Profile picture for user2378242

About how much HHI needed for 1 million dollar home?

I'm curious what my husband and I should consider when figuring out how much we can afford in oue next home.

We will easily have 200,000 for a down payment (20%) - I'm more interested in what the monthly payments will be. We both have excellent credit. On top of the down payment, we will probably have another 125,000-150,000 saved, not including a 401K.

It's hard to estimate our annual combined income/salaries. My husband is in sales. Next year (2014), he will probably make $275,000. I started my own compnay 4 months ago, and if it continues as-is, then I will probably bring in 80-90K next year   (depends how much time I take off for our new baby - i don't have official maternity leave so I won't have an income for 2 months, most likely).

We will rent out our current condo in the city -- and probably make a few hundred bucks a month on that. I also own a small one bedroom that I will continue to rent out- -- I pay about $80 out of pocket a month on that one.

What factors should I consider when trying to figure out if we can afford a 1 million dollar home in the suburbs? Should we stick to an 850,000 or 900,000 home instead? We would like to start looking for homes this fall, and hope to move sometime mid-2015.
  • January 26 2014 - Chicago
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Answers (17)

The first step is to have your financials reviewed by a loan officer and obtain a pre-approval. Your income situation does not sound complex. However it would be hard for a consumer to understand all the underwriting requirements involved in a mortgage approval.  

Commission income, bonus income, rental income and self-employed income is averaged using the most recent 2 years tax returns. Certain expenses like depreciation are allowed to be added back to calculate your total income. Self employed income is most times not allowed if the borrower does not have a 2-history of being self employed.

Many loan officers have worksheets that they use to calculate total income for the income described above and then provide a copy to the underwriter as a cover sheet with the file for review. The information needed to complete the worksheet will obtained from the tax returns

Upon calculating the income, the loan amount is best determined by processing the submission through an automated underwriting system for the initial approval. Debt to income requirements and the permitted loan amount will vary depending on credit profile, reserves and other factors. One borrower might be capped at 42% debt to income while another borrow might be allowed 50% debt to income. Yes, loan officers will use computer software to calculate the permitted loan amount.

When comparing loan options for a larger loan, there is motivation to consider different down-payments if you have the funds available.  Ask the loan officer "what if" I put down 25 or 30%. More options are available for a jumbo loan amount if there is a larger down-payment. Some lenders limit jumbo loan amounts to 70% of the property value. Typically the best jumbo rates are offered by the lenders that have a cap of 70% of the property value.  

Consider a mortgage broker that can provide different quotes from different lenders. 

Hope this helps.
  • April 22 2014
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Profile picture for shapiroamg
I would talk to John who is a great LO in the Chicago area:

http://www.zillow.com/profile/John-Paunan/
  • March 07 2014
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With current market rates you will pay approximately $500 for every $100K you borrow.  You will also be responsible for property taxes- assume 2% of the purchase price- to be safe.

If you have $200K to put down on a $1,000,000 home your monthly expenses would like something like this:

- $4,000 mortgage
- $1,500 taxes
- $5,500 monthly payment

The rule of thumb is you should spend no more than 1/3rd of your pre-tax dollars on housing but the reality is you need to speak to a reputable lender to get the exact figures and programs you personally qualify for before you go any further.
  • March 07 2014
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Best thing would be to run this question by a lender. Let them run the numbers for you to give a more realistic idea of what your looking at. If you'd like a referral for a good lender let me know.
  • February 11 2014
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There are many sites where you can look at properties for free to do your research on neighborhoods and pricing. You may be surprised with what you can find for $800k in the suburbs and may not want to spend the extra $200k.

You can always add additions to a home but you can't change the location which is the most important.

A lender will be able to tell you what you qualify for, what rates are, and what you can expect your monthly mortgage payments will be.

Congratulations on the baby and best of luck to you on your business endeavors! I'd love to hear what your business is and maybe one day hope to see it on Shark Tank!
  • February 11 2014
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Profile picture for Andrew Malak

Congratulation on your baby!!!

Do not think about the difference in price for now as you might be surprised to find a home in the lower price range that will satisfy your taste and keep your checking account full. I would focus more on the neighborhoods and where you want to raise your family. Then, when you find the neighborhoods, look for the house in these areas. I would buy a house that would be big enough in case you will try to expend the family in the future. People always say that you can sell and buy a bigger, but that really happens. Life gets in the way. Make sure it is big enough so you can live there comfortable for years to come. You can always use a mortgage calculator by yourself on one of the mortgage web site to see the difference in $. I have few of them on my web site. Good luck with your search.

I work in Northern Chicagoland areas.

  • January 29 2014
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A mortgage professional will be able to tell you what your options are, and give you your pre-approval letter. You will need at least one full year of self employed tax returns to be able to use it as income when buying a house, unless you have switched from a W2 employee to a 1099 employee with the same company (which doesn't sound like your situation). 2 years of self employed tax returns are required if you haven't worked in the same line of business before you started your own company. Feel free to contact me with questions or to get started with your pre-approval. 

Thank you,

Ashley Pimentel
Mortgage Loan Originator
  • January 28 2014
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  • January 27 2014
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This is a lot of information to post on a public site and it's accessible by disreputable people.  I recommend you use a lender that I have done 100 transactions with who will give you realistic numbers.  People can say anything to misrepresent who they are and what they can provide. 
[Content removed by Zillow Moderator. Please see our Good Neighbor Policy].  If you or a friend is looking in Chicago I can help and if its the burbs let me recomend the top agent in that neighborhood
  • January 27 2014
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Firstly congratulations on the new addition to your family =). Speaking from experience, it is an amazing time in your life.  Enjoy it because they truly do grow up too quickly.  I digress.....

