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I'm considering buying my first property alone but I'm not sure if I can really afford to buy where I live. I live in a very expensive area where homes generally start at $300k (now, would've been much higher in 2007). While I know I can't afford quite that much there are some houses listed under than, usually around 240-280. I'm still not sure if it's a good idea for me to be spending that much with a single income (don't most home buyers have two incomes - they're usually couples).
I spoke to a mortgage broker whose figure for monthly payment (mortgage + property tax + insurance + PMI) on a 280k house comes to about 43.3% of my net income. Is this ratio a really bad idea? I usually see recommendations of 28% which wouldn't buy any property in this area.
I also have other debt such as a student loan that I'd really like to pay off ASAP.
Would considering a condo be a worthwhile compromise even if I don't really like having lots of people close by? Even with the lower asking prices on condos are they really any better value than more expensive houses? It seems like when you add in the HOA fees that the monthly payments on condos come very close to the mortgage on a single family home.
Is 3.5% down on a property really enough? Seems like most recommend 20% but I'll never be able to afford that (I don't see how anybody could afford 20% down when the average asking price is 400k).
I'm considering buying my first property alone but I'm not sure if I can really afford to buy where I live. I live in a very expensive area where homes generally start at $300k (now, would've been much higher in 2007). While I know I can't afford quite that much there are some houses listed under than, usually around 240-280. I'm still not sure if it's a good idea for me to be spending that much with a single income (don't most home buyers have two incomes - they're usually couples).
I spoke to a mortgage broker whose figure for monthly payment (mortgage + property tax + insurance + PMI) on a 280k house comes to about 43.3% of my net income. Is this ratio a really bad idea? I usually see recommendations of 28% which wouldn't buy any property in this area.
I also have other debt such as a student loan that I'd really like to pay off ASAP.
Would considering a condo be a worthwhile compromise even if I don't really like having lots of people close by? Even with the lower asking prices on condos are they really any better value than more expensive houses? It seems like when you add in the HOA fees that the monthly payments on condos come very close to the mortgage on a single family home.
Is 3.5% down on a property really enough? Seems like most recommend 20% but I'll never be able to afford that (I don't see how anybody could afford 20% down when the average asking price is 400k).
PITI (principal, insurance, tax, interest) should be 28% of your gross monthly income... not net.
Oh and btw, were you talking about a 30y mortgage or a 15y mortgage?
With my situation - I am choosing to do a 15y mortgage and keeping it under 28% of my gross monthly. 25.8% actually. If I did a 30y mortgage, I'd be looking at about 19.5% of my MGI (monthly gross).
This way, I can save money.
If you push it, it begins to become tough.
Another idea is to total up EVERYTHING you owe per month including food/entertainment/utilities/PITI/cars/insurance/gas/clothes, etc.... and get it at 60% or less of your MGI. If it is below that, you're pretty decent because you should be able to save about 10-20% of your AGI (annual).
And remember to calculate your monthly correctly. If you're calculating it based on 2 biweekly paychecks - you're shorting yourself because there are 13 four-week payperiods in 1 year.
Last edited by pinipig523; 02-03-2011 at 12:28 AM..
PITI (principal, insurance, tax, interest) should be 28% of your gross monthly income... not net.
36 is the max.
Why gross if you don't get to keep what's withheld. I never understood why anyone would look at gross if you don't get to have that money. I know there are some tax deductions for owning property but I think I probably should not consider them if figuring affordability since they can disappear at any time.
As a max would 36% be considered comfortable for most people? That would be about 46% of net.
Quote:
Oh and btw, were you talking about a 30y mortgage or a 15y mortgage?
Why gross if you don't get to keep what's withheld. I never understood why anyone would look at gross if you don't get to have that money. I know there are some tax deductions for owning property but I think I probably should not consider them if figuring affordability since they can disappear at any time.
As a max would 36% be considered comfortable for most people? That would be about 46% of net.
I'm talking about 30y FHA.
Look it up, it's 28% of your gross going into PITI, and 36% of your GI going to the PITI/all other big loans.
Of course, if you want to do it off of your net, you're doing even better - but then you're at a predicament - you cant afford anything you like.
Why gross if you don't get to keep what's withheld. I never understood why anyone would look at gross if you don't get to have that money. I know there are some tax deductions for owning property but I think I probably should not consider them if figuring affordability.
Don't take into account the deductions.
Look at your annual gross income and divide by 12.
Multiply by .28, that's your PITI limit. If you want to be comfortable, make your PITI over 15 years and not 30 years. If you're still below the 28% mark at 15y, you're going to be real good.
You can still save a lot of money if you do .28 of your MGI. Of course, it goes without saying that the more stringent you are with yourself, the better off you will be.
workup to the home you want then, start small and trade up.
I don't like this advise.
Its exactly what I did over the years.
Looking back on it.
I would have been much better off if I had stayed in my first house.
I could have renovated to more perfectly suite my needs over time and I would have payed it off by now.
Instead I bought and Sold and Bought and Sold and Bough and Sold and Bought and Sold.....
and every time I sold I gave away 6% of my net worth along with the cost of moving and wear and tear on my furnishings and the stress of moving. It all took its tole.
Try to stay within 3 to 4 times your annual Salary.
Buy the best home you can find in that price range.
Stay there.
Learn from my mistakes.
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