Advice on how much of a mortgage to get

Dublin106

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Hello

Starting process of looking at perhaps looking at houses next year, to buy in 2015 or 2016 and not sure how much to borrow - what is prudent, what is over-extending ourselves. Somer personal details:

Both 34 years old, no children yet, married
Both professionals in finance
Man on 72k pa and wife on 70k pa
Net joint income is about 7,300.
paying 1,200 per month in rent currently
have 40k saved for deposit
have another 40k rainy day savings (not to be used for house purchase or anything else)
no loans or other debts
Currently saving about 2,500 per month towards deposit.

Plan would be to buy in south dublin a house built in 40/50s - average 3 bed semi D with garage but in need of renovation.

Want to borrow for house and pay for renovation in cash.

What do you think is a prudent amount to borrow?

Was thinking of:

House to buy price 525k
borrow 483k
so online that would suggest mortgage of 2,400 per month which is about 33% of net monthly income (we both plan to work)

we have deposit saved already and over next year or two will have renovation month saved.

So if that far too much or prudent? dont want to borrow too much, want to have kids so will have creche fees hopefully one day also could have long-term sickness etc so want to be prudent but also the house we buy will mostly likely be forever, don't plan on trading up or anything.

Any advice? Crux is 7,300 net monthly income, 2,400 mortgage payment - too much?
 
Personally if it was me I would be aiming to have as much cash saved as possible. Why not try to gave a frugal year or 18 months and try to save 3.5k a month. Start a spending diary to see where all your money is going. Are your jobs permanent? Have you pension funds or is that why your holding back with the other 40k.
 
We are saving as much as possible, pension is fine just want to keep the 40k as rainy day savings. jobs are permanent yes.

by the time we do buy say in 2016 we'll have about 120k saved - 50k for deposit/fees and 70k for rennovation.

Just want to know what's prudent proportion of your take home pay to pay out in mortgage. Is 33% of joint income mad. is 480k mortgage for 2 earners on 140k mad?
 
Seems like an awful lot of money to me. I'd be considering how secure the two jobs were and doing the numbers to see if I could pay the mortgage if one job was lost or if one decided to give up paid employment to care for a child or due to illness. And what if interest rates spike? My mortgage is roughly 20% of total net income, I find that a comfortable level.
 
Absolute insanity IMHO.
At current rates you're looking at approximately €1900 a month in interest payments alone on that kind on lending.
Now add to that €80 a month in property taxes and all the other associated costs of home ownership - TV license, bin charges, insurance, maintenance etc and you're well over €2k a month in costs.
Now this is all before you start paying back the half a million in capital!
Over 20 years you are looking at approximately 740k in repayments at current rates, 900k on the 30 year term you're looking at.
 
I would be inclined to base my projected borrowings on one income and not two.
You really do run the risk of painting yourself into a corner with that level of borrowing.
Your entire landscape could change rapidly when kids come along. I know, mine did.
 
I don't want to live in a half a million house but unfortunately in south dublin that's the cost of an average 3 bed semi d and that's ideally where we want to live. And if a couple on €142k can't afford these houses who can.

Given our level of earnings what do you think is an appropriate mortgage?
 
I'd defo look at your spending....me and my OH earn about 10% less than you both but save nearly 1k a month more (and thats with 2 kids in childcare!).

And we're in the market for the same-ish type of house as you in SCD (we want a 4 bed), but have managed to build up a large deposit over the past 5 years meaning a much smaller mortgage is needed (or that was the plan before house prices went nuts again in SCD).

Personally I would'nt be comfortable with a mortgage over 2k a month (and thats with interest rate rises built in), and even then, I'd overpay the mortgage in the 1st few years to get it down.

The way I look at it is - how much of a mortgage could you afford on your own salary only? When the kids come along, the other salary will go for childcare (or perhaps 1 of you will want to give up work and stay at home for the early years - kids change your mind on a lot of things!)
 
Well if two people on the guts of 140K cannot afford 480K mortgage who can.

Currently they are paying rent of 1200 and saving another 2500. So 3700 out of their income of 7300K. So about 50% of their income is capable of being used for mortgage. But they don't want that much they want to spend about 33% which would seem reasonable. Being about 2400 a month. Which gives lee room for a good stress test. And still leaves some for creche fees later if required.

Plus he'll have the cushion of the renovation money if needed. Not allowed to talk about property prices though. I see there are hints the ECB are going to lower interest rates, might be an idea to fix if as a first time buyer you get a good deal.
 
On the face of it, I don't think it's an outrageous amount for a couple on good salaries to borrow.
But the questions I would ask myself would be:
Is maternity leave paid at full salary? For how long? How long would your wife like to take out of work after a baby?
Crèche fees of around €1000 a month. Work that into the equation. Now work twice that in for two babies.
Work out what the mortgage would be if interest rates go up by 1%, 2%, 3%.
Could you overpay for the first couple of years until babies come along? That builds in a bit of slack?

Do a budget spreadsheet & account for every bit of expenditure.
 
