Post # 1
When I got married I didn’t think about buying a house. I didn’t know what we will be doing or if we wanted to stay in this city or not. Turns out that after two years, I love living heare and want to drop my anchor. However, reading some of the posts about mortgages and loans, interest rate etc etc. has made me a little bit anxious and sad. I have been looking at homes online, just for fun. I actually found some that I liked. My wish list is pretty much 3 bedrooms, 2 bath, and a nice kitchen. I don’t care about anything else, I just want an updated kitchen. We make about 100K a year. We have no idea what we can afford. I don’t want to have these high expectations of hardwood floors and stainless stell appliances if we’re not going to be able to afford it. 🙁
Any ideas of what kind of mortgage we can afford on that income?
We have a car loan and student loans, that makes about 400 dollars a month for both, other than that we have some revolving credit card debt but it’s in the 100’s and we pretty much pay it every month.
Any thoughts are welcomed. I’m really frightened right now :p
Post # 3
The best thing you can do is get pre-approved. We make about $175,000/yr with no car loan and $103/mo in student loan payments, zero credit card debt. Excellent credit. We were pre-approved for about $550,000 purchase price (with 20% down). If you guys have 2 yrs of work history at that income, you’d likely get approved for around $250,000-ish, assuming 20% down. Less if you don’t have 20% down.
What that price gets you depends on where you live. Where I grew up in Texas, it gets you a lovely, large, custom home. Where we live now, it doesn’t even get you a 0.1 acre plot of land without anything built on it.
Post # 4
I’m house hunting right now. Start learning the home-buying process…there’s a whole lot of terminology associated with home-buying and for me it was really confusing and intimidating at first. I use Redfin to do my research and they offered free home-buying classes. They have a wealth of info for 1st time home buyers on their website – http://www.redfin.com/home-buying-guide/welcome
Next, find out how much you can afford and how much you want to spend on your house per month. Keep in mind other expenses and how much saving you can still do. Talk to your bank and get pre-approval if you’re serious about house hunting. Otherwise you can do financing research online. Some bank and credit union websites offer home buying tools and calculators like a Mortgage Rate & Payment Calculator (Research your rate, payment, closing cost and mortgage type options) or a Pre-Qualification Calculator (get an idea of how much home you can afford).
It’s a long, confusing and sometimes frustrating process but it’s easier to get through when you understand what’s going on in the real estate market. Good luck!
Post # 5
- Wedding: August 2013 - Rocky Mountains USA
Dang, I’m jealous of you ladies and your incomes! We just bought our first house on a combined income of $50,000 (but with prospects of significant increases soon – Fiance still finishing school right now). We got a pretty inexpensive place for about $130,000. Seems like you could afford something close to $300,000 ? It’s a great time to buy because interest rates are at an all-time low. It’s nice to be able to put down 10-20%, but you can put down as low as 3% through some loan programs.
Check out these links for mortgage calculators based on your income:
I checked out a bunch of library books like “The Idiot’s Guide to Buying a House”, etc, and learned all about the process. Then we got pre-approved for a mortgage – this is key, so you know what they bank thinks you can afford, and so you are an appealing buyer if you find a place you really like and put an offier in. (A lot of sellers won’t even entertain offers from someone without pre-approval).
But most of all, think about the amount per month YOU want to pay, keeping in mind that you’ll need more for bills, emergency funds, etc. We got something far less than what we were pre-approved for.
Good luck! Start learning about the process and it becomes fun and exciting, not scary!
Post # 6
@lolot: That’s a great point about how much you want to pay vs what you get pre-approved for. We are under contract for a condo that is about $75,000 under our limit. We just weren’t comfortable going up that high since we want to have kids in a couple years and need to leave room in the budget for daycare and savings!
OP: most real estate agents won’t really meet with you/show you homes until you’re pre-approved, so i’d start there. That’ll give you the papers in hand to limit your price range and tell sellers that you are serious.
Post # 7
It’ll depend on a lot of things- go talk to your lender and ask to be pre-approved, then you’ll have an idea what you can afford. Then go find a realtor, and talk to them a lot and look at different things. We bought a home this past April, and it was a long process. Despite a good income, my fiance is in aviation, and we had to talk to two different mortgage brokers to find someone willing to work with us and understand how he is paid. We also had to place bids on three or four different houses before we won the bid and finally bought a house, so don’t get too attached to something before it’s a sure thing. We initially wanted a foreclosure fixer-upper, but we quickly found out we were out of our league- it’s normal for them to be bought by investors at 20% over the asking here.
Post # 8
I like this calculator at CNN money because you can put in your other debt and local property taxes which make a HUGE difference on how much you can afford.
If it were me I’d stick to the “conservative” amount but that may depend on how expensive housing is in your area.
Post # 9
The amount you can afford is so personal based on all of your particular expenses. What we did is figure out a budget. Put in everything you currently pay for or will have to pay for, and see how much you have left over. For us, what we were comfortable with, was that we had to have all of our bills/budgeted items covered, be contributing to retirement, putting 10% of our income into savings, and THEN see what amount we had to put towards a mortgage. I’d say that is probably about the minimum amount of wiggle room you should give yourselves– a lot of people want a lot more room in their budget than that but we were comfortable with it because our jobs are pretty stable.
Once you know how much your monthly payment can be you can start plugging in different numbers into a mortgage calculator to figure out what you can afford (and as others have said, don’t forget about property tax, insurance, and PMI if you won’t have 20% down). Most people do 30 year loans, but if you could swing a 15 year loan it would be awesome.
p.s. regarding getting pre-approved– do NOT take the bank’s word for it on “what you can afford.” I can’t remember exactly how much we got approved for but I think it was close to 300K. Based on our own calculations though, 200 was our max that we felt comfortable buying. I think a mortgage at 300 would have really stretched us beyond what we can reasonable do.
