Dr. Thomas Stanley had a post yesterday about the houses that millionaires live in, and his figures may shock you.
It seems that a whole lot more millionaires live in houses that cost less than $300,000 than those who live in homes that cost more than $1 million.
The median home price for the millionaires in his study was 1.49x yearly earnings. If you think about it, that’s kinda low for most people. Using this number, someone who makes $100,000 a year would live in a house that costs only $149,000. A quick look around the web shows people recommending 2x-3x annual income as the commonly accepted number.
I don’t want the commonly accepted number, because the common man is broke. I’d rather use the exceptional number used by the millionaire!
Let’s look at this ratio in the context of this post. If you’re annual taxable income is $100,000, then according to PayCheckCity.com your take home pay will be about $6100/month. A $149,000 with 20% down means a $119,200 mortgage. If you get a 15 year mortgage at today’s rate of 3.5%, that breaks down to $852/month. Let’s say that adding taxes (lot’s of taxes in this case) and insurance puts you at $1100 per month.
That’s about 18% of take home pay, which is less than the 25% maximum Dave Ramsey suggests. For the record, ours is about 14% of our take home pay.
Just one more thing to think about when purchasing a home.
When we bought the place it was 1.398x income. Thanks to the magic of a falling market and increasing salary we’re at. 1x! Hurray!
While I’d like one more room and another garage bay, this place works fine. Of course, I bought it to have a place to live that didn’t share a wall with the neighbor and to stay warm and dry. I never thought of my house as an investment that would catapult me to wealth.