There are a number of moving parts with regards to your inquiry.  Unfortunately with the changing atmosphere in mortgage lending there is not a simple answer per se however there are a number of different ways to structure the optimal scenario for you. 

Let me kow if there is a good time to speka with you regarding the options available. 

Best of luck!
Tom
  • January 27 2014
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Your lender will most likely look at the average of past 2 years of income, especially for your husband since he is in sales. By 2015, your business will have been active for a little over a year. Depending on the lender, it may or may not be counted as most require a 2 year track record. It is very hard to say without seeing all the variables. Don't mean to sound repetitive, but as others have pointed out, you need to talk to a mortgage professional, as your case is not a simple one. You should to talk to someone now, so you can plan for 2015. 

  • January 27 2014
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Profile picture for Tony Mitidiero
You have a fair amount of variables at play.  Sales income generally fluctuates and will have to be averaged over 24 months and determined as to be increasing/decreasing/consistent, your self-employed income probably won't get counted as it hasn't been established for 2 years, and whether or not you can back the payments (if any) or cost of ownership of the property you currently own out of your debt-to-income ratios is going to depend on several variables  

You will be best served to speak with an experienced mortgage originator.  Have all of your last two years income taxes and all of your asset documentation available.   Give them adequate time to review your documentation.  In short order you will have solid grasp of your purchasing power. 

NOTE:  Make sure to ask how you were pre-approved relative to property taxes.   There can be a very large swing in tax amounts in the suburbs.  

Have fun!
  • January 27 2014
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Profile picture for andynorton
As others have pointed out, you should speak to a mortgage lender as to qualification.

But you also asked if you should stick to an $850,000 or $900,000 home instead -- and that's a different issue. Start looking now, so you know your preferred neighborhoods. The more you preview homes and research neighborhoods, the more likely your location decision will be the right one.

When you see residents in the course of their daily comings and goings, taking care of their yards, maybe playing with kids, chatting with neighbors, don't be shy and do introduce yourself. Let them know you are thinking about moving to the neighborhood. You will get an earful, good and bad, and make friends in the process. Best of all, you may hear from these people about who may be moving in mid-2015, when you want to move.

Look in the wider price range, $850,000 to $1 million, and monitor prices closely, month-by-month. Your Realtor can assist you with emailing of monthly stats, which they can set up on your behalf on Zillow.

If the economy soars, today's $850,000 house may be next year's $1 million house.

Conversely if the economy tanks, you may get today's $1 million house for $850,000.

So staying on top of the market is critical. Remember that all real estate is local. Values in one part of town may not correlate to values in another part of town.

Let's talk about schools too. If you start your search now, you will have plenty of time to visit the schools in neighborhoods you are considering. Test scores are fine, but only take you part of the way.

Are there proposals to adjust school boundaries in areas you are looking?

Walking into the front office at an elementary school is a start, and an important start. But if you begin your home search now, you might find it interesting to attend a PTA meeting and hear what is really on people's minds. While it's true that all real estate is local, you will find it is even more true that education is local!

Choosing a Realtor is going to be important also. There are agents who, in their markets, cover a wide area. That is what I do (I am not in your city). Other agents are more wired into specific neighborhoods. It is for each consumer to interview agents and decide which is better for them. As an example, it takes more than a for sale sign that says "neighborhood expert" to actually be an expert on the neighborhood.

If the Realtor is wired to their neighborhood, can they also represent you well in another suburb some distance away? If not, do you really want to be working with more than one agent?

Many agents will not work with a buyer, if that buyer is working with another agent.

By starting your search now, you can sort out which Realtor's style of work and level of experience best meets your needs. Good luck in your home search.
  • January 27 2014
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Profile picture for Matt Laricy
You will need 2 years at a self employed job to get a loan. Your best bet is to talk to a lender as soon as possible. 
  • January 27 2014
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If you want to do the math on your own figure 40% Debt to income ratio.  That means your total monthly household obligation can't exceed 40% of your average monthly income. Your husband's monthly income will be averaged over 2 years so if you look this year we will look at 2013 and 2012 income subtract out unreimbursed business expenses (form 2106-if filed) and divide by 24 months. The only way you can use 2014 income is to have a filed tax return for 2014 (you can't really get pre-approved on projected income). Your income will not be used without a 2 year history of self-employment income. 

You will likely have to qualify with the Condo payment and new home payment.  If you want a deeper dive into the numbers you'll want to get a lender to review your debt (pull credit report) and review tax returns. You can contact me through my profile or here is a lender in Chicago Kelly Demers [Content removed by Zillow Moderator. Please see our Good Neighbor Policy]

  • January 27 2014
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The most efficient way to do this is to just speak with a few lenders to see what they say. You are not committed and I know you will be very popular!!! My web site has some lender references.
  • January 27 2014
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Profile picture for bjtregoning
The best thing to do is ask a mortgage broker about what you would qualify for. They can walk you through how much you will be approved for and then you can decide how much you are comfortable with. I'd be happy to help you talk through some scenarios if you'd like or refer you to my mortgage broker. Let me know if I can help.
  • January 26 2014
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