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Do You Make $50k/yr? Here's How Much House You Can Buy - YouTube
Channel: Win The House You Love
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Hey, Kyle here with
winthehouseyoulove.com.
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Today, we're talking about how
much house you can afford with
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a $50,000 per year income.
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I'm going to show you how you can actually
calculate this for yourself with your
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own income and your own situation.
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So what you're going to learn is
number one, why a debt-to-income ratio
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matters also how to calculate your
max monthly payment on a mortgage.
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Right?
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And how to find your max purchase price,
because ultimately you want to know,
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hey, we make this much money, how much
a house can we actually qualify for?
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This is going to give you the
answer without having to go through
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getting prequalified with a lender.
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So first let's talk about
the income in general.
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$50,000 per year is going to turn into a
gross monthly income of $4,166 per month.
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Now lenders use gross income.
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You might be thinking well, you
know, obviously I take home a
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lot less than my gross income.
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I might have taxes and I also have
to pay maybe insurance or retirement.
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So, I know it can be tricky,
but lenders use gross income.
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That's what all loan
programs are based off of.
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So we're going to use those numbers here.
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$4,166.
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All right.
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Now what we want to do is we
want to add up all of our debts
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and don't think of expenses.
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Think of only true debts.
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So for instance, in this
example, let's say we have a
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car payment for $300 per month.
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We have a credit card, let's
say it's $200 per month.
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Student loans.
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Let's say we have $20,000 in
student loans, but we're on an
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income based repayment plan.
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And right now we're not paying anything.
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So if we're on a conventional
loan, we can actually use $0 per
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month as our student loan payment.
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And I do have a video.
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I'll put it up here for you
to look at that, if you want
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look at income based repayment.
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And then if you have child support
or alimony, you would include
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that expense in there as well.
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So you're only calculating debts
plus alimony and child support.
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Things that are not included
are things like your phone bill.
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Let me do an X here.
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Your phone bill is not included, utilities
not included, rent not included, taxes
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not included in your debt-to-income
ratio and any other living expenses.
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So gas, groceries, and you know,
whatever other spending you do.
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It's not included in your
debt-to-income ratio.
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So when we go through an add all of
these together, we can see that our
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total debt payment is $550 per month.
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That's what we pay in
true debts per month.
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So this is going to help us figure
out our debt-to-income ratio.
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So to figure out the debt-to-income
ratio, we take our total debt payment
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divided by our gross monthly income.
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And what that does is that
gives us a pre-mortgage
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debt-to-income ratio of 13.2%.
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And what I mean by pre-mortgage is
this is your debt-to-income ratio
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without considering you're going to
have a mortgage payment added in here.
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So something that's interesting is that
your rent payment is not included in
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your debt-to-income, but your mortgage
payment, your future mortgage payment is.
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So what we have to do, it was figure out
how much our estimated mortgage payment
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is going to be to be able to see what our
debt-to-income ratio limit is going to be.
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So we have to do a little bit of
a backwards work around to figure
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out how much, house you can afford.
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So we first need to figure out how
much debt we have and what that
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looks like before we can figure out
how much house we can afford here.
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So let's figure out first, our max
monthly debt that we can take on.
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So we have, again, our gross
income, the $4,166 per month.
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Now, if you're putting in your
own income, it might be a little
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bit different for you here.
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Then what we have to do is we have
to pick a max debt-to-income ratio.
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So this is all going to depend on the
specific loan program that you're using.
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So maybe it's a conventional loan,
an FHA loan, a USDA loan, a VA loan.
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They all have different
debt-to-income ratio requirements.
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So to be safe, we're going to use 45% as
our debt-to-income ratio in this example.
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But if you're on a conventional loan
and you have a high credit score,
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you can actually go up almost all
the way to 50% debt-to-income.For
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FHA loans, that looks closer to 55%.
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So it depends on your credit
and what type of loan you use,
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but we're going to use 45%.
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It's going to be a safe ballpark
range for you to figure it out
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in your debt-to-income ratio.
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So what we do is we take our monthly
income and multiply that times 45%.
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So $4,166 per month times 0.45 gives
us a monthly max debt of $1,874.70.
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So what this means is this is how much a
mortgage lender is going to say, it's fine
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for you to have in debt payments monthly.
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They don't want you to go above that.
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So, the next step here is we
take this number and we subtract
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our total monthly debt from it.
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So we take $1,874.70 minus our
monthly debt, which is $550.
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And that gives us our max mortgage.
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Okay.
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Our max mortgage payment now
in this scenario is $1,324.70.
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So basically a lender would say,
if the cap for your debt-to-income
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ratio was 45%, the biggest mortgage
you could take on was about $1,300.
