Together we make.....?

Question

$54K a year ($27K each). Could we buy a house making this? How do you know when you can afford to buy a house?

Answer 1

Yes, you could buy a house making this. BUT you know if you can afford a house when you have a minimum 20% down, a 3-6 month emergency fund in the bank, and only purchase a house that the payment equals 20-25% of your TAKE home pay. I also suggest a 15 year FIXED mortgage.

If the $54k is your take home pay your payment should be maximum $1125/month. Your emergency fund should be $10-15k (after your down payment). With a payment of $1125 (after down payment) and a fixed rate of 7% your mortgage could be about $125k, this is for a 15 year mortgage. (I used the amortization website I list at the end of this answer to get the numbers.)

Others are going to suggest zero down or an adjustable rate mortgage or do a 30 or 50 year mortgage. A mortgage company will approve you for WAY more than my figures. Don't do it. My husband I did that and we got in WAY over our head. We ended up selling the house because of the stress and being so close to the end of our paycheck. We didn't have an emergency fund for the "little" things that came up (dishwasher broke, ice machine line broke and ruined the basement ceiling, garage door springs broke and this was only a 10 year old home).

More calculators and ideas go to:
www.crown.org
http://ray.met.fsu.edu/~bret/amortize.html (This website will show you the amortization table on how much money is going to interest and principle for each payment. Click the "show amortization table" box on the website).

Addition: 30 year mortgages are standard, but you have to decide if you want to be in debt for 30 years. Majority of people say they will pay more on the mortgage and pay it in 15 years but majority of people don't. A 15 year mortage always pays off in 15 years, if you want to sell in 5 you will have more equity when you go to sell. Currently interst rates are going up so that means a low introductory adjustable mortgage rate will (most likely with current trend) go up, which will make your payment go up.

Answer 2

Yes, you can buy a house on this. And contrary to what the poster said above me, a 30 year mortgage is nothing to be afraid of. In fact, it's the industry standard. Neither is an adjustable rate mortgage, if you know what you're getting into. Mortgage rates fluctuate greatly over time, as do your needs and your credit profile. Therefore, if you're not sure you're going to keep this loan for the rest of your life without refinancing, there's no need to tie yourself to the higher rate of a fixed rate mortgage. Statistics show that the average mortgage in America is refinanced once every 5 years. That's why I always push the 5 year fixed ARM, because it has a rate advantage over a fixed rate mortgage, and if you live up to the average, it stayed fixed for the entire time you had it. Your best bet is to contact a mortgage broker on this one. They work for free until you close a loan with them, so not only will they examine your credit profile, they'll prequalify you for a certain amount of loan based on your credit, DTI, etc.