Sunday, October 2, 2005

It doesn't take a genius to see how much home to buy

By Brian J. O'Connor / The Detroit News

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September's over, and the dying leaves mean it's time to pack up the dreams and hopes for another year.

No, not for the Tigers -- our itty bitty kitties -- but for my MacArthur Foundation "genius" grant. I've been waiting by the mailbox all week, but no luck.

On the one hand, being overlooked (yet again) by the MacArthur folks could be a blessing, because I don't have to endure my boss saying things like, "Hey, genius, your column's late."

On the other hand, I had plans for the $500,000 no-strings-attached grant. Top of the list was a lakefront house, a real charmer at $1 million. Buying it would have made me part of a growing trend.

According to the Census Bureau, for the first time, there are more than 1 million owner-occupied homes in the United States worth $1 million or more. But bereft of my (richly deserved) "genius" cash, I don't think I can join the club on my salary as a lowly scrivener.

What does it take to afford a million-dollar manse? According to financial planners, your total housing costs should not eat up more than 28 percent of your gross pay. That includes your principal, interest, insurance and property taxes.

At the same time, your principal and interest, combined with all your other outstanding debt, such as credit card balances and car loans, shouldn't total more than 36 percent of your gross income. Balance your finances so that your home costs fit between those two levels, and you won't stretch so far that you become "house poor," with every spare dime going to pay for your domicile.

To test a real-world case, I looked through the Realtor.com listings and found some likely prospects in the Bloomfield Hills area. There are about 90 homes currently for sale in that market, priced between $1 million and $1.25 million. I also checked out Birmingham, where there are 37 properties in that range, and the Grosse Pointe vicinity, where there are 27 properties that fit the bill, and Rochester, which boasted 12.

The descriptions were inspiring. More than one mini-mansion was "Fabulous!" while dozens of others were "Beautiful!" After browsing a few, I began to think they were written by a committee consisting of Donald Trump and the gang from "Queer Eye for the Straight Guy," all getting paid by the exclamation mark.

I picked a likely lakefront suspect and sharpened my pencil.

Figuring a 20 percent down payment, that means financing $800,000 at a rate of about 6.25 percent a year. That monthly payment comes out to $4,926. Add in taxes of about $19,000 a year and basic property insurance at $2,000 annual, and it all works out to a monthly payment of $6,714. Divide by 28 percent and it turns out that to responsibly afford a $1 million home I'd need to make about $290,000 a year.

OK, so maybe genius is misunderstood (like I care!) or overlooked (so what!) or underpaid (ouch!). I don't need some fancy foundation to validate my worth. I have my caring friends, my nurturing family, my supportive co-workers. Why, here comes my boss right now. What inspiring words of encouragement will he offer?

"Hey, genius, you're column's late."

See?

You can reach Brian J. O'Connor at (313) 222-2145 or boconnor@detnews.com.