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Now, just because you can doesn't mean
that you should just because a mortgage
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lender is going to give you money doesn't
mean that it's a good choice for your
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budget and your family moving forward.
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Ultimately you have to make that
decision based on what you're comfortable
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spending each month, not just what
a lender is willing to give to you.
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So this $1,324.70 what's included in here?
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Well, what's included is principal
and interest ,any mortgage insurance
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if you're paying that, any property
taxes, and then any homeowners
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insurance, and if there's an HOA, HOA
needs to be included and that as well.
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So a lender would basically
be saying: all of those things
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combined can not exceed $1,324.
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Now that we have that number, this
is the maximum monthly mortgage
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payment we're allowed to spend.
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We can now do some reverse math to
figure out how much can we actually
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afford in the purchase price.
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So.
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Before we do that, let's
have a quick CalmMoment.
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So there's a lot of numbers here and
figuring out what you qualify for
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can be one of the beginning stages
of feeling some anxiety and overwhelm
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going through this process, because
you're trying to manage a lot here.
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Just know that this is all here as
a ballpark for what you can afford.
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All right.
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Getting these numbers done, a lender
can do these very quickly for you,
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in software that's designed to
help them do this very quickly.
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So if you need help working through
this, reach out to a lender and ask for
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a ballpark figure of what that would
look like and how much you could possibly
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qualify for, even if you're not ready to
purchase for another year or two, that's
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perfectly fine to reach out and see, hey,
maybe you can establish a relationship
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with them and get some help along the way.
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This is just here as a ballpark.
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That way you can start getting an
idea of a realistic goals, because
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the biggest issue is when you're going
into the home buying process and you're
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seeing all of these homes and maybe
they're for $300,000, but then you
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find out later in the process, your
budget is actually closer to $200.
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That creates a lot of friction and
frustration and anxiety because you
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were spending all this time on something
that you weren't able to qualify for.
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So figuring out this step is going to
help you manage your expectations and
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know what to expect moving forward.
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Okay.
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So what we're going to do is we're
going to hop over to Trulia's mortgage
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calculator, and I'm going to have a
link in the description here for you.
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But here in Trulia's mortgage calculator,
this is going to make it really easy for
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us to kind of do some reverse math here.
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So the first thing we want to start off
with is we want to enter in our zip code.
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So I'm going to put in and the zip
code of our office here, 45414.
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And then what we want to do is we actually
want to start with the down payment.
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So how much money are we willing
to spend in our down payment?
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Now this is not including closing costs.
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Closing costs are separate.
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So keep that in mind, but let's say
maybe we're willing to spend $20,000.
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All right.
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So now what we can do is we can
actually take the home price slider
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and start moving this until we hit
our target for $1,324 per month.
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And it looks like we
can't hit that exactly.
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But the ballpark range
here, $1,307 per month.
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Is a home price of $235,000.
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So long story short in this scenario
with $50,000 a year in income and
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the debts that we have $550 per
month in debt payments, we can
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afford up to a $235,000 house.
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If we put $20,000 down.
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Now this changes, depending on
how much you put down, let's
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say we have $40,000 to put down.
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Okay.
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We can actually now afford more
because our loan amount is smaller.
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So in this instance, we can
move that slider up to $265,000
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because we put more money down.
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Now let's try a scenario.
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Let's say we did, let's
say we want to do 5% down.
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Okay.
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And we have to kind of play around
with these sliders a little bit here.
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So let's drag this to 5%.
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Let's see, $1,325.
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So 5% down is going to put us
closer to the $230,000 range.
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And what you could also look at too,
is this is on a 30 year loan, so what
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if we changed this to a 15 year loan.
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On a 15 year loan, we can afford
a lot less because that payment is
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higher because the term is shorter.
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So on a 15 year loan, with 5% down,
we would actually only be able
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to afford closer to let me see
here, readjust the down payment.
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About $155,000.
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Okay.
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So you can see that huge difference
when you're going from $155,000,
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up to $235,000, just depending on
going from a 15 year to a 30 year.
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So what you want to do is play around
with this, so you can get a ballpark
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idea of what you're spending per month.
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And the nice thing about this mortgage
calculator is it is going to put in not
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only your principle and interest, but it's
going to estimate your property taxes,
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estimate your homeowners, insurance,
and estimate mortgage insurance.
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If you're putting less than 20% down.
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Alright.
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So this should give you a really solid
idea here of how much you can afford,
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not only on $50,000, but you'll be
able to calculate for yourself what
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your income is, what your debts are,
and how much you can afford monthly
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and the max purchase price as well.
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So if you're curious to learn what
you can afford on different salaries,
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this video over here is going to
help you understand what you can
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afford a $100,000 per year income.
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Take care.
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