How much house can I afford?

Question

I just want a rough estimate, so not taking anything else into consideration... how much house can I afford?

Credit Scores 600-620
Gross Annual Income - $140,000
Monthly Debt - $315

Thanks in advance!

The FICO/income discrepancy is due to the fact that I have just recently finished my training and started a "real job." I am a physician, and I have struggled financially at one point in time during my residency... but I have no debt other than a car loan and no bankruptcy.

Answer 1

Whoa, a lot of information.

My answer: ~$380,000
($280,000-425,000 depending on circumstances, see below)

Here's how I got there:

How much do you have for a down payment? If you are going for no money down with that credit score, you will be paying a lot in interest until you can refinance with either a higher score or higher house value than you pay.

To give you an idea, I ran some quick numbers on what interest rate I know I could get with a 610 credit score based on down payment:
0% down = 10% interest rate
5% down = 9.8% interest rate
10% down = 7.8% interest rate
20% down = 7.7% interest rate
So, you probably want to try and put 10% down to get to a reasonable rate. I realize that 10% of $380,000 is $38,000, and you'll likely need another $5-6K for closing costs.

As a note, if your median score gets above 620, then your interest rate can be SIGNIFICANTLY decreased, as in a 5 or 10% down interest rate would drop to ~6%. That's a huge jump.

You have to decide how much of your income you want to spend on living. I spend very little ~ 8.5% of my monthly paycheck goes into PITI. Most people spend a lot more than that. As has been noted on here already, 20-30% is normal. So, if you want a payment around $3000 PITI, then you are probably looking at somewhere around $2500/mo for just principle and interest.

I can definitly get a 380,000 loan for less than 2500/mo in PITI with a 610 credit score with 10% down. Again, as a note, if you can wait till your median score is above 620, then to get that same payment of 2500/mo, you could purchase a $425,000 house with only 5% down, for the same payment. But, if you have no money for a down payment and get a loan with a score below a 620, then for the same payment, you are looking at a $280,000 house. That's a really big difference, huh.

Answer 2

OK, normally that high of income and low debt would be a credit score in the high 700s . . . what is the problem ?
We can't tell because we don't know what rate you'll get with that bad FICO or if you have child support or other judgments ? (The cause of the low FICO ?)
Just ask your bank for a prequal letter. They are free and only they know what % rate will be charged (and therefore affect how much house you can afford)
And get the prequal for a 30 or 20 yr fixed . . . the ARM will get you in at a low rate for 6 months then spike and send you to bankruptcy court (unless that is the reason for your low FICO).

Answer 3

Suppose your mortgae interest rate is 5.5% 30 yr fixed. Then here are some estimates on what you can afford.
We will use the 36% amount of $ 3850.00 for PITI
(PITI = Principal, Interest, Taxes, and Insurance)

(This is because this value is higher than the amount calculated using the 28% income only value.)
Your interest rate of 5.50 % over 30 years means every dollar you pay each month buys you $ 176.12 of loan.
You said that your Taxes and Insurance would total 1.50 % of the home value.
And with $ 20000.00 to cover your down payment:

House value: $ 572116
Loan value: $ 552116
Monthly Principal+Interest: $ 3134.85
Monthly Prop Tax+Insurance: $ 715.15
Down Payment 3.50 %
NOTE: Your down payment is less than 20%, so you pay PMI.
(PMI = Private Mortgage Insurance.)
That's an extra 0.5% of your loan each year
House value: $ 539659
Loan value: $ 519659
Monthly Principal+Interest: $ 2950.57
Monthly Prop Tax+Insurance: $ 674.57
Monthly PMI: $ 224.86
Down Payment 3.71 %
Careful: your down payment is under 5%!
Many conservative lenders won't do that except on FHA/VA loans (and only in certain circumstances for other loans). Look around for a lender willing to accept your lower down payment. Some lenders will go as low as 3% on conventional loans.
You are relatively income rich, but cash poor.
You do not have to worry about your income qualifying you for your loan. What determines your house value is simply your downpayment.
With 20 % down you can buy a $ 100000 house
With 10 % down you can buy a $ 200000 house
With 5 % down you can buy a $ 400000 house
With 3 % down you can buy a $ 666000 house
Don't forget all those closing costs and points too!
There are several mortgage calculators that can help you determine this. Check out this site. It has various calculators. http://mortgage.yeyeyup.com/calculators.html

Answer 4

In my opinion, the criteria that you post is too little to really determine your affordability. I would encourage you to speak with a lending professional and discuss your options.
Mortgages come in many flavors and can be tailored to meet criteria that you're not describing here.
Your annual income is healthy and you should be able to afford something nice. But depending on the part of the country that you're from, you may need to think about issues such as down payment, home owners association costs, taxes and things like that.
A good lender will give you answers without pressuring a sale. Talk to a lender first.

Answer 5

i gave my thumbs up to rukara, for he seems to be an experienced mortgage specialist. i suggest you choose his answer as best.

but as a Realtor, what i know is that generally, the maximum mortgage you can get would be two and a half times your gross. that would mean that the mortgage shouldn't be higher than about ($140,000 x 2) + ($140,000 x 0.5) = $350,000. to which you'd add your downstroke, giving you the general idea of the purchase price.

there is one thing that i differ on, though: i never want to be house poor. the conservative/safe ratio of the PITI of your mortgage (hehehe), meaning principal, interest, taxes, and insurance, shouldn't be higher than 28% of your gross monthly income, and that PITI, PMI, and your long term debts (it takes greater than 6 months to pay them off using the minimum payment) should not be greater than 33% of your gross monthly income. you do want to buy flowers for your sig other, don't you, and go out to dinner, and take vacations? well, then don't become house poor.

i hope that you do go to rukara's website. then i strongly, no, vehemently, advise that you find yourself a really experienced, caring, buyer's broker/buyer's agent. look the word "agent" up in a few dictionaries. what that means in real estate is like what your lawyer would be to you in a lawsuit: your lawyer is obligated to protect you, so she will not talk about your case to anyone else. well, a buyer's broker, whom you do not pay unless you are seeking out dumps that are not on the market for investment, one that uses the multiple listing service, absolutely and positively refuses to put her interests, which is the commission at the end of the closing, above YOUR interests. it means that your buyer's agent/broker cannot tell the seller/seller's agent any of your negotiating tactics, secretive information that you have for purchasing that specific parcel (such as that you know as a fact that a hospital is going to buy it for at least double what you pay for it in only one month, when you own it), or that you will "go up" to x dollars, if your first offer is lower than x dollars. the fiduciary responsibility that a buyer's agent has, as well as a seller's agent, is to their CLIENT.

i wish you much happiness in your home and i wish also that you utilize this buyer's market to make a prudent purchase.

if you want some links that i have for answers i already posted, please write to my email address posted here. also, write to me if you have a specific question for a Realtor (r).

Answer 6

I've heard the rule of thumb is no more then 25% of your monthly income should go to housing

Answer 7

you can aford a 4500 sq ft home for around $1500 to $2000 a month easy, what I want to know is what you do for a liven cause that is an awsome income

Answer 8

Jesus, you have great credit and income! Baby, buy the biggest house that is not TOO big enough for your needs.

P.S. Are you married? Do you want ot meet my daughter (in 3 years? Anything before that would be illigal, you perv.)

Answer 9

gee I donno...where do you live...what are the housing prices like where you live...what kind of mortages are you qualified for ???
You need to do some searching and questioning where YOU live, not on Yahoo. Last time I looked Yahoo didn't sell houses...

Answer 10

credit score suxs big time you will pay dearly in intrest