What kind of home can I afford?
I am definitely looking for a very general answer and will not be trying to buy a house for at least another 4-5 years most likely.
However, I am trying to do some research and really know nothing about buying a home. My question is, on about a $50,000 salary (before taxes) what price could I afford on a home? A little background information is that I would have around $20,000 – $25,000 to put toward a down payment… I also would have about -$20,000 in student loans that should not effect the monthly expenses too drastically. Besides that I would have basic, average monthly expenses. Both adults with great credit scores and credit history. Again just looking for a ballpark estimate… Any input is much appreciated!
In addition, if you would have time please compare this to what one could afford making around $75,000 a year.
No car payments… thanks for the reply!
Your debt to income ratio needs to follow the 28/36 rule. No more than 28% of your gross monthly income for a housing payment (that includes principal, interest, taxes, homeowner’s insurance and private mortgage insurance, if required). And no more than 36% of your gross monthly income for total debt payments (house + student loan + car loans + credit card minimums + any other DEBT payment). One of those two numbers will limit what you can borrow.
A rule of thumb that works ok is no more than 2x to 3x your annual salary for a mortgage, so between $120,000 and $170,000 for $50,000 a year (2x is $100,000 plus your $20,000 downpayment).
At $75,000 per year your price range is now $170,000 – $245,000.
However, you really need to dive into the 4 or 5 aspects of a mortgage payment to figure it out for real. Principal and interest are easy to determine, they are the answer spit out by most mortgage calculators – you borrow $x at y% interest for z years and get a payment spit out.
Real estate taxes are the big wild card. I’ve personally experienced anything from 0.5% of value per year to 4% of value per year. On a $200,000 house that’s the difference between $1000 per year ($83 per month) and $8000 per year (or $667 a month). So trying to figure out the price range without information about real estate taxes is useless.
Anyone who tells you more than that is setting you up to fail.
good luck!
Comments
Do you have a car payment? Your debt to income ratio has to be less than 50%. $200,000-$300,000 if you make $50-$75k.
References :
Work in Real Estate
Your debt to income ratio needs to follow the 28/36 rule. No more than 28% of your gross monthly income for a housing payment (that includes principal, interest, taxes, homeowner’s insurance and private mortgage insurance, if required). And no more than 36% of your gross monthly income for total debt payments (house + student loan + car loans + credit card minimums + any other DEBT payment). One of those two numbers will limit what you can borrow.
A rule of thumb that works ok is no more than 2x to 3x your annual salary for a mortgage, so between $120,000 and $170,000 for $50,000 a year (2x is $100,000 plus your $20,000 downpayment).
At $75,000 per year your price range is now $170,000 – $245,000.
However, you really need to dive into the 4 or 5 aspects of a mortgage payment to figure it out for real. Principal and interest are easy to determine, they are the answer spit out by most mortgage calculators – you borrow $x at y% interest for z years and get a payment spit out.
Real estate taxes are the big wild card. I’ve personally experienced anything from 0.5% of value per year to 4% of value per year. On a $200,000 house that’s the difference between $1000 per year ($83 per month) and $8000 per year (or $667 a month). So trying to figure out the price range without information about real estate taxes is useless.
Anyone who tells you more than that is setting you up to fail.
good luck!
References :