How expensive of a house can I afford?
September 21, 2007 · Print This Article
David asked:
My household is making 160,000 and after we pay off the loans and living expense we have around 33,000 left each year. We have inherited 120,000 recently and we are considering using that as a down payment. We are in our mid thirties now. We are wondering how expensive of a house can we afford and how many years of mortgage period should we consider? How much do you suggest we pay each month? Thanks!
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My household is making 160,000 and after we pay off the loans and living expense we have around 33,000 left each year. We have inherited 120,000 recently and we are considering using that as a down payment. We are in our mid thirties now. We are wondering how expensive of a house can we afford and how many years of mortgage period should we consider? How much do you suggest we pay each month? Thanks!
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Josh Dunaway has been a certfied Realtor in the suburban Chicagoland area for over 20 years. Aside from starting his own real estate company, he also owns a mortgage company as well.
YOU did not state where!
I suggest you buy a REO house [bank owned] for 120k or even 150k and get it discounted to
120k and have no mortgage!
There is no glee in having a mortgage, it
is simply a necessary thing to help people
buy RE; ages ago, you paid cash or
waited till you could.
SEEK NO mortgage!!!
[unless there are just no props in that
range anywhere.] A small
cottage at 120 debt free is better than
a 240k home with a 50% of value
mortgage
500k house
shortest possible mortage
pay as much as you possibly can each month
wait 3 months for market to bottom
Best advise…get pre-qualified by a bank. Banks are the most conservative. It’s not the price of the house but whether you have sufficent long term cash flow to support it. Do not buy more than what you can afford..
You are throwing around some big numbers and seem to be considering a bunch of scenarios. Check out the affordability calculator below.
Rule of thumb (for anyone) is that the mortgage maximum should be between 2x and 3x the annual salary which is between $320,000 and $480,000.
The more detailed rule is the 28/36 rule. No more than 28% of your gross income for a housing payment and no more than 36% for total debt payments. 28% of your gross is $3733.
Currently mortgage amounts in excess of $417,000 are considered jumbo loans in most markets and since the $417,000 mortgage is in the middle of your affordability, let’s use that number. For a 30 year fixed mortgage at 6.25% (fixed rate, 30 year loan) would $2568. If you use the $120,000 as a downpayment the house price you are looking at is $537,000.
Real estate taxes are a huge variable. I’ll assume for this exercise that they are 1.5% per year (this could be lower or much, much higher) or $671 per month. Insurance on a place that expensive could be $250 a month. So you are up to $3489 per month which is getting close to that 28% of your gross monthly income.
You will be able to find a bank that would lend you more. Just because you can borrow it, doesn’t mean you should borrow it.
That’s how much you could ‘afford’. Personally with incomes and assets like that, I might choose to live in a $250,000 to $300,000 house and pay it off in 10-15 years. Really how much you spend on a house ought to depend on your longterm financial goals that have to include retirement, etc.
good luck!