below your means. You need to be socking away 10-20 percent of your salary for retirement.

Yes, Alexandria and other desirable close-in areas are very expensive and people do have to stretch in many cases, even though prices are dropping. Prices are dropping much more in areas that are farther out (long and expensive commutes, more foreclosures). What might cost $200K in most cities costs >$600K in comparable areas here.

I think the traditional 25%/33% rules are as a percent of GROSS, rather than net, income. However, I agree with those people who say you should not borrow as much as the lenders say you can afford. Unfortunately, interest rates have gone up quite a bit and unless you pay a lot in points, a 30 year mortgage will now be closer to 6.75% for excellent FICO score applicants.

quote:

Originally posted by My dog:

quote:

Originally posted by Debid:
If your friend is going to live in NoVa, the price of the house is not all they have to worry about. Depending on the county, the taxes can be quite high - and then the price of many other things are high, as well. Now, if you want your nails done - that is actually alot less expensive than it was in CT, but it really depends on where your friend is going to work (sometimes $600K is worth it so you don't have the expense of longer commute for less expensive house). There are, however, a ton of houses on the market here - and I do hope he looked at all his options and really thought about it. If he doesn't know the area, it is really easy to make a big mistake. I hope he had an amazing realtor that walked him through everything......

I agree with this! I lived in Annandale, VA for many years. It's near Alexandrea and you definitely need to add in taxes and insurance in figuring your monthly mortgage because it will probably go up 300-400 dollars a month in addition to the P&I.

Everything is expensive there.... food, utilities, schools etc.
If he has children he should seriously look into private schooling. If he can find one for 8k a year/child he'll be lucky.

In NOVA there's much more to consider than the P&I of your house...that's just the tip of the iceberg.

If he has school age kids, he should consider living in some other parts of NoVA rather than Alexandria City (I'm assuming the OP is talking about AC rather than Fairfax County). Public schools in Arlington and Fairfax County are generally excellent; no need for private schools.

Now is not the time to buy in northern VA.

quote:

Now is not the time to buy in northern VA.

I agree and tried to tell him. They are on their way to the new house in Alexandria this Friday. I lived there previously in the same area they are buying and loved it. But there is no way we could afford to be there now.

I think it's a fine time to buy IF you'll be there for the forseeable future.

So what the house MAY go further down in value, if you're there long enough it'll evenutally come back up.

I wouldn't put my life on hold waiting for others to get the economy together.

Be smart about whether buying is right for YOU, and do what you need to do.

quote:

I wouldn't put my life on hold waiting for others to get the economy together

Why are you putting your life on hold by not owning a house? And if you buy a house and it goes down in value, you hare certainly put your "life" on hold, or at least your financial "life" waiting for it to come back up to what you paid for it. In the meantime you have paid thousands of unecessary dollars in interest and loan fees that you may never recoop. Once you "own" it, I call it renting from the bank, you can't unload it easily if there is a job loss, transfer or family emergency that makes it unwise to stay.

home4good, I am curious. Do you know what your friend purchased the house for? How much for down payment? The loan rate? The terms of the loan? (I/O, ARM, 30 year fixed, etc.) And do you know his salary?

I am real curious because lenders are really tightening up these days, and I hope your friend educated himself before going forward with this.

quote:

Originally posted by bmrbabe:
home4good, I am curious. Do you know what your friend purchased the house for? How much for down payment? The loan rate? The terms of the loan? (I/O, ARM, 30 year fixed, etc.) And do you know his salary?

I am real curious because lenders are really tightening up these days, and I hope your friend educated himself before going forward with this.

Ironically, these standards may "save him from himself." If I understood home4good correctly, his friend still has the financing contingency outstanding. If he's really over his head, maybe the lender will not approve the loan with the tightening standards these days. Obviously, we know I couldn't say this with any confidence until very recently!

A person can only make the best decision he/she has with the information at hand.

If a person has enough savings, a family, and wants to buy a house, IF they are SMART about their own situation, then buy.

I bought IN THE WASHINGTON DC area while the market was still going up in the height of Spring of 03. So I know the market where talking about.

After I bought prices still went up -- and now they're down.

Granted, they went up so much, that in my case, they're not down to where I bought (yet).

I bought at 220, and could still sell for 350.

As long as I have a job, and my job is fairly secure, I'll be here. So if prices go down and then up, in the interim why should I stress bout it?

It's like stocks. If I'm holding for the long haul the SWINGS IN THE MIDDLE aren't important.
The only trned that matters is the one that happens to be current when YOU SELL.

And if you get caught in a down market, there's nothing you can do about it anyway.

If a person buys today and prices still go down but they're in their house for 20 years then I don't see the issue.

Would I buy now, knowing I'm selling in five years? NO.

That's the whole point of know a person's PARTICULAR SITUATION and being intelligent about what you're doing.

quote:

home4good, I am curious. Do you know what your friend purchased the house for? How much for down payment? The loan rate? The terms of the loan? (I/O, ARM, 30 year fixed, etc.) And do you know his salary?

$650,000. I do not know the down payment. He was working on a loan around 6%. His salary is around $85,000 (AF major). That is my main concern. He seems to think he will be promoted, but even that raise will not bump him to where he needs to be. And he is not one to keep his mouth shut about anything (that's why I know all this) so there doesn't seem to be a rich relative in the picture. The kicker is that he will most likely only stay in the DC area for 3-4 years. I assume everything went through with finacing, etc. since they are due to close tomorrow. But if they are happy........ more power to them.

Happiness can be fleeting! I hope it works out for him.....