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My wife and I are home buying. We looked at a house yesterday that the final payment, PITI and MI would be 34% of gross income. We have no debt and just one car payment. Ive ran the numbers at least 20 times and they keep saying we can afford it. Its just the payment # looks so dang high to me. This make any sense?
My wife is a tenured teacher and I've been at my job for 12 years, so the job security is there.
If the cost of the payment is scaring you, that's a good sign that you CAN'T afford it. "They" just want to sell you a house, and don't care if you wind up house-poor and budget-strained. Trust your gut, and look for a more affordable house.
Yeap. Aredhel is right. Lender most likely will NOT say you can't afford to buy a house. Once they know you are responsible people and that you have a good credit store, they really want to lend you the loan. When it comes to affordability, only YOU can answer that question. Do not rely heavily on the banks to tell you that you can afford to buy such and such. Most of the time, with great credit history and stable income, all banks will give you a loan, whether it is too big or not.
Do your calculations and live within your means or sometime below, to have a little flexibility in terms of payments and bills. There is a lot of work to be done when you own a house. Good luck!
No, I am not trying to get you to do something you don't want to do....far from it. But I also don't think a canned answer does you justice without more information, especially with a 34% ratio.
Question(s):
How much did you get back on your 2013 tax return?
Do you expect any changes in family status in the next 1 - 3 years? ( more kids, less kids,etc)
What kind of loan would you be getting?
City? State?
What percentage of your monthly income is current devoted to your housing payment.
Ok, let me define that statement. "They" is not the lenders telling me I can afford it, its my financial numbers telling me I can. I know lenders will push the product as hard as possible.
To answer your questions Smartmoney-
We didnt get any money back on our tax return. We owed 1800.
No family status changes for the rest of my life. Already got 2 kids, no more!
30 year FHA
Discovery Bay, CA
Current % of income going to housing-19.2%
To add-we have saved 42k over the last 2 years for a down payment
If people dont mind....
Income-10,975/month gross, 7950 net.
House payment would be 37-3800.
My wife does photography as a side business and usually nets 1500/month(I dont count this).
There's literally no way for anyone here to answer this. It depends on what your entire budget looks like, and it depends on what you value and how much you value it.
In my household, we have a budget (we use You Need A Budget) which assigns each dollar we receive to a specific "job." There are the rent dollars, the "kids' extracurricular activities" dollars, the "saving for Christmas" dollars, the "car registration" dollars, and so on. Do you have anything like this? Unless you do and are willing to put it up for all to see, I don't see a way anyone here can tell you what you can and can't afford.
Ask yourself what you are spending on housing now. Include all repair costs and set-asides for future repairs. Subtract that from the similar housing costs of the new place. Include any tax breaks for either one.
Without changing any of your spending habits, will the difference between these two numbers be easily supported by your take home pay? If yes, then you can afford it.
Of course with children your current budget will hopefully increase a bit every year, particularly if you are going to help with college.
Why would you get an FHA loan with $42k to use as a down payment? You're going to have lifetime mortgage insurance. Why wouldn't you get a conventional 3% down or even do an 80/15/5 so you can drop the 15 over the years and only have the 80 to pay on, with no mortgage insurance?
Why would you get an FHA loan with $42k to use as a down payment? You're going to have lifetime mortgage insurance. Why wouldn't you get a conventional 3% down or even do an 80/15/5 so you can drop the 15 over the years and only have the 80 to pay on, with no mortgage insurance?
I thought a conventional was a minimum 5% for the down payment?
OP, if you have ran the numbers many times and you have no doubt you can afford it, why are you doubting it? If the payment amount itself scares you, and you have a mental block against the idea of paying that much every month for a home, then find a cheaper house. Problem solved. But to me it looks like you'll have 4 grand (if not more) left to play with every month after the mortgage is paid, which IMHO isn't too shabby.
Who cares what % it is of your gross income. It's your take-home pay that matters. You are estimating fairly well on your income tax withholding....you could withhold a little more each more to try and come out even (not owing).
But with your current numbers....if you NET $7950 and your payment is $3800, you will have 48%, practically half your income tied up in housing.
7950-3800=4150-$560 car = $3590/month for EVERYTHING else. Break it down and that's roughly $900/week for an average month. Will that cover your food, car fuel, utilities, car insurance, and every other recurring expense?
Not sure what ages your kids are, but is their college paid for? (fi they are grown, not an issue)
Do you have a cash emergency fund of at least 6 months' worth of expenses?
You have 1 car payment...will you need another car at some point and do you have enough wiggle room in that budget to save for your next car?
What about recreation & vacations? Will this house payment prevent you from doing the things that you enjoy?
These are the things to ask yourself. But I agree that if this amount is scaring you, then I'd think twice about it.
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