My family of 4 had the same income as you when we built our 2500 sf home for a final cost of $262,000.

With todays interest rates your payt would probably be lower than our $1500.00. We're getting ready to refinance.

We have no car payments, no credit card debt, our boat is paid in full. We are a one income family so we don't have the work expenses that you would have for 2 but we do have the expense of 2 children.

We manage just fine. We go on vacations and live a nice life. BUT and this is a big BUT, if we were forced to buy a new car for whatever reason, that would put a big dent in our savings and monthly fun money and things would get extremely tight.

I'm very, very budget focused. I could see how we could get swallowed in debt if I wasn't constantly on top of the budget and saving for even the smallest of adventures like a $100.00 concert.

Good luck to you, seems like your expectations are fine to me if you aren't a shop-a-holic or drowning in credit card debt.

One other thing, we rarely eat out. Maybe once every other week. This saves a ton of money!!!

Whether or not you can do it is going to depend on your lifestyle. Charliedawg's post is an example of the attitude needed.

You don't say what - if anything- you have in the way of equity to provide a monetary foundation for your hopes. Don't start the build unless you have at least 1/3 the cost in cash-available money, over and beyond the basic one-year's salary for emergency living. That means you should have $86K for emergency PLUS a minimum of $90K for the house. Don't finance more than you can reasonably pay off in twenty years (IMO, 30-year mortgages are for suckers because most of the money in the payment goes to pay off the interest, no matter how low the rate). And do be sure you and spouse are comfortably on the same page because even the very best build will stress the marriage beyond the worst you can imagine.

Can you afford a $250K house on $86K income? Of course you can! The question is really whether or not you WANT to make the adjustments that are required to be fiscally responsible. If you have doubts about your ability to manage financially, take the coming year to practice living on 1/3 of your income (putting the other 2/3 into savings of course). It is possible to have a very fulfilling life (with plenty of non-essentials) while using very little money for living expenses -- you just need to determine what is essential for now and what is worth saving for the future. BTW, I do know what I'm talking about... my first house was bought for $30K ($300K in today's dollars) while my income was less than $15K. Paid off in five years. If you want to really know the joy of freedom, try having a paid-for house while owing nothing to anyone for anything, lol.

I second that. I was 23 and my wife was 27 when we bought our first house and though we didn't have the full cash amount that meldy nva recommended, we did have a total of $40k in savings that we put down on a $215k house and at the time I was the only one working (wife hadn't found a job yet) and was only making about $42k a year. We never spend extra money on nonessential things because our goal is to have our mortgage paid off by the time i am 30. Now i am 25 and am nearing the end of our second house with roughly $60k going into it. This time though, we are doing most of the "finish" work on it. This house was appraised at $265k and we will have $185k in it. So basically save like you've never saved before and you'll be fine. just don't listen to your friends when they all want to go our for an expensive meal with a bunch of drinks - it's not worth it.

cape

I remember back in 1993 when I got married and my wife and I bought our first home, new construction from Toll Brothers. It was 2750 square feet, 2 levels + unfinished basement colonial. A nice house. The bill when we closed was $290K. We put 20% down so our mortgage was around 230 or so. Interest rate was 7.125%. Combined we were doing a little better than 86K per year, but not by much.

When we first bought it, we were both concerned about the size of the mortgage. After 3 years, we were kicking ourselves for not buying a bigger house. Needed a larger tax right off, salaries went up. But we kept the house for another 10 years and without it, we would have never been able to build the dream house we finished last year.

I think if the 2 of you have very stable jobs and an 8 month reserve fund (it used to be 3 months, but Suzzie Orman has convinced me that is no longer good enough), and you have great credit and no credit card debt - then you should be able to afford the payments and buy the house. Just remeber to factor in the TAXES and Insurance into those monthly payment calculations.

