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My friend bought a nice 4 bedroom home for 197K and taxes 6500 a year. Built in late 90's early
2000's in a decent neighborhood and their income is 40K and have 3 kids. It's an ok income for 1 person in a small condo but an entire family on 40K a year? How did they get the loan? I know they didn't have savings and could only afford to go out once a month before they bought a house. I don't want to ask them how they can afford it....just curious since we make over 100K together, no kids and struggled to find a 2 bedroom home we could afford and also have a bit of extra money on the side. Also they only lived their 6 months and are already trying to rent or sell it since they don't like the neighborhood (too snobby is kind of what they said).
I did an online calculator. He can afford it if:
It's an FHA loan
5% down
Excellent credit
His total payment debts, incl. the house, dont exceed $1,200
His payment on this house (not counting taxes and insurace escrow) = $884 or thereabouts. So if they don't have a big car loan or credit card debt, they can make those payments. It's tight. But it's not unusual to have a tight fit in the beginning, for the average middle class family. He can meet the payments, AND if he gets small raises every year, that extra income could be able to be used for other expenses, and give them a buffer.
Remember that he probably doesn't have to pay much for insurance; he qualifies for a partial subsidy, if ACA, or he gets insurance for himself and maybe spouse from employer. Could be the kids qualify for assistance with health care, depending on his state.
The average middle class family in the U.S. is about $53k, I've read (family of 4). I wouldn't have done it, since his income is lower than the average, and too much can go wrong and ruin their credit.
BUT it's possible that they have savings (inheritance or whatever), so that they could put down more. You say you know they don't have savings, but how can you be sure? Are you sure they tell people about their finances in detail?
It's also possible the final sales price was less than you think, and they're building it up to make it sound better. It's also possible the sales price includes closing costs, so it's not costing quite $197k.
These days, loans are looked at closely, unlike before the recession. So I'd say they can easily afford it, or they wouldn't have been approved.
My friend bought a nice 4 bedroom home for 197K and taxes 6500 a year. Built in late 90's early
2000's in a decent neighborhood and their income is 40K and have 3 kids. It's an ok income for 1 person in a small condo but an entire family on 40K a year? How did they get the loan? I know they didn't have savings and could only afford to go out once a month before they bought a house. I don't want to ask them how they can afford it....just curious since we make over 100K together, no kids and struggled to find a 2 bedroom home we could afford and also have a bit of extra money on the side. Also they only lived their 6 months and are already trying to rent or sell it since they don't like the neighborhood (too snobby is kind of what they said).
With all due respect op, this is so not your business, and something you shouldn't be wasting any time worrying about. That is your friend and his family personal business and you shouldn't ask him anything about it. I mean, why would this even bother you. Obviously he is doing something right, they did't just gave him the house. And other things probably went into that purchase that you are not privy of, like help from family. However he got it, just don't worry about it, just be happy for your friend.
With all due respect op, this is so not your business, and something you shouldn't be wasting any time worrying about. That is your friends and his family personal business and you shouldn't ask him anything about it. I mean, why would this even bother you. Obviously he is doing something right, they did't just gave him the house. And other things probably went into that purchase that you are not privy of, like help from family. However he got it, just don't worry about it, just be happy for your friend.
+5!
The OP should ask for a referral to the friend's financial planner, perhaps.
If the neighbor is a veteran, he can get a mortgage with zero down. In the case op mentioned, the house cost seems doable, but not the property taxes.
I wonder if the property taxes are really $6,500 on a house wherever that is.
If he bought a house for $197,000, that means the city's assessment is less than that. Let's say it's assessed at $180,000, to be generous.
Take off a homestead exemption (and/or a veteran's exemption, if applicable), and that leaves maybe $135,000 assessed value. That gives a tax rate of 4.18% on the taxable value.
I lived in Texas, one of the highest property tax states in the nation. The rate there last year was 2.67% of taxable value (in Dallas), and it's about 3% in some areas of Houston.
So maybe you were looking at the prior taxes, and no homestead exemption had been filed (higher tax rate). Or the house had been valued much higher, in which case it will be valued LOWER because of the lower sale price (depreciation).
These are a lot of assumptions, and the facts as stated don't add up. So OP is mistaken about some of the facts.
Could be the taxes are more like $4,000 ($337/month), IF they live in one of the high property tax states.
Unless they have a pile of cash in savings, I wouldn't have bought a house just yet, if I were them. But that's me.
I wonder if the property taxes are really $6,500 on a house wherever that is.
If he bought a house for $197,000, that means the city's assessment is less than that. Let's say it's assessed at $180,000, to be generous.
Take off a homestead exemption (and/or a veteran's exemption, if applicable), and that leaves maybe $135,000 assessed value. That gives a tax rate of 4.18% on the taxable value.
I lived in Texas, one of the highest property tax states in the nation. The rate there last year was 2.67% of taxable value (in Dallas), and it's about 3% in some areas of Houston.
So maybe you were looking at the prior taxes, and no homestead exemption had been filed (higher tax rate). Or the house had been valued much higher, in which case it will be valued LOWER because of the lower sale price (depreciation).
These are a lot of assumptions, and the facts as stated don't add up. So OP is mistaken about some of the facts.
Could be the taxes are more like $4,000 ($337/month), IF they live in one of the high property tax states.
Unless they have a pile of cash in savings, I wouldn't have bought a house just yet, if I were them. But that's me.
Property taxes in a lot of the Midwest states are pretty high but not crazy high. I was assuming somewhere around there was most likely where OP lives. I'm looking at houses in Ohio right now, and on a $250K home in a top-rated school district where we're looking taxes are around $5,000-$6,000 per year. Slightly lower school districts that would be about $4,500. $200K is between $3,500-$5,000. So between 1.5% and 2.5%. And where we're looking isn't one of the bigger or more expensive cities.
They probably only put 3%. They don't have any money.
How do you know that? Have you seen their bank statements? Do you know if family gave them money? Sounds as though you are making a lot of assumptions.
I haven't read all of the responses but I agree that mortgage on that income would be tight, but not impossible (we have 3 children and live off my husbands income too). How they could have managed is:
-At $40k with 3 kids, they are most likely getting EIC with their tax returns which could potentially be refunds of $8000 inclusive of what taxes they get back. If they'd put their returns away in a savings account every year for few years, they'd have enough for a down-payment
-Are either of them veterans? If so they'd be entitled to a VA loan and may be getting extra income if they have medical issues stemming from their time serving (VA disability payments)
-They may have paid off cars and cheap insurance
-They may have no other loan/credit card debt
-They may be really good at living within their means
Either way I would hate to have their mortgage and tax on their income, it would definitely be tight, but not entirely impossible.
P.S. since having 3 kids of my own, I find myself spending less on 'extras' than I did when I was working and childless. I don't often buy myself clothes, I used to get mani-pedis once a month and now it's never, I used to get my hair cut and colored once a month and now I just get it cut twice a year, we rarely go out to anywhere to eat with waiter service anymore, we never go out drinking, and hubby and I only do 1 or 2 date nights a year...
So for me, having children and staying home with them has actually been a cost saving in a lot of ways. We had more disposable income when I was working but lived a lifestyle which quickly disposed of the disposable income
A 197K home when total income is 40K though? Also 3 kids?
I just don't know how that is affordable.
I make 60k single and bought one for 120k... No idea how they can afford that unless they are not married and taking advantage of government cheese.
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