35% DTI. Work out the monthly mortgage + taxes + expenses + your other monthly debts, that number should be <= 35% of your before tax monthly income. This is the formula all the banks use to qualify your mortgage, DTI could go to to 50% depending on which bank.
I know I’m late to the party but this depends on a lot of factors. If you had no other monthly expenses and had a credit score of 750ish+ plus, you could definitely do that making less than 180k annually
Yes.... Dave often gets that question from CA and his answer is "living in CA does not give you a pass on math." If you spend more than that on a house, then it makes it hard to meet the other financial goals like generosity, becoming debt free, and building wealth. His advice has worked out very well for me.
Agree but if you already have made your money then buying a higher cost home with no debt and a good net worth is not a bad choice. If you have $1.25M which is $50k at a 4% SWR and you make $400k a year then you can stretch the payments to 20% of gross salary on 30y home without significant impact.
30 year loans are extremely rare to be held till maturity. Your comp especially in tech goes up much faster and hence your mortgage can be easily cleared in 10-15 years if you just direct any extra comp on top of current year to your home. Majority of them either get rented out such that rent covers the payment or it gets sold in 10 years by folks looking to upgrade as their comp goes up a lot over 10 years.
Also note that while the bank only requires 20%, most sellers in the peninsula are now asking for 30-35% down payment in financed offers, so 1M mortgage is a 1.5M house with 500k required down payment.
If housing is overpriced in your area, you will just have to go with some ratio that is uncomfortable. I think you still have a choice to live in a very small house or apartment, but no matter what it won’t be comfortable anyways.
The question is asking what is “comfortable”. I’m just trying to describe what is comfortable. 😅
$1M mortgage for a $1.25M purchase price will not get you a SFH in a good school district like Cupertino, Los Altos, mission, Union etc. but you can get a townhome easily. Forget the folks who tell you $400k. It is what the banks are willing to lend. 43% is the golden number for debt to income ratio for a qualified mortgage. This means your TC of $180k can get you $1.4M purchase price at 43% DTI. This includes home insurance and property tax at interest rate of 3.25%
Do not stick with good school districts. Neighborhoods are transforming. Good school districts are already appreciated, there is more appreciation for lower schools. For example look at Sunnyvale 95085, bad schools but great appreciation.
That is a good point about school score changes. It applies to growing area like bay and Seattle. I see traditionally bad schools turning into a great school because of tech population influx. Best ones are adjacent ones to expensive cities.