How much income and down payment to afford 300k house?

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Derivative
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How much income and down payment to afford 300k house?

Post by Derivative »

How much income and down payment to afford 300k house comfortably? Let's say you have no debt, no kids, no spouse, paid off new car, are buying a new house, and are not purchasing any other big item.

If you have 150k liquid cash, how much annual income do you need to afford 300k home comfortably? What if you rent 2 rooms at $700/room/month?
Last edited by Derivative on Sat Jul 29, 2017 7:47 pm, edited 2 times in total.
KlangFool
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Re: Can this person afford a 300k house?

Post by KlangFool »

Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
OP,

1) How does putting all your eggs into one basket sound to you? Especially into a house that is tied to a particular location. So, if the economy for this particular location goes down, the house, renters, and jobs all go down at the same time, what will happen to this person?

2) Why is this a good deal in term of risk versus reward? What is the ROI? How long before the person can get a good enough return in order to justify the risk?

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Nate79
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Re: Can this person afford a 300k house?

Post by Nate79 »

No, way over budget. No way is 6x income a reasonable purchase. I would disregard some dream of being able to rent out rooms or putting cash down in making the decision.
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Re: Can this person afford a 300k house?

Post by JBTX »

So we are talking about maybe $40k after tax income and probably $30000 a year in mortgage and property taxes? Doesn't make much sense to me. Even if you offset half of the mortgage and taxes still seems like a questionable proposition.

The only way i could possibly see it making sense is if the OP is a very experienced real estate investor and there is a lot of upside in the property.
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Re: Can this person afford a 300k house?

Post by hightower »

Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
Short answer: No
50k a year salary should not carry a mortgage bigger than 100k in my opinion. And even that's a stretch with that income. Another thing not mentioned is the size of the house, the property taxes, the age of the house, etc. All of these things could have a major effect on how affordable the house is.
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Re: Can this person afford a 300k house?

Post by jimb_fromATL »

Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
This person will probably not be able to find a normal lender willing to give them a mortgage.

Mortgage lenders are not in business to speculate on potential rental income. So the borrower' debt-to-income ratio for the mortgage, taxes, insurance, HOA fees, and possibly an allowance for maintenance probably cannot be more than about 28% of income that can be verified from the last couple of years.

Their income; and all of their monthly recurring debts including any consumer loans, car loans, student loans, etc. typically cannot exceed about 36% of their income income.

Even with $100K -$125K down and not having enough left for emergencies with such a big house payment, a $50K income will not likely qualify for a mortgage to by a home that expensive from a normal lender at a reasonable rate.

Edited to add this paragraph that was left out:

For a home selling for $300,000 with 33.3% down ($125,000) the balance to finance would be $175,000. Perhaps 1.5% closing costs ($2,625 makes a total of $127,625 due at closing -- plus prepaid proportions for the first partial month's interest and escrow for taxes and insurance. At perhaps 4.25% for 30 years the payment for P&I would be $861 per month.

Adding perhaps 1.5% of the home's value for taxes and insurance ($375 escrow per month) would give you a total payment of $1,361 per month.

Allowing perhaps 1.% of the home's value for annual maintenance and repair expenses, would add another $250 per month you'd need to be able to set aside.

That's a total of about $1,611 per month to own the home, and that's before you heat it cool it and furnish it.
At the normal 28% debt to income ratio for the home, and if the lender does not count the maintenance allowance, the $1361 per month ($16331 per year) for PITI would require an income of about $4,860 per month, $58,324 per year to qualify for the loan.

When someone is trying to buy a home with such high costs for taxes, insurance, etc ... which is more expensive than most folks can get with income that low ... the lender is likely to look more closely at how much the borrower has to spare in case they might lose their job or have unexpected expenses. Telling the lender that you're planning to rent out rooms is not going to help ... and would probably make it even less likely to get the loan.

jimb
Last edited by jimb_fromATL on Fri Jul 28, 2017 8:52 pm, edited 1 time in total.
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Derivative
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Re: Can this person afford a 300k house?

Post by Derivative »

hightower wrote:
Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
Short answer: No
50k a year salary should not carry a mortgage bigger than 100k in my opinion. And even that's a stretch with that income. Another thing not mentioned is the size of the house, the property taxes, the age of the house, etc. All of these things could have a major effect on how affordable the house is.
What about renting out 1-2 rooms at $700/room? This is a medical center/university area.
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Re: Can this person afford a 300k house?

Post by jimb_fromATL »

Derivative wrote:
What about renting out 1-2 rooms at $700/room? This is a medical center/university area.
You could not have read my previous post, since we coincidentally posted during the same minute. But I addressed that in my post ... that potential rent will not be counted in qualifying for a normal mortgage ... and probably not for any loan at any reasonable rate.

