How much mortgage can i afford?

Question

I earn about $34,000 per year and have absolutely no debt - university, credit card and car are fully paid for. The bad news is that I am in a dead end union job which will never pay me more than the above salary.

Answer 1

You could get a 100,000 mortgage at 6% fixed rate.

WHY!!!!!!!! are you in this dead end job?? You sound young, what a waste!

Answer 2

Dave,

Unfortunately this is a question you will have to answer yourself which will depend on your expected expenses and spending habits when you own a home, your net worth, your short term and long term goals and the going mortgage interest rates at the time.

It may seem overwhelming at first to determine all the expenses you will have before you purchase a home. However, if you do this you will be much less likely to find yourself in a financial disaster a few years later like some people are finding out now.

I recently bought a condo and found the following website very helpful in understanding and selecting a house and a mortgage. The website includes spreadsheets, one of which allows you to simulate your net worth depending on the mortgage selection you make:

http://www.mtgprofessor.com/

It is best not to consider appreciation of your home when calculating whether you can finance your home. It is hard to predict even for professionals in the real estate market. In general, home appreciation is tied to household income and while the past few years homes have appreciated substantially, household income has not in the same way in many areas of the country. I think many people made this mistake, especially on the east and west coast. Many areas still face declines in home prices. Also this appreciation can not be accessed unless you sell your home or take out an equity line of credit or home equity loan which is probably at a higher interest rate than the appreciation rate of your home.

However, do consider that property taxes will continue to increase as many municipalities are using property assessments to increase tax revenue to bypass voter approval. Also utility and food expenses will increase as well but to what degree is hard to predict. Be ware that you leave enough room for these unexpected increases in expenses.

Try to think of the house as a part of your asset allocation which will determine the risk and return of your net worth. Owning one property is like owning a single stock. There are intrinsic risks to owning one property such as house market risk, increased taxes, natural disasters, etc. By taking out a mortgage you are leveraging yourself to buy this single property - a property that may not appreciate at the same rate as your mortgage interest rate and may not be able to produce income through rent to pay for itself. It is a good idea to see what you could rent the home for and compare it to what it will cost you to purchase it. You may find that it is better to rent where you want to live and invest more of your money in a more broadly diversified manner.

It sounds like you are not satisfied with your job. Maybe you need to think about a career change before buying a house. It is harder to change your job or career when you have a significant obligation like a mortgage.

Answer 3

If your credit is good then you can probably get approved for more than you can afford. You can probably afford $1000 a month and get approved for as much as $1500 a month. Buy low. This probably means under $125,000 it will depend upon where you live and the type of property you buy.

Answer 4

Here is a site for a calculator, remember just because the numbers as some have stated go up in the over 100K range, you have to figure in taxes, and if you do not have 20% down PMI.
http://cgi.money.cnn.com/tools/houseafford/houseafford.html
Good luck

Answer 5

Do not overreach for a mortgage. The foreclosure business is booming. A piece of unsolicited advice...live below your means and amass an estate.