I would base it on one salary if you really want comfort, with the best will in the world anything can happen to one job or read the parenting forums, the amount of people who no longer want to work outside the home or want to work part time to bring up their children is huge.

No matter what you might think now when children arrive it could be very different.
 
Isn't the conventional wisdom that your accomodation should cost no more than one-third of your take-home pay? You just have to remember two things. That when you own a house, the cost of the accomodation is not just the mortgage repayment cost. And that one-third is a limit, not a goal (just 'cos you could be paying e.g. 3,000, doesn't mean you would't be just as happy, if not happier, in a place that only cost 2,000).
 
A mortgage of 2400 a month is absolutely ludicrous.
If you have kids and one parent wants to give up work for a few years, wouldn't it be nice to be free to do that?
People don't realise when they have kids that even if they are at school, there are afterschool activities and homework etc. It's a fulltime job.
So you either end up trusting the afterschool people/childminder/au pair to do the homework with them, or you come in hassled after work, make the dinners, then are sitting down to do homework after dinner at 7.30pm when they are tired and you are even more tired and short on patience with people getting spellings wrong.
I guess if you have willing grannies and the like that's fine, otherwise factor the childminder's salary in there.
 
Hi, if this is the area where you want to live go for it, why are you waiting until 2015 or 2016? You are keeping 80K for emergency & renovating. I would use approx 60K of this towards the payment of the house, this will bring the mortgage down to approx €2,100. Then I'd save like hell (minimum keeping the 2,500 per month) giving you back the 80K for emergency & renovating in two years time, so you would be in a good position here!
 
On the face of it, I don't think it's an outrageous amount for a couple on good salaries to borrow.
But the questions I would ask myself would be:
Is maternity leave paid at full salary? For how long? How long would your wife like to take out of work after a baby?
Crèche fees of around €1000 a month. Work that into the equation. Now work twice that in for two babies.
Work out what the mortgage would be if interest rates go up by 1%, 2%, 3%.
Could you overpay for the first couple of years until babies come along? That builds in a bit of slack?

Do a budget spreadsheet & account for every bit of expenditure.

Dublin106 on the face of it your figures add up and I don't think there is anything particularly ostentatious about your figures. But…. please listen to the advice above. Children change everything. Particularly if you have two. It's a different ball game. It's all very well now calculating projected incomes on 2 full salaries but you may not want to but a baby in full time childcare when the time comes.
 
Isn't the conventional wisdom that your accomodation should cost no more than one-third of your take-home pay?

That's a general rule but it doesn't always apply, particularly where people are high earners. That's because if their living expense are say 10% of salary they can afford to pay more than a third on mortgage.

Agree that borrowing the max is not a goal, but the OP seems like a sensible chap.
 
Dublin106 on the face of it your figures add up and I don't think there is anything particularly ostentatious about your figures. But…. please listen to the advice above. Children change everything. Particularly if you have two. It's a different ball game. It's all very well now calculating projected incomes on 2 full salaries but you may not want to but a baby in full time childcare when the time comes.

And the worst think he could probably do is buy a too small place that he hates. Better to buy something that will be suitable. And the market for decent family homes, semi detached 3 to 4 beds is a very strong market, always, in Dublin.
 
Thanks for the advice all.

Quick question - if a finance couple on 142k pa can't afford a 3 bed semi D in south dubin for 0.5m who can? who is buying all these houses? in the likes of ballinteer, rathfarnham, dundrum etc?

everyone here saying shouldn't get a 0.5m house effectively meaning i cant live in these places (or haven't saved enough) but who can afford to then?

I'd think at 142k pa we'd be in the top 5% of earners, maybe top 10%? so top 10% should still be able to afford to live in those areas as there's literally thousands of the same type of house -standard 3 bed semi D with garage to the side.....
 
Dublin106 people are not saying not to buy, they are saying to be careful. But you can also be too careful.

As to who is buying, people like you of course. If you've two secure jobs what is the problem. Let's say one of you lost a job, then it could be a problem, but it's not a problem if you can sell.

And the most important thing is location location location. A 3 bed semi D in a good Dublin suburb, hard to go wrong there.
 
Thanks for the advice all.

Quick question - if a finance couple on 142k pa can't afford a 3 bed semi D in south dubin for 0.5m who can? who is buying all these houses? in the likes of ballinteer, rathfarnham, dundrum etc?

everyone here saying shouldn't get a 0.5m house effectively meaning i cant live in these places (or haven't saved enough) but who can afford to then?

I'd think at 142k pa we'd be in the top 5% of earners, maybe top 10%? so top 10% should still be able to afford to live in those areas as there's literally thousands of the same type of house -standard 3 bed semi D with garage to the side.....

There has been indepth conversations around this over on thepropertypin. It's a mystery to me where all these folks that can afford 500k+ houses are coming from...a lot of professional people are getting their income from Govt supported schemes such as NAMA. There there are inheritances, transferring of homes through the generations etc
 
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