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I have googled up some morgage calculators. It appears that a small increase in salary makes a big difference in how much extra house you can afford. The reason is because you have to first pay for food, water, cloth, taxes, bills, gas, car, credit cards, etc and all other expenses and whatever you have left goes into your morgage.
Annual salary:
*Thats assuming zero property tax and going uninsured!*
$22,000 or less=cant afford a house unless its free!
$25,000=$15,000 of house
$30,000=$40,000 of house
$40,000=$90,000 of house
$60,000=$195,000 of house
$100,000=$400,000 of house!
With property taxes and insurance, a $60k salary can afford $150k of house.
I tried another calculator that said I can afford just over $60k of house on a $30k salary. It seems that each calculator has a different formula but the range is $15k to $70k of house for a $30k annual salary. For a slightly higher salary, the amount of house you can afford goes way up because your "essental" expenses such as food, water, cloth, taxes, bills, gas, car, credit cards, etc should remain constant.
What is the "right" calculator? How exactly do I or someone base the formula?
Another way to look at it - what percentage of your income do you want to spend on your house?
I prefer to spend less on a house (smaller, older, fixer-upper, whatever), to be able to afford other things - travel, saving, maintaining my lavish lifestyle.
I own my current house free and clear, which is awfully nice! Mind you, it's a small, old crappy house. But not having a mortgage (and less than $1000 a year on property taxes) is great.
And you have to be prepared for a downturn in salary, health emergencies, all sorts of contingencies. IMHO, too many people are "house poor" and at risk.
I tried several mortgage calculators when we decided to move. They were all over the place as far as how much we could afford. One calculator said we could carry a whopping $50,000 mortgage. When we went to the lender that amount went up to $180,000. Our lender told us never to rely on those calculators. He's gotten phone calls from several people who were all upset because they thought they couldn't afford much when in reality they were in a good position (especially first-time buyers who may not known any better).
Of course there are other factors that affect how much home you can buy. These are interest rates (and type of loan), existing debts, assets, and credit score. This is if you're financing a house. Also, some new home builders offer incentives to buy their spec houses. My daughter and her husband (make about $45K together) bought a new Centex home for $133K here in San Antonio with only $300 dollars in closing costs. The builder paid all the closing costs (came to about $10K).
Whatever the answer, it should NEVER be "what my lender approves me for." There's a sucker deal out there for every circumstance. In this market, you're a chump if you go with an interest-only or balloon payment mortgage!!!
Expect a lot of foreclosures in expensive metro areas... I knew one Thai immigrant who was approved for a $375K mortgage with $0 down and about a $45K combined household income (with his girlfriend). I pleaded with him not to spend so much, but a lot of people are buying more than they can afford.
Some new homes being built in my old hometown of Laurel (in the $700K range) are seeing two families move in with lawn furniture as the living room set. No joke. There's an Escalade in the driveway, a huge house, and NOTHING inside.
You can't rely on calculators to find how much home you can afford, BIG mistake! Some say I can afford a $180,000 while others say $300,000. I currently live in a townhome (can't afford an actual golf course home in this area, most are going from $900,000-$3,000,000). There are some homes for as cheap as $600,000 but they don't have the view my townhome does. On the flip side, I'd have about $150,000 more to put away.
In the end you need to sit down and figure what you can spare a month before you go to a mortgage broker.
ditto the previous posters, and it is worth repeating:
1. Just because you qualify for a certain amount of money does not mean that you can afford the monthly payments;
2. No calculator can tell you what you can afford. You have to take into consideration your monthly expenses, which can vary: Bob and John might both earn $100k a year, but Bob may have no bills other than utilities and car insurance, whereas John might have student loans, car loan, credit card bills. If Bob wants a house in Boston, MA and John wants a house in TinyTown, Alabama, Bob's going to end up paying much more in taxes per year. You not only have to consider your expenses, but also the amount of money going into investments monthly (hopefully you are saving for retirement), and the amount of money you want to save everything; the size of your down payment will make a difference...the point is, you can't just focus on income.
Figure out how much you can comfortably afford on a mortgage + taxes + home insurance per month.
"Bob and John might both earn $100k a year, but Bob may have no bills other than utilities and car insurance, whereas John might have student loans, car loan, credit card bills."
Exactly! That's what I've tried to say in many posts. I don't have a "lavish" lifestyle... My money goes to bills & food! My "big spending" is buying some books or something on ebay which is usually never more than 20-40$!
Need_Affordable_Home: Where exactly are you? And if you plan on living by yourself it's different. I couldn't afford a house in Miami (in a decent area anyway) by myself. But I sure could in MANY other places!!! You can buy houses in ND, IA, NE etc for 10-30k!!!!!!! They're cute little houses too! Sure you'd have to commute in snow, but most people in the US do!
If you buy with someone, you can afford it! Although the interest rates HAVE gone up considerably!
But check into government loans! They have first time buyers loans etc. There are MANY options! Someone I work with said if you make less than 38k a year you can qualify for 25k! If you can't afford a house, & you don't want to change cities/states, maybe you could buy a condo. (studio or 1 bedroom)
As a general guideline, 1.5 times your gross annual income should be the maximum you would ever want to finance for a mortgage. This will leave enough of your paycheck for utilities, groceries, fuel, etc.
I have seen those calculators get some of my friends into BIG trouble.
My first house was slightly higher than 1.5 times my income, and I had a very hard time.
My friends and family and epals discuss this issue frequently. Ppl seem to live way above thier incomes and lose thier house. Ppl are impatient. Buy small...you can always add on as you go...You can add a second floor or another bedroom or a patio, a pool. But start out small...you can't lose that way.
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House Affordability
