How Much House Can You Afford?
We are, currently, saving up for our first home’s down payment. Our goal is to have $50,000 in savings by the time we start looking for a home. $30,000 will be for our down payment, and $20,000 is our general savings account. I have projected to be at our target by September. Right now, we have $36,500, and we are only $13,500 away from our goal. Our lease ends at the end of December, and I’m hoping we start the house searching process in early August.
I have been calculating what we can afford for a home and looking on Trulia.com to see what houses are on the market.
Most lenders propose the following guidelines to arrive at an “affordable” home price:
- Allow a total debt-to-income ratio of no more than 36 percent.
- Assume a housing payment-to-income ratio of 28 percent for a conservative estimate and 33 percent for the aggressive one.
- Don’t forget to add property tax, homeowner’s insurance, and maintenance fund to your monthly expenses.
- If you place a downpayment less than 20 percent of the purchase price, be prepared to factor in private mortgage insurance. This can average $50 to $80 per month.
Honestly, I think the figures are pretty high, and I can see why people got in trouble in 2008. I have calculated the maximum amount I want to spend/buy is a total of $150,000 including all closing costs, etc. I do not want to go over this amount. We can take a 30 year mortgage, and pay roughly the same amount we are paying now for our rent.
I understand our other costs will go up. After all the home will be bigger, maintenance costs will suddenly appear, and we will probably have an HOA. Our house will probably be farther away from my work, which means my transportation costs will, also, increase.
I’m considering all these costs as I try to figure out what kind of house we can get.
If our house costs $150,000, and our property taxes are $3,000 a year (typical of the area we live in), and our homeowner’s insurance is $1200 a year, I have broken out how much we will be paying below per month:
Total PITI Payment of $922.89. Right now we pay $876 for our rent, and it’s doable. $876 is about 15.8% of our net income (after tax, and other deductions). Our new PITI payment would be roughly 16.3%.
Our electricity will probably double to $120, adding $60 to our expenses. I expect transportation costs to go up by $100. We will add $100 to a monthly maintenance fund. Frankly, I’m estimating our monthly expenses to go up by $300. Of course I will always try to figure out how to lower our expenses.
I actually fell in love with a house on trulia.com. Asking price is $148,000. I love the layout. It’s 3 bedroom/ 2 full bath, 1,470 square foot home. The master bedroom is upstairs, and it’s separate from the other bedrooms, which is what we want. CLARIFICATION – We have not bought a house yet. I’m just online browsing at the moment.
For homeowner’s: Did you figure out how much house you could afford before you bought your home? Are your expenses higher than you thought they were going to be? Any advice?
For soon to be homeowner’s: Are you searching for a house? What are you looking for? What’s your price range?