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I'm 25 and have a relatively low income. I have no partner to split expenses with, but I really want to get my own house. The market is hot, so I'm not sure if I can even afford one right now (looking in both El Paso and Phoenix). Houses in El Paso are cheaper, but the property taxes kind of wash out with the higher price tags on homes in the Phoenix Valley.
Do you think I could get approved for a loan and get a house in the upper 200s in this market? I've seen some homes in some of the outer suburbs going for about 290K, but they don't stay on the market long.
About me:
- $57K annual income at my W2 job. I also make about $1,000 a month with my side job but the income isn't always consistent.
- $150K in the bank and in my personal investment account
- $15K in my 401(k)
- 740 credit score
Thanks for any tips! I'd also be willing to rent out a room to help with the mortgage.
What does your potential income growth look like? Do you have existing debts/obligations? Any reason you're looking specifically at El Paso or Phoenix?
As for mortgage insurance, it's great if you can avoid it, but at any interest rate below 3% I'd borrow as much as I can get away with. Always get the 30 year loan. You can always pay it down if you have money to throw at it. I personally put down 10% and my mortgage insurance wasn't prohibitive. If the Redfin/Zillow estimates are correct on my house, I might even be able to refi at an 80% LTV at this point, however I doubt I can get as good a rate as I got.
The banks look at 45% DTI as a benchmark - in other words, your total combined monthly debt payments including any credit card balances has to be no more than $2,137.50 if you only count your W2 job, and $2,587.50 if they count your side gig income @ $12k a year. So it's that number less your existing debts including minimum payments on your credit cards, and that's the largest mortgage payment (P+I, Property Tax, Insurance, any HOA fees that are in play) that your lenders will allow you to have. Work backwards to get the max loan amount + whatever you're willing to put down is your budget. Run some basic numbers on a calculator like this - https://www.mortgageloan.com/calcula...age-calculator.
Put your documents together (2 months' paystubs, 2 months' bank statements, a list of your existing debts and a screenshot of your credit report) and send it off to a mortgage banker. They should be able to give you detailed numbers in about a day or so.
What does your potential income growth look like? Do you have existing debts/obligations? Any reason you're looking specifically at El Paso or Phoenix?
As for mortgage insurance, it's great if you can avoid it, but at any interest rate below 3% I'd borrow as much as I can get away with. Always get the 30 year loan. You can always pay it down if you have money to throw at it. I personally put down 10% and my mortgage insurance wasn't prohibitive. If the Redfin/Zillow estimates are correct on my house, I might even be able to refi at an 80% LTV at this point, however I doubt I can get as good a rate as I got.
The banks look at 45% DTI as a benchmark - in other words, your total combined monthly debt payments including any credit card balances has to be no more than $2,137.50 if you only count your W2 job, and $2,587.50 if they count your side gig income @ $12k a year. So it's that number less your existing debts including minimum payments on your credit cards, and that's the largest mortgage payment (P+I, Property Tax, Insurance, any HOA fees that are in play) that your lenders will allow you to have. Work backwards to get the max loan amount + whatever you're willing to put down is your budget. Run some basic numbers on a calculator like this - https://www.mortgageloan.com/calcula...age-calculator.
Put your documents together (2 months' paystubs, 2 months' bank statements, a list of your existing debts and a screenshot of your credit report) and send it off to a mortgage banker. They should be able to give you detailed numbers in about a day or so.
I'm a CPA so I assume I could eventually make $100K+ with a few more job hops and more experience.
I think you have a really good chance of being able to afford a $300K home assuming you put 20% down with your credit score and income. I don't think you'd have to rent out a room in order to pay the mortgage. That's good you're thinking of buying now. Don't listen to those that say now isn't the right time to buy because of current prices. Bottom line is that no one knows where the market is headed and generally prices climb as time goes on, just like most other things.
At the age of 25, if I had no student loan debt and no car loan - I might consider buying a house. However, at 25 it is likely you will have an opportunity for a better paying job that requires you to move or accept a long daily commute.
If your present living situation allows you to continue to put away money for a home in the future - I think I would wait at least another 5 years before buying a home. Unlike student loan debt and car loans - owning a home at 25 can limit your ability to relocate for a better paying job.
So, the question is not can you afford to buy a house, but, will it limit your job opportunities over the next few years.
Do you have evidence that prices are going to go down? My understanding is they will stabilize at best.
I'm already seeing houses in our neighborhood sitting and looking at the listings online they are reducing the price. I'm in the northern Virginia market and it's was really hot here for a while, and still is in most regards but it definitely has slowed down.
Feel free to not listen, but just remember the last housing run up was caused by people thinking they had to buy a house today because they would be priced out forever. At least loan standards are stricter but that's not stopping people from waiving inspection and appraisal contingencies.
The house I'm living in was a byproduct of the housing crisis. In 2000 it sold for 130k, in 2005 315k, in 2006 390k, in 2008 the bank bought it back at 270. I bought it in 2009 for 162k, fixed it up and rented it out for 10 years. Fortunately I had ended the lease and took it back before COVID-19 because I wanted to live in it. I put hardwood throughout, new kitchen and master bath, fully painted and now Zillow has it for 416k. I refinanced late last year at 1.875% and now my principal and interest is $309 a month with 74k on the mortgage lol
Buffet's adage of being fearful when others are being greedy, and greedy when others are fearful come to mind.
OP what makes you want to buy a house right now? Your young, single, make a decent salary and have good size assets so now it's the time to grow those assets. You can still have a large net worth without being a homeowner as well.
You can buy a nice house in a safe area in Elpaso, for around 200,000 I looked at Phoenix prices for 200,000 you don’t get as much at all.
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