In this tutorial video, we will be showing you how to use the home
affordability calculator available at Hauseit.com. If you're not already on the
calculator page itself, you can get here by going to Hauseit.com. The spelling is
up at the top and go ahead and navigate to the calculators tab, click on buy and
then go to the Home Affordability Calculator. While we're here, it's worth
pointing out that there's a couple other calculators that you might find helpful
In particular, if you are buying in New York City there is a buyer closing cost
calculator and if you're buying something above a million dollars
there is a mansion tax calculator for you to consider. If you're financing
buying a condo or a house the mortgage recording tax calculator might also be
of interest. So going back to the Home Affordability Calculator the the
ultimate purpose of the calculator is for you to figure out and triangulate
your affordability range based on a number of factors including but not
limited to your income the amount of your savings as well as the various
carrying costs associated with buying real estate. So for starters, the first
thing you want to do is go ahead and just plug in an interest rate and an
annual income figure. So if we say let's you know move with a 5% interest rate
and an annual income of 175 where immediately going to see a maximum
purchase price on the right a maximum loan size an estimate for your monthly
mortgage payment as well as a figure approximate figure for how much cash you
would need in order to pull off this transaction. Now these figures are very
very unrealistic at this point and that's because we have not put in any
sort of placeholder for the inevitable carrying cost associated with the
property. If you're buying a home, you'll obviously have property taxes and if
you're buying into an apartment building whether it's a condo or a co-op you're
going to have monthly common charges or maintenance as well so if we are to use
an example we can actually go to a real estate search portal. And why don't we
pick a random listing and let's go ahead and input that information. So we're just
gonna scroll down here until we see something that looks pretty good. Why
don't we use this one right here it has corner exposure looks pretty good so
let's click on this listing and scroll down until we see down here the carrying
costs. Now this is a cooperative apartment and we know that because there
is a zero figure listed for monthly taxes cooperative corporations. Actually
pay property taxes on behalf of all owners as opposed to a condominium where
by individual owners pay their own property tax bills so by way of seeing
the zero it's a red flag or merely just an indication that you're looking at a
co-op not a condo. There's a number of benefits to buying a co-op in New York
City in particular they're usually much less expensive than condominiums. That's
primarily because there are many more coops than condos so supply-demand has
an impact on that and co-ops typically do also have subletting restrictions so
despite the fact that they're less expensive, there are some downsides
including but not limited to overall subletting restrictions and the fact
that there is a board approval process both when you enter into the coop when
you buy as well as when you try to sell that being said. Let's go ahead and take
this maintenance figure of 1966 and let's put that into the monthly common
charges or maintenance field ok so once we've done that, you can see actually
that the maximum purchase price has gone down considerably remove it, Just so you
can see that again we've gone from one point four six million to around a
million dollars and the reason for that is we've increased the amount of monthly
housing expense. So when you're looking at the
debt-to-income ratio which is the percentage of your monthly income the
bank will allow you to use towards housing expenses. We've increased the
amount of the housing expenses so just by way of the simple math they're the
overall purchase price has gone down quite a bit so that's the first cut on
how to do the calculator there's also a couple other fields, You may want to
think about one of which is the annual home insurance premium when the bank is
calculating the DTI. They are factoring in the reality that
you are required to have homeowners insurance especially if you're financing
So we would really want to put something in here for a home insurance premium a
conservative estimate would be one thousand of $2,000 a month unless you're
buying something extraordinarily expensive so if we put in 1500 you'll
see again that the maximum purchase price has gone down hasn't gone down by
a huge amount relative to what we put here and that's just because the you
know the annual home insurance premium is really we're talking about a hundred
dollars versus here I mean this is this is about 20 times the amount of the home
insurance premium. So we would expect there to be a bigger change from this
field versus this input. If you have any student loans or if you have a car
payment anything that is a fixed predictable recurring liability, you
would need to include that here by this week we really don't mean you know
credit card payments. If you pay everything off in full this is really