The other thing to keep in mind is that when you buy a new house it won't look like the model. It will have white walls and require a lot of decorating and painting to make it look like the vision you have in your minds. Take a long view on things - maybe a 5 to 7 year plan - to make all that happen. Don't be tempted to start buying lot of stuff and run up your debt.

Even though the market is in the crapper right now, owning a home is still one of the best investments you can make in the long run. It is also very satisfying to own a place of your own and shape it into your vision. It is hard work - but worth it.

Good luck to you!

YOU ARE APPROVED!!!!
Enjoy the building process and good luck.

there is no doubt you can afford a 250k hime on your income but the thing you must do is make a good estimate on the security of you job situation. a lot more people are going to loose their jobs before this economy turns.

Good thing I didn't know about such things as GDS/TDS when I bought my first home for $40,000 while making $4,000 a year.

How secure is that income? Might you have to move to replace that income? Personally, I'd have at least a year's living expenses in reserve.

The payments are probably do-able, but I wouldn't consider building right now until I'd seen every house for sale in a 10 mile radius.

In my part of the world, you can't come close to building for the buy price.

Do-able, but the question is not only can you afford the mortgage, can you afford the insurance, taxes, etc...
Was surprised that I am paying over $5,000 a year in real estate taxes. Not an amount that I considered in my initial budgeting process.

Do-able...but in my OPINION (and yes, this is only an OPINION); I, Jason, personally wouldn't. I think the economy is on a roller-coaster further, and further down, and there's no way I'd build a house at 4x income. I also (and please, don't take offense at this), do, softely, politely question the idea that a 20-something with no kids needs a 2600 square foot house, given the trend in housing, for both affordability and energy considerations is much smaller.

You of course, know your situation better than I, so I do apologize if any of this would be considered offensive. I can only say; this deal is not for me; it wasn't when I was in my 20's (and oh Lord I'd like to go back to those days), and it isn't a deal for me now.

I wish you nothing but the best of luck.

cape

Keep in mind that if you have great credit and no debt, you can probably get an interest rate between 4.5% and 5%. I just refi'd and got 4.875%. You may never see money that cheap again. These rates are less than what my parents paid back in 1965 when they bought their first house.

Things weren't great in 1965 - my Dad was making 7500 per year and bought a house for 30K - which was 4X gross (you are at 2.9X gross). That house was a key reason why my parents retired at age 59. BUT - key point - they stayed in that house for over 30 years. So if you buy, make sure it is what you want and plan on living there for a long time. If you plan on moving within the next 5 to 7 years, then don't buy the house - rent.

If both of you have stable jobs then you can afford the house and you should take advantage of the low rates. Eight months reserve is plenty, a year or more reserve is even better.

Listen to Suzie Orman and you will be just fine! Get her latest book ($ advice for 2009) which is a very fast read. There are many topics that apply to your situation in there.

Good luck.

You might also consider the increased cost of utilities in your new bigger house. Also, what if gas spikes back up to $4/gal or more. Is that going to put you in a cash crunch?

Are you wanting to start a family? Are you certain that your wife will not get pregnant? What if she did and had to stop working due to the pregnancy? BTDT...

You got enough slop in there for medical emergencies, copays at the DR, car repair etc?

I'm not expecting an answer from you, just wanted to throw some things out to think about. If you've got a nice cash cushion in the bank to absorb some of life's curve balls(and they will happen), go for it.

But if a couple of the above things happening will put you in a serious bind...proceed very carefully.

If real estate were still going up, I'd say go for it, but in the current climate, I'd be careful. If you built a house in FL a couple years ago at the 'going rate', you'd be about 30-40% upside down right now! Some areas haven't gone through the ridiculous hike in prices, and so might be a safer bet. $250K for a house that size would be a bargain in some parts of the country, not so much in others. You should do a lot of research into past and current trends in your area, and include employment trends as well.

We are very conservative, having bought our current house for roughly one year's gross. We also don't have car payments or credit card balances. The upside is that we could live comfortably on one person's salary.