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Just wondering if my wife and I are setting the right budget for purchasing a home. We make 140,000 in base salary a year, and 10,000 - 15,000 extra in bonus and overtime
We have $121,000 saved in the bank and only payments we have is car payments at 775 a month... no other CC debt or student loans. So the question is how much do we spend on a house (or what should our max monthly payment be with tax and insurance)? and how much do we put down??
Just wondering if my wife and I are setting the right budget for purchasing a home. We make 140,000 in base salary a year, and 10,000 - 15,000 extra in bonus and overtime
We have $121,000 saved in the bank and only payments we have is car payments at 775 a month... no other CC debt or student loans. So the question is how much do we spend on a house (or what should our max monthly payment be with tax and insurance)? and how much do we put down??
Thanks in Advance!!
First, make sure you differentiate between what you can afford and what you need. Too many first time home buyers determine how much they can afford and then go looking for a house based on the maximum they can afford.
I would suggest you go to a lender to determine how much you can afford based on providing them the financial information they need to do this. You can request different scenarios from the lender based on how much down payment you put and the types of loan packages available. To determine how much house you need, you and your wife need to determine this in terms of location, space, and amenity needs. The wild card in determining needs is that many times wants and desires get confused with needs. Nothing wrong in throwing in a few wants and desires as long as it doesn't saddle you with too much financial risk.
Some other things that will factor in to how much you can afford will be your credit scores(influences interest rates), PMI, type of loan, and term of loan.
Based on what you have provided, it appears that you have managed your finances fairly well. Getting hard data from a lender involving different scenarios should be very helpful in making your decision.
Just wondering if my wife and I are setting the right budget for purchasing a home. We make 140,000 in base salary a year, and 10,000 - 15,000 extra in bonus and overtime
We have $121,000 saved in the bank and only payments we have is car payments at 775 a month... no other CC debt or student loans. So the question is how much do we spend on a house (or what should our max monthly payment be with tax and insurance)? and how much do we put down??
Thanks in Advance!!
You ask if you are setting the right budget but don't say what that is. Where are you looking? If NYC the answer to your question will be way different than if you you're looking in Kansas.
If I were you I will determine my upper bound like this:
1) Decide what you need with a little bit of what you want (as mentioned above). Get some idea of how much that house will cost in some neighborhood you are interested in. (we are going to find whether you can afford that house or not)
2) use only the base salary for calculation
3) how much of of the 121K you need as an emergency fund as well as other needs after closing?
4) can the rest cover at least a 20% down of the initial house that you identified in #1 (very important to avoind PMI)?
5) Estimate property taxes and insurance as well as other fees for the area you identified in #1 (try to be conservative here because these fees do change over time)
6) Your credit report will decide what interest rate you can get but it is pretty easy to get some kind of range if you know what your score is. So for your analyses, a conservative higher interest rate. If you get better rate, that would a pleasant surprise. You won't know exactly the rate until a loan officer runs the numbers and at the specific time when you decide to do it. That's why I said work with some range.
7) Based on the above if you get a payment that makes you "tight" then adjust the price in #1 and work through it again. You will quickly figure out what is best for you.
Good luck and really I found housing buying to be a lot of fun.
As others have said a lot depends on where you are looking to buy. If you can try not to use all your savings, you need an emergency fund. Factor in property taxes and insurance as in some areas of the country these can be quite high and the more expensive the home the higher they are.
I am fairly conversative when it comes to finances, so I would not spend 50% of my income on a mortgage ( what happens if one of you loses a job? are your incomes equal? or does one of you make 70% of that $140,000/yr? ) Base your purchase $$ on only 1 income if your area would allow you to purchase a decent house in that price range- after all you probably still want to take vacations and enjoy life.
Bank of America has some good calculators in their Mortgage Center www.bankofamerica.com
400K house would be a good place to start based on your numbers. But again like others say, assess what you need. You don't need 5 bedrooms and 4 baths if you have no kids. You don't need an acre of land unless you have a lot of animals. The bigger the house, the more you have to put in for maintenance.
You ask if you are setting the right budget but don't say what that is. Where are you looking? If NYC the answer to your question will be way different than if you you're looking in Kansas.
Good Point... We are looking in Northern NJ, so Taxes are around 10,000 - 12,000 for a house around 400 - 500k.
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