With perfect credit and $3200/month, can I afford a $200-250k home in TX?

Question

I'm 20 years old making around $3,200/month and have $15,000 in the bank that I saved up while living with my parents. I currently have no debt, my credit score is perfect, my car has been paid for and I have no kids. Would I be able to afford a 200k-250k home in the Houston, TX or Sugar Land area? If so, what would be the best mortgage company to finance my home and for the best rate?

I'm looking to pay no more than $2000/month for mortgage, insurance, and taxes on the house together. Commercials like Ditech, Quicken Loans, and Lending Tree usually promise a $200,000 loan between $450 and $999 a month. Sounds pretty good, but my mom says it's unrealistic and that for the type of house that I want, I'd be paying well over $2000 a month for the mortgage alone aside from property taxes, utilities, etc.

Any advice?

Answer 1

talk to a real estate agent and talk to your tax guy. they should be able to you a realistic figures.

Answer 2

Ok, a simple mortgage calculator says you would pay over $1100 a month for your place. That is with a 30 year note at 5.75% for $200,000. It will be higher with insurance and taxes added in real life. Also, a different interest rate will make a difference. 6.75% will make the payment just about $1300 a month. For now I am going to stick the the $1100 payment and pretend there are no insurance or property tax payments.

There are problems with that. You make $3200. This will mean that your payment is 34% of you monthly budget. This is the front end debt to income ratio. Lenders usually do not want to see this higher than 28%. The back end ratio considers your total debt instead of just the mortgage. Lenders do not want to see higher than 36%. You say you have no debt. If that is true then you would pass the test for the back end ratio but barely. However, the front end would probably disqualify you.

You also say that there are websites that promise a $200,000 loan for $450 to $999 a month. You can forget the $450. Think about it and do the math. $450 * 12 = $5400. $5400 * 30 = $162,000. That means that the bank is lending you $200,000 but only wanting $162,000 back. The $999 is closer to the mark but still falls a bit short. What is happening is that these people are trying to get you to go for some bad loans. Maybe it is an interest only loan where you just pay off the interest but not the principle? Maybe it is an adjustable rate mortgage where the interest rate could go up later and drastically increase your payment? Maybe there is a balloon payment at the end of the mortgage? Maybe it is a 40 or 50 year loan? All of these are scenarios you do not want part of.

Another thing, you say you have $15,000 saved up. If you do not have 20% for the down payment then you will probably have to get mortgage insurance. That is extra money you are going to be paying. You are only going to be paying 7.5% as down payment. This will be eaten up by the closing costs. The first few years of the mortgage, you will be paying very little towards the principle and mostly towards the interest. That is just how mortgages are set up. The low down payment can cause you problems if you want to sell within 10 years or so. You may be underwater on the house, meaning you would owe more than the house can be sold for. Markets can go up or down. Also, don't forget the cost of selling a home. If you owe more on it than you can get for it then it will be extremely hard to sell. If you do fall behind on the payments then you will not have the option of selling the house to get out from under it. Also, you can be trapped in the house if the market goes south for a while. That can be a big pain if you need to move. Imagine not being able to take a job because you cannot sell your house.

Your mom is right. It is unrealistic. The mortgage, taxes, insurance, utilities, and upkeep will quickly make your budget turn sour. You will probably end up losing the house if you went for this.

Now, if you are making $3200 a month and have no bills, then why not just spend a few years and save up some more money. Lets say you can save $2000 a month. In five years, you would have $120,000 saved up. That is not counting any interest. Then you could buy your $250,000 home and have the lowest mortgage payment on the block.

Answer 3

Your total house payment including insurance, property taxes, and mortgage payments should NEVER exceed 33 percent of your income. That does not include maintenance. Your total payment per month should not be over 1100 dollars. You can not afford a 200,000 dollar home. Also at twenty you may have good credit but not perfect. Your payment history has only been established for two years. Check your credit score anything over 750 is considered excellent. Less than ten percent of the population has excellent credit. You need to check out Dave Ramsey and Suze Ormand. 100 percent of people in foreclosure qualified for the loan on there home.

Answer 4

If you put less than 20% down on the home, you will need to carry a second mortgage, or pay PMI fees (mortgage insurance). A second mortgage, no matter how good your credit is, those interest rates are always high.

