How much can we afford to spend on house?

[tshortt]

Hi all,

Currently in the process of looking for a house in SCD but unsure as to how much we should be willing to spend.

Joint income - 150k
savings - 150k
Expense
Rent 1600pm
Childcare - 1 child 900pm
No loans
Currently saving 1600pm

How.much do you think we should spend on a house?

I think 500k - my wife wants to look at places around the 600k mark.

Any advice much appreciated.

 

[jim]

What's scd?

 

[PaddyBloggit]

South County Dublin?

 

[gnf_ireland]

Assuming you will use 100k of your savings for the house purchase, this would leave you with a mortgage of either 400k or 500k

Lets assume an SVR rate of 4%, and add 2% for a stress test; and a 25 year mortgage term
400k equates to 2577 a month
500k equates to 3222 a month

You are currently paying rent & saving approximately 3200 a month.

Owning a house has its own maintenance costs etc which need to be factored in, so I would be guessing 500k mortgage may be a bit tight

And of course this also depends on whether you are planning a second child etc.

The final element is how financially conservative you are, and whether you wish to leverage as much as you can or want to take a safer approach.

 

[Sarenco]

That's a very sound analysis from gnf.

One item that people often underestimate is the maintenance costs associated with home ownership.

One useful rule of thumb says that you should budget for €1 per annum, per square foot for maintenance costs. So, for example, you would allow €1,200 per annum in maintenance costs for a 1,200 square foot house. That's not to say that you would necessarily spend €1,200 in maintenance each and every year but rather that would be the average annual cost over a long-term period of, say, 10 years+. Obviously this is just a rule of thumb and you should adjust up or down depending on the age of the house.

Bear in mind that the above just relates to maintenance costs and excludes renovation or fit out costs on acquisition.

Also, don't forget the local property tax!

You are obviously in a very fortunate position financially but when you pull it altogether you probably should be limiting your purchase price to somewhere around the €500k mark.

Best of luck.