When purchasing a house? how much can you really afford?
December 23, 2008 · Print This Article
Beautiful asked:
For example if a couple’s gross is $1.00 should they purchase a house for .40 cents is this affordable..
someone is say 25% of your income, another said 33% and then i heard 44%
no outstand debt.
For example if a couple’s gross is $1.00 should they purchase a house for .40 cents is this affordable..
someone is say 25% of your income, another said 33% and then i heard 44%
no outstand debt.
What would you consider manageable
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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.
Rule of thumb is that traditional banks allow for 28% housing with a total of 36% for all recurring debt load. Sub-prime lending usually allows for 50%, but can go higher. Keeping in mind that there is higher foreclosure rates with sub-prime lending.
Add to this: Disposable income is extremely important. If you only have another $400 / month after debts, at a 30% debt ratio versus someone with $3000 / mo disposable and a 55% debt ratio - who can afford their home more easily?
Talk to a financial advisor, or a very good mortgage broker - one who has your best interest in mind and not one who just wants a loan
the bank uses up to 55% of your gross monthly house hold income to allow for your total household bills (including mortgage payment, taxes, insurance).
good rule of thumb is with good credit, every 100,000 you borrow is roughly 600 a month at 6%. Consider what your disposable income is after you current bills are paid. And consider if anybody will be getting a pay raise in the next few years. Theres really no magic number for you, its what would be comfortable.
the bathroom and kitchen sink.
28-36% income to debt ratio.
From personal experiance I say your payments should be no more than 1/3 of your monthly income.
I would like to recommend to go between 25% to 35% as per the lifestyle of individual….means it totally depends on the monthly expenses and adjustments which can be suitable for it.
I think one can get help from this lending company and can view this site at
This will be very helpful to take the correct decision for sure..
Suze Orman recommends setting aside the amount you plan to pay as a house payment for six months. If you are unable to set that money aside reliably (and not spend it) then you aren’t ready for that size payment. If you see you can set that money aside then the money will help you with moving expenses, starting utilities, and/or the down payment.
I would under no circumastances get a variable rate mortgage. Early in a mortgage the mortgage company will work with you to help you be able to make your payments. If you owe significantly less than the house is worth then the mortgage company will be much quicker to foreclose to take your house and make a profit.
I think your best plan is to make a budget. Write down every purchase you make to keep track of where your money is going. Then decide how much money you need for different things each month. Remember to allow for things like insurance payments, the water/sewage bill that may only show up 4 times a year, and property taxes (check with the city hall for the state equalized value of the house and what the property taxes WILL BE once the house is transferred to you). The present owner’s property taxes only go up a certain percentage per year even though the house value went up faster.
As long as you aren’t buying/building in a market where people are leaving or in a flood plain your house should make more gain in value each year than your property taxes. It’s good to buy a smaller house than what is the norm for that area, because other houses in the area won’t bring down your property value then. Some areas have pretty big and nice houses, so you should be able to find one that’s as big as you need.
Since house values go up and significantly, it’s good to get as nice a place as you can reasonably afford, but be sure you can afford it. If you find you cannot afford the house don’t wait until foreclosure to start selling it. You will get more money for your house if you aren’t in a hurry to sell. Also, selling sooner rather than later will save you interest on the loan. If you can afford the payments then the house will nearly always be an excellent investment. While the stock market was going down between 2000 and 2006 some less expensive houses around here doubled in value (according to the state equalized value).
I’ve heard some say you need to plan to be in your house for at least four years to get your money back. In other words it’s normally not a good idea to buy a house if you plan to move in two years.
The bigger a place you need the more of a deal buying a house is as opposed to renting. The cheapest rent I’ve seen recently is $350/month for a one bedroom place. Two bedroom places usually are $600 or more.
I like to think of the interest being paid on the mortgage as the same as the “rent”. The interest paid is gone with no return on investment. Writing it off on your taxes will save you 17% of the interest you paid, or whatever rate of income tax you pay, if you itemize your income tax deductions. If you plan to live in the house for many years then the increased house value will eventually offset the money you pay on the mortgage and for upkeep of the house.
You will need to have money to take care of your lawn and to make repairs. It’s important to keep up with repairs so they don’t get out of hand. It’s especially important to fix the roof right away if there is a leak. Water damage is often worse than it looks from the outside. A stitch in time saves nine as they say. It’s good to either be able to do your own repairs or have a friend who can help you. It can be expensive to have to hire all the work done.
Talk with your friends who own houses and see what they say. It’s especially good to ask someone who’s had a house for a number of years.
Figure you loan payment is going to be about $100 per every $1,000 you borrow.
How convservative are YOU? It matters most what you are comfortable with. If you are conservative, go no higher than 30%.