jgomez916 t1_iujizlj wrote on October 31, 2022 at 8:21 PM

Reply to comment by Expired_Water in buying a home and becoming independent by Expired_Water

Here is the math to show you why you can not afford a $200k house on approx $30k salary.

Here is the math formula a lender uses to decide the max approval amount they say you can afford for a PITI mortgage payment ( Principal, Interest, taxes, insurance on property and insurance on loan ie the PMI)

Gross monthly income/2 =X

X-( the SUMof the minimum debt payments on all the liabilities you have is car notes, cred cards, student loans etc) = Y

Y being the maximum a lender says you can afford

Mind you Y is the maximum at 50% debt to income and it’s not advisable to buy at your max you should always stay close to under 36% Debt to income, let’s call this Z

Example of a person making $25/ hour full time with the following debts($350 car note, $50 in minimum credit card payments)

$25x2080 hours (full time work) = $52,000 gross per year or $4,330/ monthly gross

$4,3330x50% = $2,166 (X)

$2,166- $400(monthly debt payments)

Y=$1,766= maximum mortgage they can affordable at 50% debt to income ratio.

Maximum property amount they would qualify for would be $200k and that would be buying at top limit.

This would mean 3% down payment of $8,000 at a 8% interest rate the payment would be $1,700

Expired_Water OP t1_iujmv5o wrote on October 31, 2022 at 8:47 PM

Would a larger down payment be better? I might be able to find a home around 150k several towns over. Thank you.

jgomez916 t1_iujn2d1 wrote on October 31, 2022 at 8:49 PM

Yes w larger down payment would be better and a purchase price of $90k to $120k would be better.

On $30k you max PITI is only $1,250 for a mortgage

$30k/12 months $2,500 gross monthly

$2,500x .50% is $1,250 the max mortgage payment you will get approved for on $30k salary and $0/monthly debt.

A big down payment will help but lenders use your salary in the math equation to pre-approve you.