Probably the top 5 question I get on a daily and weekly basis. “How much can I afford?” Well you tell me how much you have left in your budget every month? None, ok then that is how much you can afford put simply.
The long answer is that generally as a rule banks won’t lend over 45% debt to income. What that means is if you make $3,000 a month if your loans, student loans, auto, loans, mortgage/rent is more than $1350 we are going to struggle to get you an additional loan. Out of that $1650 you have left every month you owe all of your other bills and expenses. Food, phone, car insurance.
“To determine your DTI ratio, simply take your total debt figure and divide it by your income. For instance, if your debt costs $2,000 per month and your monthly income equals $6,000, your DTI is $2,000 ÷ $6,000, or 33 percent.” – Google search www.mortgagecalculator.org/calcs/debt-ratio.php
Let me tell you the worst advice I ever heard in my life… We can get you into a bigger house because you will always make more money next year versus this year. Maybe, maybe not. What if your company stops offering overtime? Maybe you get laid off? What if you break a leg and while you don’t qualify for disability your cell phone bill is still due. Let me tell you how many people at the cell phone company care that you didn’t get enough hours last week. Zero! Let’s go back for just a second. In my last 2 companies we were given a maximum of 3% raise annually. Which is all well and good I will never complain about any sort of raise. I also measured how I was doing my job based on my review and raise. I did get the full raise others I know did not. Let’s look at the numbers a little closer. If you are making $3000 per month without taxes you are getting an extra $90 a month. If someone sold you a house on the fact that you will make more money next year and you get an additional $90 a month but the loan is $500 more than you were anticipating. You are going to take 5 years to make up the difference. Get a house you can afford and make it a home. Do yourself a favor and either go to your bank or to a mortgage lender maybe even do an internet search for “how much home can I afford” stay away from the ads you are just on a numbers hunt. Take a look around please don’t guess at it this is a process. Be upfront and honest with the mortgage person. I/We are at the very beginning stages of seeing what we can afford we don’t want to put in an application right now we are NOT here to get pre-approved. We just need some numbers that we can discuss and get put into my budget. If they are a professional and want what is best for you as the consumer and or customer they will want to sit and visit with you about it. Granted most mortgage officers are paid on straight commission so if you are not doing an application they would rather be looking for someone who is. A majority will gladly take 30 to 45 minutes and make sure you well informed before they will just send you out. Tell them you want a realistic idea of what you can afford on a 15 year fixed rate. You don’t want to do a 30 year mortgage. Most of the time you will never actually pay the mortgage off you will move within the 30 years and you will be in a never ending cycle of 30 years. The best spent money is on you and your future. Just for fun let’s say that you can make a $1000 mortgage and that number doesn’t change with taxes and or anything else. In 15 years you have a $150,000 paid for. Then you put that $1000 per month into a CD let’s say just because and never invest your money into a CD you can do much better in mutual funds and gain about 7x the rate of return. Not only do you have home but you have an additional $150,000 plus interest in cash in the same amount of time that I have just the one home. I’m not going to tell you this is the way to make it to be a millionaire and this is the only way. However you will be $150,000 closer.
I had coffee with a guy this morning (I never thought in my life I would ever actually say that) who is just getting started with flipping houses. He isn’t going nuts and getting a tv show or pushing out work in 30 days to make a buck. He is about 100 days in he is doing most of the work himself and just hiring people to connect the wires he has already run. He still puts in his 50 hours a week at his day job then puts in about 3 hours a night doing a little here and there. Next thing you know he’s added 2 bedrooms and a bathroom and added the value to the home. Once he sells that property he will profit probably $100,000. Because that is what his budget would allow at the time. He didn’t beat on his chest and yell out that I can afford $x.xx!! He sat with his wife and said this is what I can afford right now with where I’m at in my life.
How much can you afford?