I'd guess the only way would be for some relative to be willing to cosign the loan. And they need to have a lot of money that they will never need and don't mind risking if they're willing to do it.

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Re: Can this person afford a 300k house?

Post by bottlecap »

No. Not enough income.
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Re: Can this person afford a 300k house?

Post by aristotelian »

How old is this person? Could he afford to put his 150k cash into the house and stay on track for retirement?
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Derivative
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How much income and down payment to afford 300k house?

Post by Derivative »

[Thread merged into here, see below. --admin LadyGeek]

How much income and down payment to afford 300k house comfortably? Let's say you have no debt, no kids, no spouse, paid off new car, are buying a new house, and are not purchasing any other big item.

If you have 150k liquid cash, how much annual income do you need to afford 300k home comfortably? What if you rent 2 rooms at $700/room/month?
delamer
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Re: How much income and down payment to afford 300k house?

Post by delamer »

This is just a different way of asking the same question you raised in your other thread.
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Re: How much income and down payment to afford 300k house?

Post by Thesaints »

Research conforming mortgage rates and see how much it would be to service a 300k for the time term you desire.
That's a good starting point.

Then you can further refine by adding cost of mortgage insurance, property taxes, homeowner insurance, and such.

Finally, you can play with different downpayment amounts.
Last edited by Thesaints on Fri Jul 28, 2017 7:05 pm, edited 1 time in total.
venkman
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Re: How much income and down payment to afford 300k house?

Post by venkman »

It depends on how much you want to put down, and the interest rate/length of the mortgage.

You can play around with different combinations here:

http://www.bankrate.com/calculators/mor ... lator.aspx
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Re: How much income and down payment to afford 300k house?

Post by CAsage »

You need a bit more structure on this question. What one can 'afford' vs qualify for with a mortgage are different. If you put down 150K and finance the other $150k, a nominal 30 year mortgage at 4% is about $716 per month. Nominal qualifying puts your payment at 28% of income, so that would be nominal $2557 per month or 31,000 annual income. Whether one is wise to put down all your cash or what other expenses (property taxes, HOA, maintenance) are other considerations. Who knows what one can afford?
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Re: How much income and down payment to afford 300k house?

Post by DSInvestor »

Property tax can vary greatly. Some states have much higher taxes than others. e.g. 300K home in CA could be 4K/yr prop tax but 300K in some areas of TX, NJ, NY may be 10K/yr. Even within the same state, property taxes can be very different by county.
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Re: Can this person afford a 300k house?

Post by chevca »

I read this and assume the OP means the $150k cash is the down payment. If that's the case, the question is can this person with no debts and little to no responsibilities that may rent a room or two out afford a $150k mortgage. I'd say the answer to that is, yes. Is it advisable? Comes down to a lifestyle choice, I'd say.
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Re: Can this person afford a 300k house?

Post by madbrain »

Yes. Putting 20% down ($60k), a $240,000 loan at 4.25% 30yr your monthly payment would be $1181.
That's $14172/year or 28.3% of your $50,000 income. There should be no problem obtaining a loan.

I have had "normal" lenders do loans up to 40% of my gross. Not an issue.
Last edited by madbrain on Fri Jul 28, 2017 7:24 pm, edited 1 time in total.
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Re: Can this person afford a 300k house?

Post by DSInvestor »

madbrain wrote:Yes. Putting 20% down ($60k), a $240,000 loan at 4.25% 30yr your monthly payment would be $1181.
That's $14172/year or 28.3% of your $50,000 income. There should be no problem obtaining a loan.
Property tax should be taken into consideration as well. Depending on location, that could be 4-10K/yr.
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Re: Can this person afford a 300k house?

Post by madbrain »

DSInvestor wrote:
madbrain wrote:Yes. Putting 20% down ($60k), a $240,000 loan at 4.25% 30yr your monthly payment would be $1181.
That's $14172/year or 28.3% of your $50,000 income. There should be no problem obtaining a loan.
Property tax should be taken into consideration as well. Depending on location, that could be 4-10K/yr.
Yes, but many lenders will go to 40% of gross in debt to income - even 43% debt to income - that leaves a lot of room for property tax & insurance.

The $8k car loan might have to pay be paid off if the payment is high and pushes DTI ratio too high.
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Re: Can this person afford a 300k house?

