How Much Home Can I Afford With My Income
This Blog On How Much Home Can I Afford With My Income Was Written By Gustan Cho
How Much Home Can I Afford With My Income? This is one of the most important questions that every homeowner, especially a first time homeowner should ask before house shopping. One of the most important factors that mortgage lenders consider is income when qualifying borrowers. However, borrowers should not just rely on how much their mortgage lender will qualify them but more concerned about How Much Home Can I Afford With My Income. Lenders will only consider debt to income ratio when calculating and qualifying income and not the key question on How Much Home Can I Afford With My Income. Here is how mortgage lenders calculate debt to income ratio on borrowers:
- Take the sum all of monthly minimum debt payments of the borrower that only reports to the credit bureaus including the proposed mortgage payments and divide it by the borrowers monthly gross income. That yields the back end debt to income ratio
- The front end debt to income ratio is taking the proposed housing payment divided by the borrowers monthly gross income
- Mortgage Lenders do not take into consideration your other monthly bills like utilities, child care, auto insurance, cellular phone bills, after school activities, and other monthly bills that you have when calculating debt to income ratios.
How Much Home Can I Afford With My Income If I Want To Purchase A Home?
How Much Home Can I Afford With My Income versus How Much Can I Qualify is the key question. An average home that has four bedrooms and two bedrooms averages $250,000 in the Midwest. A lender will qualify you for a mortgage but will only take monthly debts that only report on the credit bureaus. A lender will not take the following into consideration:
- Auto insurance
- Monthly utilities
- Cellular phone bills
- Cable bills
- Internet bills
- Home phone bills
- Medical insurance, dental insurance, optical insurance
- Child care
- After school activities
- Education expenses
- Other monthly bills
So just because a lender may tell you that you can qualify for a home mortgage does not mean How Much Home Can I Afford With My Income has been answered. Home buyers must know that qualifying for a home loan does not mean that you are able to afford it. to realize that just because they qualify for a home by a mortgage lender, that does not mean that they are able to afford it. The most updated Census numbers indicate that the new average home sells for $281,000. So lets ask the question on what household income you need to qualify for a $250,000 home. According to the income numbers on the Census, the average household gross income of a typical American family is $50,000 in the United States. Gross income is before taxes so after taxes figure this family takes home $3,200 per month net. The principal and interest on a $250,000 FHA home purchase after the home buyer puts a 3.5% down payment is $1,250 per month. You then need to add property taxes and homeowners insurance to the principal and interest. Here is what the monthly housing payment will be. Again, this is an estimate:
- $1,250 principal and interest
- FHA monthly mortgage insurance premium $180.00 estimated
- $250 property taxes or $3,000 annually
- $100 per month for homeowners insurance or $1,200 per year
- Total housing payment: $1,780 per month which leaves $1,420 for this family to pay utilities, home phone bill, insurance, child care, after school activities, education expenses, fuel, groceries, and other monthly bills
Under the mortgage lenders qualification criteria, a borrower with a $50,000 gross income will qualify for a $250,000 home purchase. However, can you afford a $250,000 home? Remember that lenders qualify borrowers off the gross income they make and not net income. Here are other factors homeowners need to consider:
- Reserves. What if your HVAC System breaks down
- Landscaping. As a landlord, you need to maintain your own yard in the summer. You need lawn equipment and fuel
- General Maintenance: You are now a homeowner. You cannot rely on your landlord to fix plumbing, electric, air conditioner, furnaces, and appliances. Some of these repairs can be high ticket costs
- Auto and transportation expenses. What happens if your car breaks down?
You do not want to be house rich where you need to live paycheck by paycheck. So when buying a house, qualifying for a mortgage is important but more importantly is How Much Home Can I Afford With My Income.