How much should I spend on a house???

Question

I currently make $40,000 per year. However, I am in a prestigious bank training program and I expect my income to increase quite a bit when I finish my training in about 9 months. I only have about $160 a month in debt payments (car and credit card). I am about to buy my first place and I think I want to spend about 125,000 to 130,000 dollars. I have a lot of savings and I can easily afford to put 10% down. I am going to do a piggyback loan for the other 10% to avoid PMI. My monthly cash flow should be good, I will be abloe to sock away about 750 bucks a month after my payments, but that will not include taxes and insurance. Taxes will be 1700 per year and insurance around 900-1000. So I can easily save that and pay it when it comes due.

Given what I have read, I should buy a house about 2-3 times my income which would be 80,000-120,000. I realize I am looking a little bit above that range. But given that I expect my income to increase significantly, what would u do if u were me???

payments on 125,000 - 700/month (21% of gross)
payments on 130,000 - 730/month (22% of gross)

this is only for principle and interest

Since I work for the bank that the mortgage is through, I can waive the tax and insurance impound accounts....that is why I will not have to include those in the monthly payments.

Answer 1

Quick and simple, I make little more then you, I put zero down and closing was around 7k. I got my loan through Phfa.org for 4.9% fixed a year ago.You may have a similar program where you live, check in to it. Home was 129,900. 888.00 mo. including tax @ 1400.00 yr. and insurance. utilities run about 300.00 mo. for me. I also have a 400.00 mo. car payment, plus other cars insured. Your only going to make more money, but never count on funds you don't have.( as you already know) Other than that I think your good to go.
P.S. always buy the cheapest home in a nice neighborhood NEVER the nicest home in a cheap neighborhood. I made a killing on my last home by following this rule.

Answer 2

Wow you need some advice. OK as it is great that you will be getting a raise in pay soon, you have not got it yet. Also the bank will only qualify you for about a 35% debt to income ratio. So you can figure that out on your own. As far as a large down payment, trust me I'm proud of you for saving but 10% isn't allot of money for a down payment. The second you take out to avoid PMI insurance will wash out because it will be at a much higher rate than the first note. The second it tax deducatable as well where the PMI is not. It is a better decision to not pay PMI insurance, it does nothing for you it only protects the bank in the event they foreclose and there is a loss. The monthly payment will include your taxes and insurance as they are held in an impound account to be paid when it comes due. They don't count on you keeping it up and the bank won't take a chance on you forgetting to mail the check to the insurance company when the house just burned down. Your on the right track. But don't put the cart before the horse you can really mess yourself over in the end. Thanks Pat

Answer 3

Stick to 80,000-120,000. Don't rely on your income to increase. You want a house that you can afford if you lose your job or get disabled, ect. It seems like you have done an excellent job saving. If you can put so much away after your house payment, why not wait a year and pay the entire 20% down. The goal after all is really to be debt free as soon a possible. This includes having a house paid off as soon as possible.

Answer 4

It appears that you have thought this through to some extent. However, you should always look at the "what-ifs" in this situation. "What if something happens and I end up not making what I think I should be making?" "What if something happens and I can't work any more, can I still afford it?" "What if my company downsizes and I lose my job?"

My husband and I bought a 210,000 home almost 2 years ago. He was making around 4500 a month at that time, plus my income. It was no problem for us to make our payments. In mid October he came home and told me that they had a meeting at work and the plant was near bankruptcy and was closing their doors. Thankfully I own my own business and make decent money or we would have had to move. He does have another job but isn't making quite what he was making. If he would have been by himself there is no way he would have been able to keep the house, as he was off work until about a month ago. Nobody at all said anything about the plant he was working at being in trouble so it was a major shock to hundreds of employees.

Good luck in what ever it is that you decide.

Answer 5

First...why not wait the 9 months before you buy a house? Then you'll know just what you can afford. Second... a rule of thumb is to buy a house with your payment ( per month) not to exceed 25% of your monthly income.Third.... most all mortages INCLUDE taxes and insurance in an escrow account included in your monthly payment. Talk to several realtors and find something that you will be comfortable with.

Answer 6

I like your reasoning except for the "I expect my income to increase..." If it does happen then you have a good plan. If it doesn't you risk POSSIBLY losing your savings and good credit rating.
Being in a "prestigious bank training program" you are probably in a better position to get really good professional advice than the rest of us. This is a decision that may well affect your work in the future. Take an instructor to coffee and ask their opinion. Better than what you may get here.
Good luck with it.

Answer 7

You could do what most people do--buy a cheaper house, live in in for a few years, then move up. With your probable increase in income, that would be doable.

Answer 8

you are overspending by 20,000 go for it if you are sure income will increase and you hae 9 months savings

Answer 9

Wow you must live in a cheap area. I can't touch a starter home for less than 500k. Must be nice to have your problems.

Answer 10

dont count you chickens before they hatch, buy what you can afford now. always plan for the worst then your sailing if it goes well.