In starting the home buying process I advise my clients to talk with a lender and get pre-qualified... and then get real. Just because the bank (or their software) shows that you can afford a loan doesn't mean that you actually can. The percentages that you see below are based on a persons gross income, which is often far different than a persons net income. And, lenders don't take into account a persons future financial goals (i.e. 401k savings, kid's college, Murphy's law, marriage, divorce, children, etc). You, as the person signing the contract for purchase need to lay out your plans and really determine (and sometimes discover) whether you can afford the house you want or not.
You don't have to be good at math either. Write down your net income on one side of the paper for a standard payment cycle (often a monthly cycle). Then write down your expenses on the other side. If you're like most people the expenses side is going to much longer (which is why I encourage my friends, family, and clients not to be normal)... but make sure that it is all inclusive (i.e. groceries, lights, cable, electricity, credit payments, car, savings, investments, vacations, vehicle repairs/registration, etc.). Also, compare what's written to what you're actually experiencing. If your paper shows a huge surplus at the end of the month and your bank account is showing the opposite, then the list isn't accurate. If you're not truthful with this exercise, you're only hurting yourself.
There are mortgage payment calculators all over the web and including my website. You can use one to determine what a mortgage payment is for a total purchase price... and you can find ones that calculate a total loan price based on a monthly payment as well. But that estimate should come from your determination of what's left in your budget... not what the bank "thinks" you can afford. You can also set a payment goal and find areas in your budget to cut costs to make it affordable... but perhaps more importantly, sustainable.
Something to consider is that the national household average annual income for a neutral family is somewhere between $40k - $45k with very little savings. I would encourage you to strive for better than normal. Normal in the "golden" years is living on social security with underfunded healthcare and the lack of funds to pay for family visits. I so don't want to be normal and I wouldn't wish it on anyone... Don't overextend yourself and get stuck in the rat race (yes, I read Kiyosaki).
Oh, and the responders were so "helpful" because you have a key phrase in your question... "wanting to make a home purchase." Be careful of free advice and make sure that you find a professional with the heart of a teacher to help you find your home.
Best of luck.
So 30% of $3000 per month is $900. That is enough to carry a $150,000 mortgage. There are many things that could bump up the amount a buyer with your income could borrow. #1 is first time buyer (fthb) program subsidies. such as the $7500 fthb federal tax dredit for 2008 and 2009. #2, Some cities such as Roseville have low and moderate income subsidiy programs. There is a new home subdivision on my street that offers this.
#3 The down payment of 3.5% is simply a minimum amount, If you are able to save up more during the year, you may qualify to borrow much more.
$150K is still the low end here in Roseville. However, looking at our neighbors: Antelope and Citrus Heights - and Lincoln. I see a lot more inventory in the $150K price range.
Steve, Amy Jane and Ute also gave good answers to your question.
Interest rates are very low right now and hopefully may remain so for a while, which means you would be able to acheive your goal of homeownership. If you would like more pre-purchase information or home buying tips, please feel free to visit my website. You are welcome to be a looky-loo for as long as you like until you are ready to buy. Good Luck!
Housing Ratio of 31%
Total Debt Ratio of 43% (see link below)
Calculated as follows:
Housing Ratio: [Principle+Interest+Prop Taxes+Hazard Insurance+Mortgage Insurance+HOA (not all may apply)] / Monthly Gross Income
Total Debt Ratio: just add Total Monthly Recurring loan/credit-based debts (credit cards, car payment, etc.) to the top half of the Housing Ratio Calculation.
Ute may be right, 200K may be too optimistic when you pull in all of the payments that make up the Housing ratio; however, donâ€™t lose faith. Do keep in mind that FHA loans also allow Automated Underwriting Systems that allow one to go over the standard manual underwriting ratios provided above.
The best advice throughout all these posts is the same: See a mortgage professional for advice and guidance!
Best of luck to you,
I would stongly suggest that you speak with a Mortgage Broker regarding your situation. There are several scenarios that may work for you, and depending on whether or not you have a degree and a job in that field of expertise, you may not need the entire 2 years worth of work history. FHA loans are great programs for buyers that do not have a lot of down payment, but there may be other options. Again, I suggest that you speak with a local, qualified mortgage broker who can go over various loan possibilities with you. Best of luck. Amy
Best Regards, Steve