Post # 10
Lots of good advice here! Another way to think about it is to consider how much you are paying in rent a month and how comfortable you are with that payment. Most importantly, are you able to save enough for retirement with the amount you are spending now? (If not, you can’t afford to spend what you are spending — especially not long-term.) If you plan on having kids, how will having kids affect what you are comfortable with — will both of you keep working? Will one of you stay home? What are daycare expenses in your area (they can be comparable to your mortgage!)?
For instance, my husband and I would like to keep our monthly payments roughly where they are now (we rent)– including property taxes and insurance and HOA dues. This leaves us with lots of extra income every month for savings and will give us lots of flexibility when we have kids — I’m toying with the idea of taking some time off work when we do. The size of the mortagage we are looking at getting varies a lot based on what property taxes are like. Regardless, we will borrow MUCH LESS than what we will be approved to borrow.
We also want a nice kitchen. But that’s another reason we are looking at buying a fairly inexpensive house — we’ll have money for renovations (and a 48 inch range!!).
Post # 11
I bought my first house last year at the age of 41 years old. So far, I am extremely unimpressed with home ownership and would gladly go back to renting, but I am kinda stuck now. To me, a mortgage is really expensive rent. I really do not own my house – the mortgage company does! One does not need to own a house to raise kids either! I raised mine perfectly well in rented homes!
Post # 12
- Wedding: October 2011 - Bed & Breakfast
I totally agree with the advice to figure out what you can comfortably afford long before you ever talk with a lender. We spent only 55-60% of what we could have been approved for. If we had spent the full amount, we would be eating ramen noodles every night, never paying for DS’s college, and retiring when we’re 80. The bank is totally unrealistic.
To decide if you are ready, the first thing you need to do is look at your savings account. Do you have a 6 month emergency fund saved up? No? Stop right there and focus on getting your emergency fund filled.
Yes? Next step, do you have at least a 3.5% downpayment and another 3-6% for closing costs saved up in addition to your 6 month emergency fund? So say you’re thinking about a $200k house, that’s $7k for a downpayment and another $12k for closing costs (one year of pre-paid home owner’s incurance, property taxes, transfer taxes, etc.). No? Stop and save more money.
Yes, you have your 6 month emergency fund AND money in the bank for a downpayment and closing costs? Great. So how is your credit? Pull your reports from all 3 bureaus and fix any errors. Rebuild your credit, as needed. This can take 9+ months, depending on the issue at hand.
Now it’s time to move on to looking at your monthly budget. How much are you comfortable paying each month for housing? Remember that if you are planning to buy a home that is larger than your current place, you should factor in increased gas and electric bills, so leave yourself some wiggle room. So what are you comfortable paying that allows you to still eat, save for retirement, save for kids, take a trip every once in a while, etc.? Take that amount and start subtracting. Subtract $150 for PMI (insurance that you must pay to assure that if you default on your loan, the bank still gets paid. you pay this insurance if you put down less than 20% as a down payment). Then subtract $75 (could be more if you live in a high risk area) for your monthly home owner’s insurance. Then subtract $300 a month (could be more or less) for property taxes. Then subtract $100 (could be more or less) for HOA dues if you are considering a condo or community with a home owners association. The number you have left is what you can afford to pay a month for principal and interest on your loan.
Take that monthly amount and play with a mortgage calculator to see what it buys you. Can you find a house for that amount that you actually like and that will meet your needs/goals for the next 10 years? No? Keep saving to get to a 20% downpayment (eliminates that money wasted on PMI and allows you to increase your purchase budget). Yes? Go talk to 3-4 lenders to see who you want to work with. Choose 2 who you like and get-preapproved through them. Get a realtor and go shopping. Don’t get pre-approved until you are actually ready to shop. If you go to early it’s an unnecessary pull of your credit, which will decrease your credit score. And talk to all lenders in the same 30 day period. That way they will all be pulling your credit around the same time and all of those individual credit pulls will be consolidated into a single pull in your file so as to minimize the negative impact of the pull on your score.
Post # 13
@lovekiss: Thank you for this! Saving this thread for when we officially start searching.
Post # 14
@lovekiss: wow! that’s great advice. I think we definetly have to stop and save more. I wouldn’t want to spend all of our money and not have any left for furniture and stuff like that without touching our emergency fund. Thanks!!
Post # 15
- Wedding: October 2011 - Bed & Breakfast
@amoret11: Saving more is a great idea. You would be astonished at how much money you will hemmorage in the months after buying a house. Ladders, heavy duty trashcans, lawnmowers, rakes, towel bars, window treatments, etc., etc., etc. add up soooo quickly, and that’s before you even start buying furniture.
Post # 16
Rent vs Buy is a neat article that explains some of the payoffs of buying and renting.
My Fiance and I recently purchased our first home this summer, and we are actually saving way more money than we were renting. We are also closer to his work now (something important to us when looking for the house) so our monthly gas bill is a lot lower too (I don’t work). I think it just depends on your situation and location.
We were able to purchase a 3bd/2.5ba home with a nice kitchen, built in 2000 in Charlotte, NC (Highland Creek) with my FI’s salary alone ($50k/yr). We have no car or student loan debt however, but we were pre-approved for $185k. We had the money for either a downpayment or a fancy wedding, we chose the downpayment and we’re having a small wedding instead. My other suggestion is to get a real estate agent that you trust, we had an amazing agent. She really helped us with our budget vs needs vs wants. Hopefully this gives you a bit on an idea.