How much house can I afford?

jtt

jtt

Member
Without a doubt I am getting ahead of myself, but I am talking to a potential employer in another state. I dont have the job offer yet, but since I am getting married and this job will finally allow me to move out of my parents house, I am contemplating the purchase of my first home and doing some research on homes in the area.
Here is my basic (and what I believe to be logical) "evolution of thought" When I was living in Southern California, I lived in a 1 bedroom apartment for $1200 a month. I was bringing in $21k a year. the only way I survived was by having ramen every day and packing lunches because 70% of my paycheck went straight to rent. IF I get this job, it pays $45k a year. I am well aware that I will need to pay property taxes and homeowners insurance, as well as Private

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insurance (PMI) since my down payment will most likely be less than 20%. I figure that if my wife and I live frugally and not eat out much we could probably afford $1700 for a

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payment, and an additional $400 or so into escrow a month, totaling around $2100 a month. I then went to a

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calculator which said that if I pay $1700 a month for the loan, then I can afford about a $220k house. Awesome. That will get me a nice house.
selah
Then, I went the other way around, and put my yearly income into the calculator ($45k) and it tells me that the monthly payment I can afford is like $610 for a house that will cost about $50k which is not enough for a nice house. And Im sitting here like, are you kidding me? $610 is pocket change if Im making $45k a year. thats like less than 20% of my monthly income. I can TOTALLY afford more than that because I try to approach life with the college student mentality.
so, hypothetically speaking, I ask you real estate people out there, how much of a house can I afford? IF THE PLANETS ALIGN AND I GET THIS JOB my monthly income is $45k, no other credit card payments or other monthly expenses, a credit score of 680, then what could I get? the $180k house with 3 bedrooms and a yard? or a $50k shack with no running water?
 
jtt

jtt

Member
NOTE!!!
all of the

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are the word Mo rt gag e
what the heck is wrong with the word m.o.r.t.g.a.g.e? come on swf admin.
 
beth

beth

Administrator
Staff member
I agree with the second scenario, and that will bring you to a home $150K, or less. $45K may seem like a lot of income to you, but its not really, especially if you are the only bread-winner. You will be entering another tax bracket and you can count on uncle sam taking out a good $7k in taxes (at least).
The nice thing about home ownership is that you can always improve your more modest home by doing small projects. Change carpet to hardwood, update kitchen, add a deck, etc. as you can do it and as you save up to do it--without having to eat beans and rice the rest of your life, without being house-rich, yet bank account poor. You can not afford a $250k house with a 45k income.
I seriously doubt you will get approved for a loan too much beyond what I've cited anyway, without a substantial downpayment. The days of living beyond your means ended in 2007.
Check out the local real estate market, neighborhoods, etc. online while you're cooling your heals waiting to see if you will be making a move. Then plan on getting a good real estate agent in the area. Determine what are your "must haves" are in your house, and what you are willing to not have in order to live within your means. Don't forget to also check out the neighborhood, crime rate, s e x offenders in the vicinity, schools if you plan on having kids soon, etc.
 
al mc

al mc

Active Member
This is not meant to be offensive. You are talking about 50% of your income going into the principle, interest, taxes and pmi. The way the housing/banking industry got into such trouble is approving this type of loan.
I think it will be very hard to find a bank willing to approve this scenario.
Beth is right on about the other points. Crime, schools, local taxes, cost of living in this area are all factors to figure in.
Personally, I feel it would be better to rent in the area for 6-12 months to get a sense of the area first.
Just my 2cents
 
browniebuck

browniebuck

Active Member
If you are making $45,000/year, I would look for a "fixer upper" that is in a nicer neighborhood...but I wouldn't pay more than $80-90,000 for the house.
When we bought our house, we paid $84,500 in 2002. I was making about $30,000 and my wife was making about $35,000. This was before I got my first teaching job, which raised my salary to about $36,000 and around the same time my wife got her first job in social work, paying her about $37,500. We also both had nice vehicles...which, in hindsight, did us in.
In the summer of 2006, my wife had a surgery that went awry and caused her to miss 7 months of work...which meant, 6 months without that second paycheck. We were in over our heads and had no choice but to declare bankruptcy. I know that nobody plans for things like this to happen, but if we had been a little more wise and started off a little more slowly, we would not have had to go that route.
For your first home, start with something that allows you to put a chunk of your pay into savings...then, when you are more established, you can begin looking for something bigger and better. Think of it this way....if you start off modest, you will appreciate all of the better things when you get them. If you start off with all the frills in a nice big place...what do you have to look forward to?
 
