Home Buying in Eagan>Question Details

Dddoc18, Home Buyer in Eagan, MN

How much house can I afford on a gross combined income of $111,000?

Asked by Dddoc18, Eagan, MN Wed Nov 9, 2011

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8
Cameron Piper’s answer
A rule of thumb that I teach to my buyers is that your house payment shouldn't be more than a quarter of your monthly take home pay on a 15 year fixed rate mortgage, after putting at minimum of 20% down. I would love to claim the idea as my own but it is from Dave Ramsey. More info can be found at http://www.daveramsey.com

Cameron Piper
Coldwell Banker Burnet
licensed MN Broker
Web Reference: http://www.CamPiper.com
1 vote Thank Flag Link Wed Nov 9, 2011
The question is dependant upon many variables that you have not provided (i.e. how much down payment do you have? will your loan be conventional, FHA, VA? How much additional debt do you have? What are your credit scores? How much are the taxes and insurance on your home?) If we assume you want the maximum amount you can qualify for and I can assume ideal answers for the rest of the question then I should be able to get you approved for a max payment of 3,237 per month. Mathematically that would qualify you for a loan amount of about 500,000, but I would recommend that we keep it below 417,000, which is the Jumbo/Conforming loan cut off. I would need to speak to you and gather more information to make a more accurate assessment.
0 votes Thank Flag Link Tue Nov 15, 2011
There were all kinds of "rules" back when, such as when mortgage payments shouldn't be any higher than 33% of your monthly income. After all, you want to have a life, not be house-rich but cash-poor.

But then, what it you have a substantial downpayment?

The best and first thing you should do is speak to a lender who can guide you in determining the answers for yourself
1. How much you can afford to buy
2. How much you are comfortable spending
3. How much would you have left if you factor in your other debts, costs of maintaining a lifestyle
4. What kind of loans can you qualify for --- VA loans means no down payment may be required; FHA means you may need to put only 3.5% down, etc.

If you already have a realtor, your realtor can give you referrals to lenders who can help.

Good luck!
0 votes Thank Flag Link Thu Nov 10, 2011
Dear home buyer -

that is such a great question. Unfortunately, you are the only one that can answer that question. There is a huge difference between "afford" and "approved amount." Maybe if more people asked this question we would have fewer foreclosures.

The lender will first "pre-qualify" you then after loan application and document submission a "pre-approval subject to the home and it's condition will be provided. It tends to be around 28% of your combined income however there are many other factors such as debt to equity ratio (how much consumer debt you already have on the books) and credit score. That is not what you can afford.

The best advice I can give you is this.... search for a budget worksheet online. You will find some free ones that allow you to itemize your current and expected future expenses. Basically your income falls into disposable and discretionary income. Meaning, After taxes, you have disposable income that can be used to pay for a savings, retirement, medical, mortgage, tithing (if you are charitable) car payment, education/tuition, and utilities. Then what is left is discretionary ie dry cleaning, dining out, vacation funds, Christmas budget, and anything else that has a lower priority.

You may have heard the term "house poor" before, meaning that you have so much of your income tied into your home that it becomes a burden on your life, or causes consumer debt which is a bad way to go. This is the biggest mistake that first time home buyers make.

Find a great Realtor, talk to a mortgage lender, work out a current and 5-10 year future budget (kids?). That my friend is what you can afford. I hope this helps.

Cathy Bureau
Broker - Owner
Green Home Realty
0 votes Thank Flag Link Wed Nov 9, 2011
The important thing to keep in mind is: "what kind of lifestyle do you want?" Some people are ok with living for a mortgage payment, while other have hobbies, other priorities, etc. Only a mortgage broker can answer the question of what you can afford, but keep in mind you should be comfortable with the payment that comes with the loan. Just because they will give you 400k doesn't mean you will like the payment. Google "affordability calculator" or "payment calculator" to see what your approval amount and the payments that go with it may be. Or contact a lender or realtor for help.
0 votes Thank Flag Link Wed Nov 9, 2011
and it also depends on the condition of your local market. Call your local real estate agent to help you understand " how much house" you can affort affort all the calculations has been done.

My Best!

Tamarah Rigaud
RE/MAX Sun & Sea
yourmodernhomes@live.com
0 votes Thank Flag Link Wed Nov 9, 2011
The answer depends on your debt to income ratios; how much you have left after you pay your bills each month. Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 29% Or for a fixed payment: Add up the total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, mortgage insurance premium, homeowners' dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, take that amount and divide it by the gross monthly income. The maximum ratio to qualify is 41%. This is all based on what the interest rates are, etc. So you would best talk to a mortgage broker to get the process started.
0 votes Thank Flag Link Wed Nov 9, 2011
It is not only your income but also your monthly bills. You need to speak with a mortgage officer that can run your credit and go over numbers with you.
0 votes Thank Flag Link Wed Nov 9, 2011
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