How can I figure out how much of a house I can afford?

imported_Pablo

Diamond Member
Jan 20, 2002
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I'll be graduating college in may and I am currently looking for a house. How should I figure out how much I should be spending on payments relative to my income?

I already know how much I will be making annually, but I need to know what price range I should be looking for.

ANybody know of any good links that could help me out? (or just a little friendly advice)

Thanks in advance,
Paul
 

DT4K

Diamond Member
Jan 21, 2002
6,944
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Just look around any of the mortgage sites. They will all have estimators. But if you don't have much down payment, they will give you a misleading answer. They will underestimate how much you can buy because they are based on the rule that you have to have a certain percentage for downpayment, while in reality, there are many ways to buy with very little money down. I make around 50k and my wife doesn't work. We qualified for 150k and ended up buying a house for 145k at 6.5% interest with only about $800 out of pocket for closing and downpayment. Payments are around 1200/month.

What you should really do is go talk to a mortgage broker or loan officer at a bank. They can give you a realistic idea of what you can afford and can prequalify or preapprove you.

EDIT: The online estimators told me I could afford anywhere from 60k to 100k. This was obviously not accurate, but was because I didn't have any money for a downpayment.
 

radioouman

Diamond Member
Nov 4, 2002
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You should plan on spending 33% or less of your GROSS (before taxes) income. But, you need to look at your budget carefully and decide for yourself.

You will have standard expenses:
Utilities
Car payment
Insurance
Cable
Internet
etc

And possibly these optional expenses:
Credit card debt
Student loan
etc

Then you need to decide what you will do in the future. Getting married? Kids? Buying a new car? Planning to take and pay for more school?

Plan on putting a healthy amount of your income into savings, and it is a good idea to make a seperate account as a home repair fund. Also, plan to invest in a company 401k or an individual retirement plan.

Just don't buy more house than you can afford. With my income and myu wife's, we were pre-approved for a $250,000 home. (Together, we make $70k.) That was absurd, and I bought a $148,000 home. Money is a little tight right now with this one... It is MUCH better to buy less home and have extra money than to buy too much home with 0 extra money.

EDIT: My wife and I have one car that we bought new, one used truck, and a Sea-doo personal watercraft. If we would have purchased a $200,000+ home, we would be stuck with two old cars and no fun on the lake. Buy what you need and don't go overboard.
 

johnjbruin

Diamond Member
Jul 17, 2001
4,402
1
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I hate how expensive houses are in So. Cal.
But I love the place so I gotta suck it down and live on rent. :(
 

radioouman

Diamond Member
Nov 4, 2002
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Originally posted by: AgaBooga
I've heard 3x your yearly salary

Yeah, that's not bad... My salary is $45k, and I bought a $148,000 house. We based our house purchase off of my salary also. We didn't want to lose our house if one of us loses our job.
 

kranky

Elite Member
Oct 9, 1999
21,014
137
106
Remember that any mortgage broker or real estate agent is motivated to put you in the most expensive home you could possibly get approved for. They aren't going to be concerned if you can afford to eat or get your car fixed. And don't forget real estate taxes and repairs.

Our real estate agent was pushing us to buy a home that was 50% more expensive than what my budget said would work, based on our income. But I wasn't willing to stop putting money into savings and we had already decided we would pay extra on the mortgage to get it paid off in 20 years.
 

thedarkwolf

Diamond Member
Oct 13, 1999
9,000
109
106
Alot of the online estimators don't take PMI into account. My house cost twice what I make a year and that leaves me with plenty of cash every month.
 

Night201

Diamond Member
Apr 23, 2001
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Originally posted by: radioouman
You should plan on spending 33% or less of your GROSS (before taxes) income. But, you need to look at your budget carefully and decide for yourself. You will have standard expenses: Utilities Car payment Insurance Cable Internet etc And possibly these optional expenses: Credit card debt Student loan etc Then you need to decide what you will do in the future. Getting married? Kids? Buying a new car? Planning to take and pay for more school? Plan on putting a healthy amount of your income into savings, and it is a good idea to make a seperate account as a home repair fund. Also, plan to invest in a company 401k or an individual retirement plan. Just don't buy more house than you can afford. With my income and myu wife's, we were pre-approved for a $250,000 home. (Together, we make $70k.) That was absurd, and I bought a $148,000 home. Money is a little tight right now with this one... It is MUCH better to buy less home and have extra money than to buy too much home with 0 extra money. EDIT: My wife and I have one car that we bought new, one used truck, and a Sea-doo personal watercraft. If we would have purchased a $200,000+ home, we would be stuck with two old cars and no fun on the lake. Buy what you need and don't go overboard.

Well said!
 

Alternex

Senior member
Oct 9, 1999
531
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Never let a lender tell you how much you can afford because that would be a conflict of interest! Figure it out yourself.. radioouman had some good advice. I just closed on my home yesterday too :)
 

DT4K

Diamond Member
Jan 21, 2002
6,944
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Originally posted by: Alternex
Never let a lender tell you how much you can afford because that would be a conflict of interest! Figure it out yourself.. radioouman had some good advice. I just closed on my home yesterday too :)
Congrats. Feels good doesn't it.

You are right, a lender can't tell you how much you can afford. They can only tell you how much you can qualify for. When you have that number, you can decide if you would really be comfortable at that payment or if you want something less expensive. With my 50k and a 1200 a month payment, I don't have a lot of extra spending money, but to us, it was worth it to get a brand new house that we really liked. And each year my salary goes up while my house payment stays the same. So it will get easier each year.

Yeah, as a very rough estimate, 3 times your yearly salary gives you a general idea. Of course it depends on what other debts you have also.

 

JEDI

Lifer
Sep 25, 2001
30,160
3,300
126
Originally posted by: AgaBooga
I've heard 3x your yearly salary

yup, as a rule of thumb. But DO NOT get the max morgage. get something like 2x salary because at 3x salary, you are living on bread and water, no vacations. and if your breaks down, u will need help from mommy to bail u out.

also, avoid PMI. get a 2nd morgage instead. it's tax deductible whereas pmi isnt