Post by TropikThunder »

JBTX wrote:So we are talking about maybe $40k after tax income and probably $30000 a year in mortgage and property taxes? Doesn't make much sense to me. Even if you offset half of the mortgage and taxes still seems like a questionable proposition.
How do you come up with $30,000 per year? PITI on a ~$250,000 mortgage would be about ~$1,500 ($18,000 per year).
madbrain wrote:Yes. Putting 20% down ($60k), a $240,000 loan at 4.25% 30yr your monthly payment would be $1181.
That's $14172/year or 28.3% of your $50,000 income. There should be no problem obtaining a loan.

I have had "normal" lenders do loans up to 40% of my gross. Not an issue.
You forgot taxes and insurance, est. ~$1,500/month total, which is ~36% DTI. Not approved. And the up to 40% gross is for total DTI, not just the housing part. You have to satisfy the 28% housing DTI before they'll even look at total DTI (which can now actually be as high as 50% for Fannie Mae).
madbrain wrote: Yes, but many lenders will go to 40% of gross in debt to income - even 43% debt to income - that leaves a lot of room for property tax & insurance.
ETA: again, the high DTI you are referring to is for total DTI, not just the housing portion. That still can't go over 28%.
ETA again: I think I'm overstating the importance of the 28% limit, it appears to be more of a guideline than a rule (at least as far as Fannie Mae) but to get approval with a higher DTI requires significantly higher credit scores (which OP doesn/t mention).
Last edited by TropikThunder on Fri Jul 28, 2017 7:44 pm, edited 1 time in total.
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Re: Can this person afford a 300k house?

Post by madbrain »

JBTX wrote:So we are talking about maybe $40k after tax income and probably $30000 a year in mortgage and property taxes? Doesn't make much sense to me. Even if you offset half of the mortgage and taxes still seems like a questionable proposition.

The only way i could possibly see it making sense is if the OP is a very experienced real estate investor and there is a lot of upside in the property.
No idea how you are possibly coming up with $30k in mortgage and property taxes per year. It would be most likely be under $20K, maybe quite a bit under $20K with >20% downpayment and if taxes & insurance aren't too high.

20 years ago I purchased a property worth $228K with 7% down on $52K income. Interest rate was 7.375% then, not 4.375%. Had to do manual underwriting - through a brick & mortar bank - because I had zero credit history. Back then, I biked to work and had no car expenses of any kind, though. I did more than fine and kept the house for 15 years. But did refinance many times along the way.
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Re: How much income and down payment to afford 300k house?

Post by LadyGeek »

Derivative - I merged your 2nd thread back into the first, as it's the same question but asked in a different manner. There may be different situations, but it's all about affording the same house. Ask all of your questions here, so we can see what had been already discussed. This isn't a big deal, don't worry about it.
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Re: How much income and down payment to afford 300k house?

Post by Keepcalm »

USAA pre-approved me last week for a 240,000 house on 80k income. Just goes to show banks still have not learned their lesson. Surprised since it was USAA.
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Re: Can this person afford a 300k house?

Post by madbrain »

TropikThunder wrote: You forgot taxes and insurance, est. ~$1,500/month total, which is ~36% DTI. Not approved. And the up to 40% gross is for total DTI, not just the housing part. You have to satisfy the 28% housing DTI before they'll even look at total DTI (which can now actually be as high as 50% for Fannie Mae).
I did home loans in 2010 and 2012 where the housing DTI (and home was my only debt) was well beyond 28%. I was even carrying mortgages on 2 different properties at one point and my DTI was over 40%. Neither for rental, just second home. We're talking total loan amounts of $900k on $155k income. Rates were in the mid 4% range in 2010, higher than now.
I still have the 2012 loan (refi at 3.375% 30yr FRM) and other property is sold so now I no longer have another mortgage.
TropikThunder wrote:
madbrain wrote: Yes, but many lenders will go to 40% of gross in debt to income - even 43% debt to income - that leaves a lot of room for property tax & insurance.
ETA: again, the high DTI you are referring to is for total DTI, not just the housing portion. That still can't go over 28%.
That's just not been my experience, I have gone all the way to 43% on housing debt with no other debt. Not something I was comfortable doing long term, though. My current PITI minimum payment is at 22% of gross only.
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Re: How much income and down payment to afford 300k house?

Post by dashtadj »

Yes - you can afford it given you have $150k cash and only need $60k down for 20% of $300k.

Your monthly mortgage on $240k should be around $1200 and if you rent out 1-2 rooms at $700 then your net cost = $500 month

2 other things to consider: your current rental cost vs future mortgage, and opportunity cost of sinking $60k into a home vs investing in market.
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Re: Can this person afford a 300k house?

