$400k mortgage on $100k salary? Really?? (property tax, rental, house hunting, deposit)

[TimtheGuy]

Originally Posted by ShouldHaveLeft914

A single friend looking at houses for $550,000 with $4k taxes.
Planning on putting $150k down and taking a mortgage for $400k.

This person is maxed out in their career and earns $100k.
It will not go up in the future.
Can 100k income really get approved for a $400k mortgage?
Will this really crap this person's lifestyle?

Would they have to do some sort of 5/1 ARM?
If so, do you just keep refi'ing every 5 years to keep it sustainable?

Yes. it is very possible that this person can qualify and even 'afford' such a purchase. It all depends on how much other debt they have and how they live their life. If they don't have any other debt, DTI would be at about 31% which is totally acceptable by all standards and very approvable. This calculation is based on a 30 year fixed rate.

As far as an ARM, refinancing every 5 years is not required or needed. A person can take out an ARM and keep it the whole 30 years if they want.

[SmartMoney]

This person's front ratio is 32% to 33% ($8000 annual taxes, which is high for here) on 30 year fixed financing at today's rates. If their debt is below $790, they will meet the 43% Safe Harbor. The loan to value is 73%. I'm also betting their score is above average and there's additional savings and retirement.

I would do this loan all day long as a loan officer. My personal mortgage was far below those ratios, only because that is my personal lifestyle and debt capacity - a sleep at night factor. Everyone is different. I often wonder if I should have stretched my own borrowing ability, so not to regret my decision (I don't, but I can see how easy it would be to settle for payment over having what you really want). OP, everyone is different - so don't be the person I keep talking about that likes to dig the self-doubt knife into their friend and has them questioning their every decision when buying a home.

[SmartMoney]

Originally Posted by ShouldHaveLeft914

The person is looking at $550k homes.
$150k down.
$400k remaining as the mortgage.

They have not come into a windfall. They have $150k to put down. If they had more, they put more down, as a way to lower the monthly payment, which may be a stretch on $100k.

$400k mortgaged at 4.25% is about $2500/mo. including $4k taxes and $2000/yr insurance.
Take home salary for $100k would be about $6000/mo.

And $2500 is comparable to renting a 2BR apt.

Actually, I guess it's quite doable.
Maybe even smarter than renting.
I guess I just needed to run the numbers.



Greenwich. Taxes are actually under $4000, I believe.

Sorry, I missed this post, please don't take offense to my prior post.

All day long I hear from my borrowers........."my friend, my mother, my boss, said I am going to be in bankruptcy court in a year." There is something about this industry where disaster stories are told to every buyer and the loan officer and/or agent have to calm them down.

[manderly6]

Doesn't seem that bad to me.

[Ted Bear]

I would want to make sure the buyer had at least another 100,000 in savings/investments just in case things didn't quite go as planned.

Otherwise, I'll take it off the bank's hands for the mortgage....or maybe 50-100,000 less just to teach everyone a lesson.

Everyone has all sorts of 'new' formulas to ensure that no-one misses out, but the old reliable mortgage= three times your gross income is still pretty accurate. After utilities and other expenses, that means you are spending 50% of your gross income on 'housing'. Figuring that a lot of people take home 75% of their gross, that leaves a pretty thin margin for food, clothing, transportation, insurance, MEDICAL, education, repairs and relaxation.

This person 'might' get the deal done, but they will scrape for years to come just to be 'in the house of their dreams'.

Me thinks that dream is the beginning of a nightmare.

[joeymags]

This is a single guy....does he plan on staying child free for at least next 5-7 years? He pulls in net 6k per month. Pretty simple....does he have non-housing related expenses of over $3k / month? I may also run numbers of only putting 20% down, and keeping an extra amount for security (unless he has excess funds for this.)

[XRiteMA98]

Doesn't sound like a good idea to me.

[ccm123]

He's stretching. With a 100K salary, I would buy a $350,000 home at the most. I would put down 25% (at least) and finance the remainder.

[EugeneOnegin]

Originally Posted by beb0p

Now, assuming take home salary of $5,600 - $3,000 = $2,600 left for food/necessities/entertainment/other bills. That's not a lot, but it's doable depending on the number of people in the house hold, the area's COL, whether there's student loan/car loan, etc. It's tight but it's doable in the right circumstance.
.

I agree. ~$2,600/month to live on? I would have absolutely no trouble whatsoever living on that. As a single person I could max out my 401k/IRA at $17.5k per year and still live on what's left over.

It's a bigger mortgage than I would take on personally because I would rather save more of my wages to retire earlier, but it's easily doable for someone who lives somewhat frugally and is otherwise debt-free.

The 2.5x yearly gross may be a decent rule of thumb but it doesn't scale up to higher incomes that well. Someone who makes $50k a year who buys a house for $125k (2.5x $50k) with 25% down is going to have less money left over to live on than this person.

He would be "house rich" but if he recognizes that and is ok with it I don't see a problem assuming he has job security and/or a decent emergency fund.

[ShouldHaveLeft914]

"3x your income" is a laughably simplistic rule of thumb.
It completely ignores one of the biggest factors that affects buying power.
What if rates are 18%? What if rates are 2%?
I agree that is all comes down to personal monthly cashflow, not some stupid "rule"

The friend is frugal.
No debt
Economy car
No expensive habits
Cooks at home, etc.

But, the biggest factor is NO KIDS.
This person does not intend to have kids.
I agree that parents who earn $100k can't afford a $550k house.
But, a single person has a lot more disposable income.

This purchase is just fine.
It's barely more than the cost of renting.

It's funny how we've been brainwashed into thinking buying a home is so risky.
The reality is that renting is far far more risky.
For some stupid reason, I automatically assumed a 100k person could not even come close to affording as 400k mortgage.
A few simple calculations prove this 100k person can easily afford a $550k house with tons of room to spare.