How much house can I afford in Little Rock? (Hope: rentals, insurance)

[timn420]

I'm planning on buying a house by the end of the year. I make about $75k/yr before taxes. I was planning on putting at least $50k down. I currently do not have debt or any car payments. How much do you think I can afford to pay on this salary?

[JeffAtkins]

Last time I checked, lenders would allow 28% of your monthly income to be used to service the mortgage and escrow. $75,000 / 12 = $6,250 * 28% = $1,750/month.

Assuming normal costs for insurance and property taxes, and a 6% 30-year fixed mortgage, you're looking at a maximum mortgage of around $250,000 or (with $50,000 down) a $300,000 house.

You should seriously consider buying something much less than the "maximum" you can afford. You sould also consider a maximum down-payment of 20% and possibly a 15-year mortgage instead of 30-year.

I've got a friend who is selling his house near Chenal / Cantrell, its in your price range :-)

[mhughes50]

WoW Jeff, where were you when I was building my house???

[JeffAtkins]

Originally Posted by mhughes50

WoW Jeff, where were you when I was building my house???

Selling my 6 rentals in LR

[timn420]

I was looking at a house for 270K. With my downpayment of 20% it would be 216K. The payments, including insurance/tax would be around $1500 per month. Add in cable/utilities it would be 1950. Considering my net is 4K per month, would you consider this to be too much expense? I don't have car payments or CC debt, so maybe I'm just nervous considering my last house payment was only $800 before

[easyasabc]

Jeff is using the formal calculations. He is giving you good advice in telling you to not borrow what the max a bank will offer to lend, and your scenario upholds that.

You are proposing to spend half your after tax income on your housing. That, to put it bluntly, is insane. You would be eating bologna sandwiches every night for dinner. Half your income to housing is way too tight, in my opinion, and many common sense financial planners will tell you the same thing.

I never suggest to anyone to never spend over 25% of their after tax income on housing. That means principal, interest, taxes, and insurance (PITA), maybe 30% in very expensive areas of the country, however, Ark is not an expensive place to live.

Based on your 4000 monthly income after taxes, your principal, interest, taxes, and insurance should be no more than $1000. If you can do that and have a 15 or 20 year fixed rate mortgage, even better. Never do an adjustable, arm, interest only, neg am, anything like that, no matter what anybody tells you, period, end of story.

The fact that you have no credit card debt and no car payments is the best thing you can do, but it still does not change those formulas for me. Half your income on what is your house payment is off the charts high.

Here's one scenario. You can buy a home for $175k, put your 50k down, have a 20yr mortgage around 6%, and your PITA (assuming taxes and insurance rationally) would be around a grand a month. Perfect.

Also, get at least 3 bedrooms, 2 baths, minimum, even if you do not need it, better for resale. There are plenty of what I described.

Hope this helps. Please, do not spend 1/2 your income on a house payment. 270k for a house for you is out of your league if you want to keep your sanity and not live a stressful life.

You'll thank me later.