ironeagle2006

ironeagle2006

Active Member
JTT between my wife and I we make 45K a year and IT IS NOT ALOT OF MONEY. You forget a few things in your Budget. Car payment Utilities FOOD Health Insurance and other expenses. We paid 55K for our modest 3 bedroom house here in IL and our Mortage is 550 a month and that includes our taxes and Insurance. We are barely getting by with what we do make things are tight even at that income.
I have a brother that makes 70k and he struggles with his payments at 900 a month why he has to pay insurance and TAXES SEPRATE.
 
reefraff

reefraff

Active Member
Basic rule of thumb is 45,000/12 = 3750.00 x .33 =
1237.50
About a third of your gross income. Some people differ on whether that should include taxes and insurance or not but it's ball park.
Depending on where you are living 1200 a month buys a lot of house. My current payment is 700 a month on a loan on a 177K house but I threw down 20% so we actually borrowed just over 140K. With current interest rates 1200 would probably get you in the 170's or so. In Colorado that's a pretty nice 3 bedroom house, In California it's a space at the U Store lot
 
ryancw01

ryancw01

Member
This is actually what I do for a living so I just ran your numbers through a quick spreadsheet to figure your debt ratio. If you bought a home at 200K with FHA financing and put down the standard 3.5% down, your final debt ratio would be 39.2%. Because you have no other debt, this would be your front end ratio and back end ratio. Your final payment would be $1471 which is very doable. If you go up to 220K, your ratio jumps up to 45% of your gross income which might be pushing it a little bit.
Does that make sense?
 
beth

beth

Administrator
Staff member
just because you can doesnt mean that you should

Actually, he can't on $45k.
I'd like to know where you guys live that you can buy a decent home for less than $100k?

That is a factor. Depending on where you are going to live, you may be able to find a nice home for $125k, whereas someplace else, you'd get a glorified shack for that amount. What's the market in that area plays a big part.
 
ryancw01

ryancw01

Member
Yeah...I tell people all the time to try to find the smallest house in the nicest neighborhood you can afford. That is where you find value, because as long as their is a decend yard you can always expand later.
 
reefraff

reefraff

Active Member
reefraff

reefraff

Active Member
Originally Posted by meowzer
http:///forum/post/3215645
You could also buy a pretty good house with some land in Oklahoma for $50K

Drove through Oklahoma back in 85. Saw people riding around in buggies and made a U turn back to civilization

I thought about trying to find land on a lake there to park the RV during the summers, not that far from here. But that would require the state having some water
 
stdreb27

stdreb27

Active Member
Only nuts in cali pay 75% of their income on a house. Dude, I'm paying under a grand a month for housing and that is definately not a third of my monthly paycheck. Think about this, you're going to want to have as much money as you can not tied up in bills. IT makes you feel like you actually earn some money. Then you'll have money to spend on toys for your house, a dog, a fishtank or star trek dvd's...
 
meowzer

meowzer

Moderator
Originally Posted by reefraff
http:///forum/post/3215649
Drove through Oklahoma back in 85. Saw people riding around in buggies and made a U turn back to civilization

I thought about trying to find land on a lake there to park the RV during the summers, not that far from here. But that would require the state having some water
LOL....You ought to research Oklahoma Lakes and Parks....I live about 30 minutes from Broken Bow
You would be VERY surprised at how many there are around here
 
bang guy

bang guy

Moderator
If I made 45K I would probably buy a house in the 100K or below range but not until I had 20K as a down payment.
If you can't ever seem to save up the 20K then you would probably have a lot of difficulty making the PITI payment as well.
 
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