Post by TropikThunder »

madbrain wrote: That's just not been my experience, I have gone all the way to 43% on housing debt with no other debt. Not something I was comfortable doing long term, though. My current PITI minimum payment is at 22% of gross only.
You're correct, and I added an edit re: the 28% rule. In your case I'm sure it helped that it wasn't your first rodeo. :beer
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Re: Can this person afford a 300k house?

Post by hightower »

Derivative wrote:
hightower wrote:
Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
Short answer: No
50k a year salary should not carry a mortgage bigger than 100k in my opinion. And even that's a stretch with that income. Another thing not mentioned is the size of the house, the property taxes, the age of the house, etc. All of these things could have a major effect on how affordable the house is.
What about renting out 1-2 rooms at $700/room? This is a medical center/university area.
Sure that would help, but what will you do if you have trouble keeping tenants? Or what if the tenants trash the place and your insurance doesnt pay for it all? My point is its a stretch and it's risky.
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Re: Can this person afford a 300k house?

Post by madbrain »

hightower wrote:
Derivative wrote:
hightower wrote:
Derivative wrote:Let's say this person has 150k cash (liquid). 8k car loan. Let's say 50k in yearly income. No other debts. No other major purchases. No kids, no spouse, etc. Can this person afford a 300k house? Can this person afford to buy more? If so, how much more?

Let's say this person will rent 1-2 rooms out netting $700/room. How much house can this person afford then?
Short answer: No
50k a year salary should not carry a mortgage bigger than 100k in my opinion. And even that's a stretch with that income. Another thing not mentioned is the size of the house, the property taxes, the age of the house, etc. All of these things could have a major effect on how affordable the house is.
What about renting out 1-2 rooms at $700/room? This is a medical center/university area.
Sure that would help, but what will you do if you have trouble keeping tenants? Or what if the tenants trash the place and your insurance doesnt pay for it all? My point is its a stretch and it's risky.
OP can afford it just fine without tenants. Your view of having a mortgage not more than 2x income ($100k mortgage on $50k) is unrealistic, IMO. Even 3x income would be very conservative in this low rate environment.
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Re: How much income and down payment to afford 300k house?

Post by Mudpuppy »

Is "this person" you or someone who has asked you for advice? If not, then I don't see how the thread is personally actionable.
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Re: How much income and down payment to afford 300k house?

Post by DSInvestor »

Derivative, in an other thread you indicated that you may move to Texas. Pls confirm location of the home. If Texas, you may be surprised by how much real estate taxes are. Make sure you consider those as well. If home will be a condo, consider the monthly condo dues and risk of special assessments.
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Re: How much income and down payment to afford 300k house?

Post by mmmodem »

Yes, this person can afford it.

I follow the one-third rule of thumb, 20% downpayment and 30 year conventional loan. That is, mortgage payments should not exceed one third of take home pay. I would ignore renters as you may not be able to find reliable ones. A $50k salary is about $3k take home. A $200k mortgage at 4% APR is about a $1000 monthly mortgage. So this person can afford around ~$450k home price.
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Re: Can this person afford a 300k house?

Post by JBTX »

madbrain wrote:
JBTX wrote:So we are talking about maybe $40k after tax income and probably $30000 a year in mortgage and property taxes? Doesn't make much sense to me. Even if you offset half of the mortgage and taxes still seems like a questionable proposition.

The only way i could possibly see it making sense is if the OP is a very experienced real estate investor and there is a lot of upside in the property.
No idea how you are possibly coming up with $30k in mortgage and property taxes per year. It would be most likely be under $20K, maybe quite a bit under $20K with >20% downpayment and if taxes & insurance aren't too high.

20 years ago I purchased a property worth $228K with 7% down on $52K income. Interest rate was 7.375% then, not 4.375%. Had to do manual underwriting - through a brick & mortar bank - because I had zero credit history. Back then, I biked to work and had no car expenses of any kind, though. I did more than fine and kept the house for 15 years. But did refinance many times along the way.
I swagged it and overestimated. But it will easily be over $20k per year with taxes and insurance on approx $250k loan. Of course he could deplete all his liquid savings into a downpayment and make the payments more affordable. But as somebody else pointed out do you want this house to be your primary or sole source of savings?

I suspect given the numbers he can make it work. But the question is whether it is financially sound. Buying a house that if you fully mortgaged it would take up 50% of your after tax savings doesn't make sense unless you are an experienced real estate investor and you think you can turn it over for much more. The fact that he has some liquid cash to lower the down payment still doesn't change that.
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Re: Can this person afford a 300k house?

