Is this the house of your dreams that you can't live without. Who did the appraisal? Do you wnat to live on a TIGHT budget for many years to come? You really need to factor in everything to make a solid decision. Keep us posted...
The front ratio is the percentage of your monthly gross income (before taxes) that is used to pay your housing costs, including principal, interest, taxes, insurance, mortgage insurance (when applicable) and homeowners association fees (when applicable). The back ratio is the same thing, only it also includes your monthly consumer debt. Consumer debt can be car payments, credit card debt, installment loans, and similar related expenses. Auto or life insurance is not considered a debt.
A common guideline for debt-to-income ratios is 33/38. A borrower's housing costs consume thirty-three percent of their monthly income. Add their monthly consumer debt to the housing costs, and it should take no more than thirty-eight percent of their monthly income to meet those obligations.
The guidelines are just guidelines and they are flexible. If you make a small down payment, the guidelines are more rigid. If you have marginal credit, the guidelines are more rigid. If you make a larger down payment or have sterling credit, the guidelines are less rigid. The guidelines also vary according to loan program. FHA guidelines state that a 29/41 qualifying ratio is acceptable. VA guidelines do not have a front ratio at all, but the guideline for the back ratio is 41.
Example: If you make $5000 a month, with 33/38 qualifying ratio guidelines, your maximum monthly housing cost should be around $1650. Including your consumer debt, your monthly housing and credit expenditures should be around $1900 as a maximum.
Using these guidelines you can see that this is more house than you afford and still live comfortably. My dad also said that an opportunity is only an opportunity if you can afford it. And like Linda said below whose to say the house won't appraise at $365,000 next monthly. Remember an appraisal is only an "opinion" of value.
Hope this helps..
I do not like to deal in gross income. There are too many variables. I have a client who has a gross weekly income of about $630 per week. After health insurance, uniforms, fed - state - fica tax, 401k, his net is $411..........a difference of 219 per week $949.00 per month.
You as the consumer and the ultimate responsible party for paying this mortgage should take that into consideration regardless of what the bank says you can afford. Be proactive, not reactive.
And re-read the answers below.
It's your call.
Your monthly mortgage payment - 28% of your monthly gross - should not exceed $1288 a month, which services a loan of about $230,000. So you may not even qualify for financing on this property.
But, even if you did, you're being enticed by this $55,000 in "instant equity," which might be an illusion, because the appraisal might be, uh, wrong.
An appraisal is one person's opinion of value, and it's not a guarantee of value.
Even if you decide to strap yourself financially to take on this property, I suggest you scour the market to ensure that you really couldn't "touch a home like this" for under $375,000 - because you may find out that it isn't really worth anywhere near that. (Not many people give away equity, you know.)
All the best,
Good rule of thumb is absolutely no more than one third of your net (TAKE HOME PAY!) AND NOT A PENNY HIGHER. No one can guarantee that the home will appraise at $375K in a month or even a year from now. If you purchase under these tight conditions, I believe you are definitely setting yourself up for a possible failure. This is the type of thinking that helped get us into this mess in the first place.
And although it doesn't seem feasible today, the old equation used to be one month's rent or mortgage payment should equal one week's gross. I would like to see us return to a more conservative way of thinking in this area. Starting out in a little bit lesser of a home and doing some minor upgrades and enjoying your life while the home builds equity is the correct way to buy a home - always exceptions to that. However, then you may be in a position in 3-5 years to move up to the bigger and better house, living comfortably and having a little money left over to LIVE AND ENJOY LIFE!