Wondering how much house you can afford?
No one wants to feel strapped for cash every single month.
So let's break it down and talk about exactly how much house you can afford. And stick around
until the very end of the video. Because I will be sharing my personal recommendation.
I am Tiffany Thomas with wealthytiffany.com and I achieved financial freedom
and I became a millionaire mainly through investing in real estate.
If you are looking to do one or both of those things,
hit that like button and hit the subscribe button and we're going to dive right in.
All right. How much house can you afford?
Most people recommend that you spend no more than 28 to 31 percent of
your gross income on your mortgage payment.
For example, if you are making 60,000 a year,
then that means each month you are bringing in five thousand dollars
and 28% of five thousand dollars is $1400.
So, $1400 would be the amount you could spend on your mortgage payment each month,
but that's not the only thing that you want to take
into consideration. You want to take a look at all of your debt that you have
and all of your debt payments each month.
You don't want that to exceed 45 percent of your gross income.
For example, if you were paying $500 toward your school loans,
each month and then you have an auto payment of $500 as well.
Plus a personal loan with a payment of 200 dollars per month.
And then let's say you had some credit card debt.
So you had a monthly credit card payment of $500. And if you did end up getting a home.
And you were spending 14 hundred dollars on your mortgage.
Then all of those added together is three thousand one hundred dollars.
And if you were making that five thousand dollars each month,
then 31 hundred dollars of five thousand dollars is 62 percent. So that would
be too high. That means your debt would be an excess of your gross income each month.
So, you would want your mortgage payment to be a lot lower than that.
For example, let's say you are paying a monthly payment on your school
loans of $200. And then you have an auto payment of $350
and then let's say you have some credit card debt.
So you are making a monthly payment of three hundred dollars toward your credit card.
And then, if you did end up having a mortgage payment of $1400,
if you total all of those together, you'll get two thousand,
two hundred and fifty dollars
and forty five percent of five thousand dollars is two thousand two hundred fifty dollars.
So, with the recommendations that most people are giving that would be just fine
because all of your debts,
including your mortgage payment, are adding up to 45% but not over
45% of your debt compared to your gross income.
But here's the thing. People are just looking at the exact mortgage
payment that they would have, that 1400 dollars,
but they forget to take into consideration all of the other expenses that could go along with that,
that $1400 could just be strictly your principal and interest payment,
and then you would have to pay property taxes and insurance on top of that
mortgage payment, not to mention if you bought a place that has a HOA,
a homeowner's association, then you would be paying a monthly fee for that.
Plus all of your utilities
and then any maintenance costs that come
up because there is always something that comes up
when you own a home whether it is buying a new furnace,
or a new air conditioner, or even a new washer or dryer.
There's all sorts of things that come up.
And include all of those extra costs associated with owning a home.
So that you don't find yourself strapped for cash,
each month and housing prices continue to rise.
So, you really want to be careful and not purchase something that you really want,
that is out of your price range, but purchase something more realistic.
So you do not feel house poor
and you could do a 30-year mortgage or even a 15-year mortgage. And with a 30-year mortgage,
it's usually a little bit higher interest rate than a 15-year mortgage,
but with your 15 year mortgage, you are going to pay more each
month for that mortgage payment versus a lower payment with the 30-year mortgage,
but with a little bit higher interest rate, so,
if you never any extra on your mortgage,
then you would definitely pay more in interest over the 30-year loan versus the 15-year loan.
But you don't want to feel house poor, if you are deciding to go with a 15 year,
but that mortgage payment is too high for you.
I personally like going with a 30 year mortgage and I can always pay
extra toward that mortgage. And that is actually what I've done with my properties,
and I was able to pay off two of my properties,
and I sold one of my property,
so I just have one mortgage left.
So you don't just have to make that minimum payment each month
if that's not what you want to do. There are some trade-offs with using
a 30 year mortgage versus a 15-year mortgage.
So you just have to decide what goes best with your long-term goals and your budget.
Another expense that you could have is PMI, private mortgage insurance.
And this would be if you did not pay 20% down for your mortgage.
If you had a payment that was lower than 20%, They are going
to add on an extra fee. They will add on that PMI every month to your mortgage payment.
And just as a side note,
if you do have a mortgage with PMI, I ended up getting rid of my private
mortgage insurance that PMI in a pretty unique way.
So I have a video about that. I will leave a link above and below in the description.
Keep that in mind if you decide to go with a lower down payment,
there will be an extra charge on your mortgage.
But that doesn't necessarily mean that you should not invest in that property.
It still could make sense
for you. It made sense for me on one of my properties.
When you are trying to figure out how much home you really
can afford, you really need to know all of your expenses and all of the expenses
that will be associated with purchasing that home.
One of the things I like to use to help me
manage my money really simply is a free app.
It's called Personal Capital. You can hook all of your financial accounts to Personal capital
and then see your full financial picture in just one place very quickly.
And that includes all of your checking accounts, savings accounts,
your 401k, a Roth IRA,
your credit cards, your mortgage payment,
If you do have one. It creates a really easy way to see all of your finances in one place.
And then you really can see exactly what your expenses are and how much house
you really can afford. If that is something you're interested in, I'll leave a referral
link below in the description. You can click on that to set up
your free account with Personal Capital.
Comment below and tell me if you are already using Personal Capital,
or if you have another money management
app that you really like. All right, all of that being said,
my personal recommendation is actually to take a look at your net income instead of your
gross income. Take a look at what is actually being put in the bank from your paycheck.
And then I would go no more than 30% of that net income.
Because honestly, I know that we have a lot of expenses
and there are emergencies that happen
or other things that just come up in life and we need to pay for those things.
So feeling strapped for cash, or house
poor as a lot of people call, it is really not a good thing,
especially with a 30 year fixed mortgage.
That payment isn't going anywhere. And yes,
you could refinance, unless you have a really high interest rate right now,
refinancing isn't really going to lower your mortgage payment.
And then I would do no more than forty percent of your net income
each month, going toward all of your debts.
That way you have plenty of money to invest,
or even just save if you need to build up an emergency fund.
If you are really deciding how much house you can afford,
definitely take a look at your net income. How much are you actually bringing home?
And if your debts are pretty high, then start to pay those debts down and get rid of those.
And then you would be all right to have a little bit higher mortgage payment
because you would have your other debts already paid off.
And if you're wondering how to pay off your debt pretty quickly.
I do have a video for you. I'll leave a link above
and below in the description. And personally even my recommendation may not be the best
for you. Really sit down and take a look at your finances.
How much you are bringing in? How much is going out? And think,
okay. Do I really want to have this huge mortgage payment?
Or do I want to have a smaller mortgage payment
and then have more flexible spending?
And if you're really not sure how much the mortgage payment would
be on a home that you're looking to purchase.
There are a lot of mortgage calculators online,
so you can run some numbers and just realize,
it's not exact, but it will be pretty close.
So, add in a little bit of a buffer. In that way,
you'll get a pretty good idea on how much you'll be paying for a mortgage each month.
Comment below and tell me if you've had any experience on purchasing a home.
And if you felt comfortable with your mortgage payment,
or if you did feel house poor and wish you would have made a different decision.
And if you found this video helpful, please hit that like button
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Thanks so much for watching. I'll see you in the next video.