Post by madbrain »

JBTX wrote: I swagged it and overestimated. But it will easily be over $20k per year with taxes and insurance on approx $250k loan.
That really depends on where you live and what kind of insurance coverage you choose - in California, Prop 13 limits property taxes, so that simply wouldn't be the case - it would very likely be under $20k .
I suspect given the numbers he can make it work. But the question is whether it is financially sound. Buying a house that if you fully mortgaged it would take up 50% of your after tax savings doesn't make sense unless you are an experienced real estate investor and you think you can turn it over for much more. The fact that he has some liquid cash to lower the down payment still doesn't change that.
There are plenty of other reasons to do it than the desire to flip the property, ie. be a real estate investor. I did it with similar numbers 20 years without anything like that in mind, and kept my property for 15 years as I previously mentioned. My reasons at the time for buying were :
- I knew then (at age 21) that I wanted to stay in the area (Silicon valley) for a long time
- net of taxes, my monthly payment for PITI + HOA dues for a 3 BR / 2.5 BA townhouse was the same as my rent for a 1BR apartment . Federal tax rate was much higher then (higher percentages, tax brackets with lower $ amount) which was especially unfavorable for single
I did ultimately sell it for about twice the original price, but again, after 15 years. Flipping it was never the goal. I could have sold it for 3x the price if I sold at the previous peak (or waited until now). But then, I would never have been able to come up with the extra money to move up to my current 4600 sq ft mansion. I bought the new place in 2010 and sold the old place in 2012 - couldn't sell it in 2010 at a decent price due to difficulty of buyers in obtaining loans at that time; same reason why I could buy in 2010 with no competition and negotiate price down. During those 2 years, I carried 43% DTI housing debt; wasn't always easy to sleep that way. But it's a risk that paid off.
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Re: Can this person afford a 300k house?

Post by JBTX »

madbrain wrote:
JBTX wrote: I swagged it and overestimated. But it will easily be over $20k per year with taxes and insurance on approx $250k loan.
That really depends on where you live and what kind of insurance coverage you choose - in California, Prop 13 limits property taxes, so that simply wouldn't be the case - it would very likely be under $20k .
I suspect given the numbers he can make it work. But the question is whether it is financially sound. Buying a house that if you fully mortgaged it would take up 50% of your after tax savings doesn't make sense unless you are an experienced real estate investor and you think you can turn it over for much more. The fact that he has some liquid cash to lower the down payment still doesn't change that.
There are plenty of other reasons to do it than the desire to flip the property, ie. be a real estate investor. I did it with similar numbers 20 years without anything like that in mind, and kept my property for 15 years as I previously mentioned. My reasons at the time for buying were :
- I knew then (at age 21) that I wanted to stay in the area (Silicon valley) for a long time
- net of taxes, my monthly payment for PITI + HOA dues for a 3 BR / 2.5 BA townhouse was the same as my rent for a 1BR apartment . Federal tax rate was much higher then (higher percentages, tax brackets with lower $ amount) which was especially unfavorable for single
I did ultimately sell it for about twice the original price, but again, after 15 years. Flipping it was never the goal. I could have sold it for 3x the price if I sold at the previous peak (or waited until now). But then, I would never have been able to come up with the extra money to move up to my current 4600 sq ft mansion. I bought the new place in 2010 and sold the old place in 2012 - couldn't sell it in 2010 at a decent price due to difficulty of buyers in obtaining loans at that time; same reason why I could buy in 2010 with no competition and negotiate price down. During those 2 years, I carried 43% DTI housing debt; wasn't always easy to sleep that way. But it's a risk that paid off.
Understood. I almost put a qualifier in my post for HCOL areas like CA but didn't. If you want to live there and want a home you pretty much have to accept much of your net worth will be tied up in your home.
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Re: How much income and down payment to afford 300k house?

Post by michaeljc70 »

Why buy more house than you need only to rent out rooms? Do you have a specific roommate in mind?
stoptothink
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Re: How much income and down payment to afford 300k house?

Post by stoptothink »

Keepcalm wrote:USAA pre-approved me last week for a 240,000 house on 80k income. Just goes to show banks still have not learned their lesson. Surprised since it was USAA.
A year-and-a-half ago, I was pre-approved for $650k on ~$110k income...of course, ended up buying a home for $190k. The OP will have no problem getting someone to offer them a mortgage, but they will not just be house poor, but house broke. Why would someone purposely put themselves under that type of financial pressure?
JGoneRiding
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Re: Can this person afford a 300k house?

