Home Buying in San Francisco>Question Details

Mission Barg…, Home Buyer in San Francisco, CA

How Do I Determine how much House I can Afford?

Asked by Mission Barganista, San Francisco, CA Thu Nov 8, 2007

My bank, realtor, and the mortgage websites all disagree. My specifics are I have no debt of any kind, 50K for a downpayment, make 80K/year, and my credit is above 800. I've been at the same job for 6 years but my job description changed recently and I don't have a huge amount of job security.
The bank is willing to give me a Giant Wad of money - more than I know if I should spend! I'm a saver, not a spender, but I'm still worried about getting in over my head. I'd appreciate answers from everyone, but especially hearing about other home buyers' expereinces.

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9
Just curious, what was your old job and how do you see your new position unfolding? It might not be the right time to make a purchase.
1 vote Thank Flag Link Fri Nov 9, 2007
The first question I ask my clients when they want to know how much house can they afford is "What are you spending on you 'shelter' needs right now. Are you comfortable with that amount? Is your budget tight or do you feel you could spend a bit more? That gives you a starting point. Once you have determined what monthly amount you are comfortable spending - then you can back into the equation. As an example - you are spending $3,000 per month on rent. That would equate to a approx. $400,000 dollar property taking into consideration property taxes at 1.25%. A 30 year fixed at 6% would be approx. $2,400 per mo. add in taxes and you are close to your current costs for shelter. The $50,000 will allow you to adjust your purchase price dependent on whether you feel your budget is tight or not. $50,000 a month using the same parameters is about $300 a month. That would be the adjustment.

Hope this helps. There are obviously multiple solutions to your mortgage choices - your CPA and lender together can help with those.
1 vote Thank Flag Link Thu Nov 8, 2007
Dear friend,
Please use the following form to find out how much you can afford. Also, taking into consideration how secured your job and always have at least a year of emergency funds for rainy days to live safe and happy.
http://www.bankrate.com/brm/calc/newhouse/calculator.asp
0 votes Thank Flag Link Fri Nov 9, 2007
Hi Mission Barganista:

What I ususally do is backfill.

I go from what I make each month, figure out my regular must have living expense (food, utility, transportation, entertainment, etc);

minus big ticke items such as car expense and insurance; school tuition, etc.

minus have to have entertainment, travelling expenses (that's important too)

minus how much you want to save

What's left will then be what you can spend on mortgage, house insurance, property tax and other potential expenses assocated with owning a home; don't forget the maintenance expenses for you home.

That's how I find out how much house I can afford.

Sylvia

.
0 votes Thank Flag Link Fri Nov 9, 2007
Sylvia Barry,…, Real Estate Pro in Marin, CA
MVP'08
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People are very often approved for more than they actually want to spend. The number you are given by your lender should be considered your ceiling, but you may not want to go that high. Whatever number you are given, you should always break it down into monthly payments. The numbers can be different from different sources for a variety of reason; you have to make sure all components are the same.

Your job first off is to consider how much you are comfortable spending each month. Make sure and include the loan payment, property tax (1.14% of purchase price), and home insurance. Inculde HOA dues if you are looking at condominiums. This number needs to be decided by you; not your lender, Realtor, or a website.

Once you have the monthly payment amount decided, you can shop for a loan. The final loan amount will vary depending on which loan product you choose as the interest rates will vary. This is where your loan consultant comes in. They will work with your numbers to get you the loan that best suits your needs.

Just remember that you are in control. I would stay on the conservative side.
0 votes Thank Flag Link Thu Nov 8, 2007
I'd be interested to know how the bank, realtor, and mortgage websites disagree? What do you mean? How much you should spend? Don't take more money than you need. Are you single, married with kids? -Buy how much sq you really need, and take upkeep into consideration. Do you want a big yard or no maitnenance? -Personally, I wish we would have bought a place with less yard!--that's my previous buying experience. We also bought more house than we need. I.E- the living room is never used except when I throw a party or something. We have a huge rec room- and are always in that instead.
0 votes Thank Flag Link Thu Nov 8, 2007
Great question and more people should be asking. As a CPA and REALTOR, I created a budget spreadsheet that might be useful. Shoot me an email at Nancy@TheOCExperts.com if you'd like me to send it to you. Good success to you, Nancy
Web Reference: http://www.TheOCExperts.com
0 votes Thank Flag Link Thu Nov 8, 2007
I would be more inclined to go with your bank. Mortgage websites are very generic and subjective. I would also check with a local mortgage broker for a second opinion. If it sounds to good to be true wlak away. If yur bank or mortgage broker tell you bad news, I'd abide by it and aks what you can do to fis the problem or issues. If the bank or lender tell you you have a wad of cash to spend that's great, but there is nothing saying you have to spend it.
0 votes Thank Flag Link Thu Nov 8, 2007
Hi Mission. Trust your instincts and buy a house with a mortgage that you can comfortably afford. Just because you qualify for more than what you want to spend does not mean that you have to. Since you don't have any other debt, you'll qualify for more than most people with the same income. I have never heard of anyone who said that they wish they had gotten a higher mortgage, but I have heard a lot of people wished they had gotten a lower mortgage and maybe a smaller house. Good luck with your decision making process.
Web Reference: http://www.theMLShub.com
0 votes Thank Flag Link Thu Nov 8, 2007
Ute Ferdig -…, Real Estate Pro in New Castle, DE
MVP'08
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