Your mom is correct. To avoid the sub-prime lender/ARM trap and get a real mortgage, count on at least $1900 per month before property taxes, insurance, utilities, etc.

Answer 5

I know that when you apply for a mortgage to purchase a home, they have a particular calculation scale that they apply, where they factor into the equation the amount of the loan plus interest on the one side, and on the other side, what are considered to be your material assets and earnings and also your personal "abstract assets" if you will. In this department, unfortunately your age is going to go powerfully against you, since you have not yet established any long-term "history" as a businessman with a pattern of reliable earnings. You have no real assets and that 15 thousand you have in the bank isn't going to count for much because it cannot be attached as any kind of collateral.

When you take on responsibility for a home of any value.... but especially one in this category of cost.... there are a bundle of additional financial burdons for which you also become obligated. You will have to now be responsible for annual property taxes on this real estate, plus you'll have to take out some pretty heavyduty insurance cover. The mortgage company will also require you to maintain this property, so they will be calculating an estimated annual maintenance cost.

Ultimately when they have finished factoring everything in they can possibly think of, they determine a particular percentage figure that would represent your "discretionary funds" you might say - what's left over each month after all of your financial obligations have been satisfied. Given what you have said, and based on your present income on the one side, and the cost-range of this house that you are wanting to purchase, along with your age, and the fact that you have, as I said, no established "financial standing" as yet, I would have to make the guess that your chances of getting a mortgage are slim to none, and Slim's out of town.

I have to say I admire your ambition, and that your credit history suggests you are on the road to becoming a very responsible adult member of society. Hopefully, some day a financially successful one to boot. But for the moment, I think the advice you are going to get is for you to take smaller steps along that road, and start by setting a much more attainable goal. It will be to your credit if people see that despite your young age, you are able to show wisdom enough to not be too impetuous in your impatience to "get too big too fast" for therein has been the seed of misfortune for many people much older than you are.

Answer 6

Talk to a mortgage company and get preapproved for your mortgage loan. That will give you the price range to look in for your first home. Remember you will need furniture, window coverings, lawn mower, etc. so budget that stuff in. On the good side, the cost of living in Houston is low compared to other parts of the country. The Sugar Land/Fort Bend County area is booming!!

Answer 7

Don't buy it, as it is way more house than you can afford. Your total housing expense should not be more than about 28 percent of your gross income. This means you should not pay more than nine hundred, certainly not more than $1000. per month. The mortgage is only about half of a housing expense. Think about yard tools, lawn mower, drapes, furniture, flowers and shrubs, maintenance on the house, and this doesn't even include the utilities and cost of moving and setting up. You could buy it on an option arm, but you would be sorrow in about the third year as it too, would adjust and you would be upside down, as real estate is not appreciating at present and if act is depreciating. Think about it and buy something around $140,000.

Answer 8

Try to find a nice home that has been on the market for a while ,that has been marked down or reduced and find the real-estate that has it .First look at it and if you like it and it in your price range ,make a bid.then wait.I the time you are waiting find the bank you prefer and talk with a loan manager,and let them know how much of a down payment you can make to keep your payment where you want it.Go for a fixed rate.

Answer 9

I am siding with you mom on this one. All of the previous people have given you wonderful answers. I have a question.

Why do you want to saddle yourself with such an expensive home at 20 years of age? If you want to purchase a home, surely there are smaller, less expensive ones that you should start with. And if this is the cost of a small home in your area, maybe you should rethink the whole idea of home ownership. Home ownership is very expensive and involves a lot of work.

Answer 10

Your mom is exagerating you may be ok with the info you have given but its kinda close (the final cost should be well under 2k/ month, but the bank will only lend you up to 40% of your monthly take home anyhow so it should be close but ok).

Go on eLoan (or one of many other services) and fill out an application (give fake info if you don't want them to contact you - or some will let you only fill out enough to give a quote). Then get a quote and they will tell you your costs and some even what they think you can afford.

Answer 11

I am a mortgage broker and can have you prequalified in 10 minutes. I am in New Orleans, Louisiana and we have a recriprocal agreement with Texas. Call me at [phone]. Kevin Huddleston, The MoneyMall, Inc.