Post by JGoneRiding »

madbrain wrote: That's just not been my experience, I have gone all the way to 43% on housing debt with no other debt. Not something I was comfortable doing long term, though. My current PITI minimum payment is at 22% of gross only.
How high was your income though? I think they are cut offs they don't post where underwriters go higher (just my experience) I too got a loan that brought dti to 43% and that was my calculation with generous definition of income. The new house was only about 28% though. We had 3 additional property loans 2 of which had JUST been rented out but they still counted as income. Plus a largish SL, car loan, HELOC on another property, and CC debt (minor just carrying cost but they still count it) But our combined income was >150k.

It was a stretch for underwriting, involved our broker going to bat for us, and nearly didn't go through.

Oh and I had >150k in reserves (most in retirement but shockingly they don't care) THAT was the real reason we got approved. OP has no additional reserves
runner540
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Re: How much income and down payment to afford 300k house?

Post by runner540 »

mmmodem wrote:Yes, this person can afford it.

I follow the one-third rule of thumb, 20% downpayment and 30 year conventional loan. That is, mortgage payments should not exceed one third of take home pay. I would ignore renters as you may not be able to find reliable ones. A $50k salary is about $3k take home. A $200k mortgage at 4% APR is about a $1000 monthly mortgage. So this person can afford around ~$450k home price.
I strongly disagree with this analysis. $450k is 9x OP's income. Maintenance, taxes and insurance on a $450k home are likely to be another $1000/month. That would mean the house is 2/3 of the estimated take home pay. And we don't know if that take home pay is after retirement savings.
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Nate79
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Re: How much income and down payment to afford 300k house?

Post by Nate79 »

Buying this level of home on $50k is ridiculous and if the banks approve it they haven't learned from the previous crash a single thing.
PFInterest
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Re: How much income and down payment to afford 300k house?

Post by PFInterest »

Derivative wrote:[Thread merged into here, see below. --admin LadyGeek]

How much income and down payment to afford 300k house comfortably? Let's say you have no debt, no kids, no spouse, paid off new car, are buying a new house, and are not purchasing any other big item.

If you have 150k liquid cash, how much annual income do you need to afford 300k home comfortably? What if you rent 2 rooms at $700/room/month?
what happened to the 8K car loan?
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Re: How much income and down payment to afford 300k house?

Post by abner kravitz »

mmmodem wrote:Yes, this person can afford it.

I follow the one-third rule of thumb, 20% downpayment and 30 year conventional loan. That is, mortgage payments should not exceed one third of take home pay. I would ignore renters as you may not be able to find reliable ones. A $50k salary is about $3k take home. A $200k mortgage at 4% APR is about a $1000 monthly mortgage. So this person can afford around ~$450k home price.
I think your conclusion is off. PITI on a $450K house (assuming a 20% downpayment) would eat up 80% of take home pay.

With 50K income, I'd be looking in the 150K range for a home if possible.
Beensabu
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Re: How much income and down payment to afford 300k house?

Post by Beensabu »

If this person has a FICO of at least 750, they can get approved with an income of 50k, with 20% down, for a 30 yr fixed at current rates. I was able to 3 years ago. Whether they want to depends on their rental environment (if they can rent a room for $700, it's on its way to nightmarish, but not quite there until it hits >$1000). It's doable, but not exactly a joy. This person should also keep in mind that live-in landlord is a different relationship than roommate.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
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Re: How much income and down payment to afford 300k house?

Post by jimb_fromATL »

Beensabu wrote:If this person has a FICO of at least 750, they can get approved with an income of 50k, with 20% down, for a 30 yr fixed at current rates. I was able to 3 years ago. Whether they want to depends on their rental environment (if they can rent a room for $700, it's on its way to nightmarish, but not quite there until it hits >$1000). It's doable, but not exactly a joy. This person should also keep in mind that live-in landlord is a different relationship than roommate.
You qualified for a $240K mortgage with $50K income?
Did you have any other debt?
Were you able to use the potential of future rent in qualifying for the loan?

With typical property taxes and insurance costs, the front-end DTI ratio alone would be higher than the total front+back-end ratio that is acceptable to most lenders for people with such low remaining discretionary income after paying the PITI. Not disparaging $50K income, but a $300K house and $240K loan is a bit of stretch for the borrower and very unusual for a lender ... for that income.

jimb
Beensabu
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Re: How much income and down payment to afford 300k house?