referring to fix that so let's say you have student loans 150 a month again. I'm
putting something here is going to lower the purchase price even further and the
debt to income ratio. It does include monthly other fixed liabilities in
addition to the various housing expenses. Now one thing important to point out for
a cooperative in particular, most co-ops will have a requirement for buyers that
they have a certain amount of liquid assets after closing the terminology for
this is post-closing liquidity and the way it's calculated is essentially by
adding the monthly mortgage payment to the monthly
maintenance payment and adding any other fixed liabilities you have to come up
with a monthly figure. That is basically for housing another fixed debt and the
coop requires. Usually that you have 12 to 24 months of that figure let's say
the mortgage payment is $4,000 a month and the maintenance as in this example
is around $2,000 a month so the total housing expenses are $6,000. If the coop
requires one year of post closing liquidity, you'd need to have 12 times
$6,000 or $72,000. If the coop requires 24 months you would need to have double
to 72. So you'd need a hundred and forty-four thousand dollars the
definition of liquid assets does vary by coop
So in some cases it will really need to be cash or liquid CD or anything that is
essentially cash and in some cases a cooperative may allow you to count some
or all of your 401k towards this requirement that being said post-closing
liquidity is a serious drain on affordability for coops. So even though
coops are cheaper in most cases in the city the fact that you need to have up
to 24 months of post-closing liquidity really is a game changer because even if
you have high income most people simply will not have the cash that is needed to
pay for both the down payment co-op by our closing cost which are around 2%
plus the required post closing liquidity amount we've put in 24 months to the
calculator and we've done this so that you can see your total cash needed for
the purchase. Once you've done everything with regard to filling in all the inputs
here, the first thing you want to check is how much cash do you need
so between figuring out how much you can afford based on income you can then
focus on how much you have in savings. So if you don't have for example if you
don't have the exact amount of cash needed here, you can play around with
some of the inputs to try to make it work. For example the down payment, if you
lower the down payment you can obviously see that the total cash needed goes down
as well if you're buying a co-op most of them do require at least 20% down so in
that case you wouldn't really be able to go lower on this figure to lower the
cash requirement. Another thing you could do is find a co-op that requires fewer
months of post-closing liquidity so if we lower this you'll see that the cash
is going to go down from over 300 K to 250 so you could just find another co-op
that's more flexible. The other thing you could do is you could possibly seek a
gift from a family member. The rules for gifting do vary by coop but most of them
will generally be okay with a gift as long as it's not a gift for the entire
purchase price. And you would be able to check this by asking your buyer agent
they'll get in touch with the listing agent or management to confirm this
obviously before you move forward to a signed contract. In terms of other things
you can look at here. You know it is helpful for you to again think about the
total cash that you need for a purchase. If you know you're still really
stretched here at the 260 gifting is not an option really. The only thing you can
do at this point is to try to lower the carrying costs so you know let's say we
convert this to a condominium and the common charges are 500 and the taxes are
500 it's gonna or rather that's the 500 here it's going to marginally lower the
total cash that you need and that's just because you've reduced the amount of
postcodes and liquidity by way of lowering the monthly carrying costs. If
you're buying a co-op apartment, it's very important to think about the debt
to income ratio as well and that's because most coops will require buyers
to have no more than 30% of their income every month going towards housing
related expenses and other fix that. So in this instance we've actually reduced
the DTI to 30% and as you can see it's drastically reduced
our maximum purchase price whereas before we were closer to 1.2 million
Once we've made that change to 30% we're actually a little above 700 so we are
talking about hundreds of thousands of dollars in difference in terms of
affordability because of the DTI restrictions imposed by coops. If we go
even lower to the 25% area you can see that the maximum purchase price has
literally been cut by more than half compared to what it was under our
traditional scenario. Whereby we're purchasing a condo or a house and we can
lend as much as the bank is willing to give to us. We hope this was a helpful
overview of the house at Home Affordability Calculator. If you have
questions, leave us a comment just below the video and please do indicate any
suggestions you may have for other topics or anything else that we can do
to simplify the process and provide more information and transparency to you as
you continue with your home purchase