Going to a bank and getting a pre-approval letter for 350k, doesn’t mean that you should buy a property for that much money. You have to know that the bank is in the business of making loans and not in the business of making sure you don’t end up financially destroyed.
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1. People Usually Start of with the House which is a terrible idea
- Because what’s the point of looking at things you can’t afford dint he first place
- But just for fun lets look at a property I think is absolutely nice
Property:
- This property is selling for 370k but lets say the owner is willing to take 350k (probably even less honestly )
- I’ll looking to get a 30 year mortgage and put down 10% more on that later ( how much to put down and loan term )
- My total mortgage would be $1,986 with property taxes and insurance included.
If my household income is $6,000 a month, can I afford it? After all its only 33% of my income, right?
The short answer is NO, you can’t afford ( even if the bank is willing to qualify you for it )
2. Here how you should actually do the Math
Down Payment: 10% is fine but I would recommend 20% if possible ( that would be 70k which is a ton of money, but don’t worry if you have only 10%, but you will have to pay PMI insurance few extra thousand a year )
Loan Term: Instead of 30 years to get a lower payment we do 15 years.
- Why? The goal is to pay off the home and buy a home you can afford
- This saves a lot of money in interest and Time.
Last Rule: Limit Cost of Property to 33% of your Net income including all the cost
- Mortgage
- Insurance
- Taxes
- HOA
- PMI
- Maintenance 1% of property value
Let’s wrong those Numbers again:
- 10% down: 35k
- Closing Cost: 2% ( $7,000)
- Maintenance $3,500 at least
Cash: $45,500
- 15 year mortgage + insurance + Taxes = $2,786
- HOA: $0
- PMI: $100 per month as a low estimate
Monthly Cost: 2,886 dollars
Percentage of income: 48.1% that’s 15% higher
3. How Do I afford them
- Well in this scenario you don’t
- But we do have a few options.
Option 1: Look for a Cheaper home you can Afford.
- Example, a home that cost around 250k-260k
- Would be withing your budget.
- This could mean moving states, having a longer commute or just looking at different homes.
Option 2: Save up for a larger Down payment
- Example if you put down a down payment of 40-50%
- You can can afford to buy the home and stick within budget
- Just gotta remember that it is a lot of cash to save up and it could take additional years and by that point home prices have rose
4. Conclusive answer
- To afford home that is that expensive with this math.
- You have to be making a household income over about $8800 almost
- A lot of money
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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I'm an Accountant but I'm not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.