Post by Beensabu »

jimb_fromATL wrote:
Beensabu wrote:If this person has a FICO of at least 750, they can get approved with an income of 50k, with 20% down, for a 30 yr fixed at current rates. I was able to 3 years ago. Whether they want to depends on their rental environment (if they can rent a room for $700, it's on its way to nightmarish, but not quite there until it hits >$1000). It's doable, but not exactly a joy. This person should also keep in mind that live-in landlord is a different relationship than roommate.
You qualified for a $240K mortgage with $50K income?
Did you have any other debt?
Were you able to use the potential of future rent in qualifying for the loan?
With typical property taxes, the front-end DTI ratio alone would be higher than the total front+back-end ratio that is acceptable to most lenders for people with such low remaining discretionary income after paying the PITI.

jimb
I qualified for a 232k mortgage, 30 yr fixed at 4.5%, with a 52k income. I had one year left of student loan payments at ~$250/mo, plus $50/mo minimum credit card payments at the time. Potential rental income was not a factor. ~$4500 / yr property taxes and insurance, paid separately/direct (no mortgage escrow account).

EDIT: They also looked at how much rent I had been paying (including requiring documentation) for the last 2 years, which was about $150/mo less (for a tiny moldy studio) than PITI comes out to be. Local rents may play a factor in mortgage approval in HCOL areas.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next."
runner540
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Re: How much income and down payment to afford 300k house?

Post by runner540 »

jimb_fromATL wrote:
Beensabu wrote:If this person has a FICO of at least 750, they can get approved with an income of 50k, with 20% down, for a 30 yr fixed at current rates. I was able to 3 years ago. Whether they want to depends on their rental environment (if they can rent a room for $700, it's on its way to nightmarish, but not quite there until it hits >$1000). It's doable, but not exactly a joy. This person should also keep in mind that live-in landlord is a different relationship than roommate.
You qualified for a $240K mortgage with $50K income?
Did you have any other debt?
Were you able to use the potential of future rent in qualifying for the loan?

With typical property taxes and insurance costs, the front-end DTI ratio alone would be higher than the total front+back-end ratio that is acceptable to most lenders for people with such low remaining discretionary income after paying the PITI. Not disparaging $50K income, but a $300K house and $240K loan is a bit of stretch for the borrower and very unusual for a lender ... for that income.

jimb
jimb, I'm with you in that it's a stretch. Unfortunately mortgage underwriting has been getting looser and looser. If you're interested in digging in to the details, I recommend the American Enterprise Institute's Housing Risk research that uses data covering 90% of the housing market. (https://www.housingrisk.org/). https://www.housingrisk.org/first-time- ... 2017-data/
Here's the short summary:
-median down payment is **5%** (contradicting the RE industry's favorite complaint that down payments are a barrier for new buyers)
-Fannie/Freddie have changed how they account for student loan in DTI, in a way which loosens credit
-22% of first time home loans have credit scores <660
-32% of first time home loans have DTI greater than 43%
c1over8
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Re: How much income and down payment to afford 300k house?

Post by c1over8 »

6 years ago with a $52k salary I purchased a house with 5% down and a 235k mortgage. I had no debt at the time I applied and a high fico score, though I don’t remember what it was (thanks mom and dad for adding me as an authorized user when I was a teenager!). I was approved for up to $275k and was told we might have a little wiggle room higher.

The same month I closed, I quit my job and went to grad school (I did work part time during grad school but only made ~10k each year). At the time I purchased, PITI was something close to $1,680/month since there was pmi. So about 39% of my gross monthly income. I think I had about $50k in total savings to pay my mortgage and living expenses during grad school and took out student loans for the tuition. If I had posted here asking whether it was a good idea to buy the house, I’m sure I would have been told by the majority of posters no – don’t do it.

I had no desire to live alone and knew I would rent out at least one room, although I never mentioned this to my realtor or broker. My first year I rented out two rooms for $900 total, plus splitting utilities. I could have rented the rooms for more but chose to rent them to people I had lived with before, was confident it would go well again, and I knew they could not have afforded more and would have lived elsewhere if I had charged more. This brought my monthly expenses to about, or a smidge more than, what it would have cost me to rent in my area. The next years I only rented out one room for $500 by choice, making the finances a little tighter. It added stress towards the end of grad school.

Fast forward, I paid down my mortgage to remove pmi and PITI is now about 22% of my gross monthly income. I had a “roommate” the whole time I’ve owned the house – now it is my spouse and if I count my spouse’s income, PITI goes down to 13% of our gross monthly income. If I hadn’t gotten married, I’d probably still be renting a room to my friend.

At the time I bought the house I was confident that I would actually want to live with roommates, would be able to find desirable and reliable roommates, would quickly find a job, my income would increase after grad school, and if it came down to it, I could sell the house fast (homes of my house’s size and price in my market sell in a day or two and have since the time I purchased it). When I finished grad school houses on my street were selling for about $300k, now they are selling for at least $325k, so I could have sold then or sell now and come out well. Of course, this was a risky undertaking and could have turned out horribly.

