Profile picture for orange hammer

How much house can I comfortably afford?

Hi, I am looking for a house in Denver. My mortgage broker at a major bank approved me for 150K. I don't want to be in a position of being house poor.
I want a comfortable mortgage payment. Currently I pay rent of $800
a month, comfortably. I have no outstanding debt. My car is paid off. 
I make 32K a year. I have 37K in savings. I expect to use 25K as a down payment
and keep the rest in savings. I am a veteran of the military. My credit score is
in the 800s. I have had my trucking job for 3 years. Thanks much. 
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January 24 2010 - US
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Answers (7)

Best Answer

That would make their payment around $1062 including escrows on a $192,000 purchase (I used $1400 on taxes)..... that would be a 40% housing ratio, which is way too high in my opinion and will not fit most program guidelines.

I always try to keep folks under 30% unless they have other income that is not being used to qualify.  That would put your mortgage somewhere around 120k and a 145k purchase.  This should keep your total payment under $800 per month.  I used $130 for taxes and insurance.

This is the same as your rental payment.  Are you comfortable making this rent payment every month?

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January 25 2010

Orange,

My response is intended to add to the very helpful financing info you have already received.

There is more than one way to become house poor.
The cost and payment aspect of your new home will not change over time as you own the home.
On the other hand, the cost to maintain and upkeep the home will change.
If you do not take into consideration the cost to heat, repair, and maintain the home then you will begin to break your budget in ways outside of the realm of your mortgage.

How many gallons of oil or gas will the home consume in one year?
What is the current price per gallon? Will this price increase over time? Will your home heating budget increase over time?

How many years left in the roof? What is the cost today to re-roof it? If it has 10 more years then what do you anticipate the cost of re-roofing it in 10 years will be? If the roof will cost 8k to replace now it will cost 8560 in 10 years at %7 inflation, 8k x 1.07 =8560 / 120 months = $71.33

How many people put $71 aside every month in anticipation of a new roof that will keep their $200k "investment" dry?

It does not matter how excellent your mortgage rate is if in 10 years you need to put $8560 on a credit card to keep your house dry.

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January 25 2010
Actually on a 25 year term, that would make the PITI somewhere around $1116, which would be a 42% housing ratio...

I had it calculated on a 30 year term at 5.25% below.
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January 25 2010
Profile picture for gbertrand31
Use this tool: pretend that you're investing in a property (in fact, you are). Check nothing but "Finance with Mortgage" on step 3, press Start A Project, disregard everything except for the last form input "Monthly Income". Put $32,000/12 = $2,667 in the form, press Analyze, and look at the metric in the bottom of the analysis that says: "What Kind of Home Suits Me?". Anyway, I've calculated it and it reads $192,019.

What that tool assumed is using a mortgage of 25-year term with interest rate of 5% and 5% down, as well as Income Coverege of 2.5 (just so to assure almost any lender would lend you this amount) to backward engineer the above number for you.

Looks like you're in the safe area, as double-confirmed by your lender's decision. Hope it helps.


 Sources:
http://www.houseminers.com/HousingProjects
 


 
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January 25 2010
White, orange hammer is a Vet and qualifies for a VA loan.  VA loans don't have PMI.
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January 24 2010
Well..., to avoid the PMI you needed 20% down payment, with 25k down payment you can borrow $100k and the home you can buy is $125k.
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January 24 2010
You can use 33% of your gross monthly income to pay for the mortgage and no more then 45% of your gross monthly income to pay for the mortgage + tax + insurance + the other debts.
33% of your gross monthly income is $889 with 5% interest rate at 30 years term you can borrow at $165,604. However your bank pre-approved for you at $150k. The home you can buy is 175k ($150k + $25k = 175k), however with the 14% down payment ( 25k of $175k), you had to pay for the PMI.
The better way is use 25% of your monthly income to pay for the mortgage, 25% of your gross monthly income is $667 at same term you can borrow at $125,000. The home you can buy is $150k($125k+$25k),  more affordable and no PMI.
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January 24 2010
 
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