Just thought I would give you another success story so you can weigh the pros and cons and make your own decision. I think it is possible that you can buy a $300k house, only you can decide if the stretch and risk are worth it.
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Go Blue 99
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Re: How much income and down payment to afford 300k house?

Post by Go Blue 99 »

Keepcalm wrote:USAA pre-approved me last week for a 240,000 house on 80k income. Just goes to show banks still have not learned their lesson. Surprised since it was USAA.
That is 3x gross income- what makes you think that USAA should have rejected that?
madbrain
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Re: Can this person afford a 300k house?

Post by madbrain »

JGoneRiding wrote:
madbrain wrote: That's just not been my experience, I have gone all the way to 43% on housing debt with no other debt. Not something I was comfortable doing long term, though. My current PITI minimum payment is at 22% of gross only.
How high was your income though? I think they are cut offs they don't post where underwriters go higher (just my experience) I too got a loan that brought dti to 43% and that was my calculation with generous definition of income. The new house was only about 28% though. We had 3 additional property loans 2 of which had JUST been rented out but they still counted as income. Plus a largish SL, car loan, HELOC on another property, and CC debt (minor just carrying cost but they still count it) But our combined income was >150k.

It was a stretch for underwriting, involved our broker going to bat for us, and nearly didn't go through.

Oh and I had >150k in reserves (most in retirement but shockingly they don't care) THAT was the real reason we got approved. OP has no additional reserves
My income was in the $150k base range. I got to $900k housing debt on 2 homes.
I started with $100k mortgage on the existing townhouse.
Did a cashout refi to a HELOC for $250k - cashed out $150k . The HELOC had a low minimum payment (interest only), so not a big hit to debt to income.
Used the $150k as most of the downpayment on the new house. Got a $660k mortgage on the new home. It was around 4.6% fixed rate as I recall.
The closing on the HELOCs and the mortgage were done about 10 days apart. Lender on new home knew where downpayment was coming from.
Later on, when the townhome was taking time to sell (buyers not getting loans), I refinanced the $250k HELOC on the townhome to a 30yr fixed rate mortgage, which brought my DTI up to 43% due to higher minimum payment than the HELOC.
In 2012, when the townhouse finally sold, I used the net proceeds towards the loan on the new home, and refinanced it to a conforming loan ($417,000 balance) at 3.375% fixed / 30 years.
All these mortgages/refi were done at no cost (ie. interest rate slightly higher than normal, but lender paid costs). Only net cost I paid was for the appraisal fee (penalty for not keeping the HELOC on the townhouse for 3 years).

I would have done even better if I :
1) I had kept the HELOC on the townhouse rather than refinance it to a FRM. This was in 2010. Everybody was saying rates were headed up. Took 7 years for that to actually happen. My HELOC rate was prime minus something (can't remember exactly). I just couldn't stand the idea of the interest rate adjusting higher in the future, if somehow I was forced to hold on to the townhouse.
and either had
2) kept the higher mortgage and invested the $200k proceeds from the sale of the townhouse into the market in 2012 , instead of using it as prepayment on the new home mortgage.
I didn't do this because I still didn't like the idea of a $600k+ mortgage long term.
or :
3) held on to the townhouse a few years longer to sell it for 3x original price rather than 2x in 2017 .
I had a month to month tenant that I kicked out to sell it in 2012 and it was cash flow neutral (would have been cash flow positive if not for my refi from HELOC to FRM (see 1 above).
I didn't do this because :
a) I didn't like the idea of being a landlord, even with a property management company involved.
b) if I waited beyond September 2013 to sell, I would no longer have a $250k exclusion of capital gains on the townhouse sale - which would have meant about $60k more capital gains taxes due on sale . Ie. it would have to appreciate at least that amount if I waited past that date for it to make sense, and I wasn't comfortable betting that it would. I actually closed the sale in August 2012.

I did have some cash reserves, about $200k, but all in my 401k, but I was otherwise cash poor. My father was dying of cancer in France while I was buying the house in 2010 - I made several trips back and forth at that time to visit, sign all the paperwork and attend the funeral . Settling the estate and the sale of the family home in France took another couple years. I'm no longer close to cash poor now. The home equity is still worth more than my portfolio, though.
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Re: How much income and down payment to afford 300k house?

Post by KyleAAA »

Static "you can afford X times income" rules-of-thumb are useless in this low rate environment IMO. Traditionally it was 2.5-3x income but with today's rates it isn't unreasonable that 5x income today is as affordable as 3x income at 8%. OP can clearly afford this house. The math works. Without roommates it will be a stretch but that's a lifestyle choice and not an issue with the numbers.
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