Buying or Selling a Home/House Price

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Question
Hello:

Do you know how to determine the highest price for a house for someone with a gross annual income of $30,000?

I thank you for your reply.

Answer
Hello Kenneth.

Thank you for the question. Determining your home purchasing power will include multiple factors. It can seem complicated. So, hang in there with me...Very basically, it depends mostly on your debt to income ratio. When dealing with a mortgage person you may hear them refer to this simply as dti.  What it means: Reportable debt, <minimum monthly payments found on your credit report> plus the cost of holding the mortgage on a monthly basis <principle, interest, property taxes and home owners insurance> + obligation by contract such as child or ex-spousal support = debt.

Your easiest move is to speak a mortgage loan professional at your local bank, go on-line to sites like LendingTree.com, etc., or contact a mortgage loan broker in your area. If you'd like to do the calculations yourself, or just know how they're done, here you go. <smile>

Income includes anything you would report to the IRS before being taxed, aka gross income. In your case, if you do not receive supplements, such as retirement income, child support, etc., 30k divided by 12 months = your monthly income or 2500/month.

The tricky part is doing the calculation for your mortgage. An amortization calculator must be used, and because part of the debt equation includes interest, you will need to make your best guess of the day's prevailing interest rate. Try this site, <I have shortened the Bankrate.com url for the specific page>>  http://tinyurl.com/glffqa6  Let's use an imaginary home value of 40k for now. Then adjust as needed depending on your debt etc.

Property taxes vary in each area depending on the needs and levies in the area, like libraries, road repair, parks, etc. For now, use 1.2 percent. of purchase price of the home. Example home: 40k x .012 = 480. divide by 12 to get monthly cost = 40/month.

Home owners insurance will depend on your home's value, your deductible, and the amount coverage you want and your lender requires. For now, let's just call it 25/mo. so we have a number to work with.

EXAMPLE:
Debt --
car payment + monthly minimum due credit card payment + student loan = 300./mo
Mortgage <includes principle and interest> + 40 property taxes + 25 insurance = XXX See calculator link above
300 + XXX = Your monthly debt

On average a lender will want to keep the borrower's debt below 40 percent of their gross monthly income. This will depend on your credit score, work history, housing payment history, income and it's source, your down payment and your assets you hold in reserve <savings, stock, retirement plan, etc.>

Everyone's thought patterns differ. I hope my explanation has been clear enough to have answered your question. Please keep in mind I am not currently a mortgage loan agent. My examples are not to be taken as advice or intended to replace the consultation of a mortgage, insurance, or financial expert. I would encourage you to seek such counsel prior to engaging in house hunting. The experience can be quite enlightening.

If you'd like more information on the process, you are welcome to visit this page of my website:
http://www.newvintagehome.com/buyers/mortgage-loan-preparation/

Good luck, Kenneth! And, do let me know if you would like / need more clarity.

My best,
Kathryn

P.S. If you are not already aware, things such as your electricity costs, car insurance, child care, etc., payments do not show on your credit report.  

Buying or Selling a Home

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Kathryn Hisert; Realtor

Expertise

Everyone deserves an answer! My rounded background will provide you with information beyond ‘just’ buying and selling. I can answer questions regarding short sales, foreclosures, deed-in-lieu, home staging, vintage home related concerns, most mortgage related questions, and divorcing couples’ housing options. I am a research oriented individual who strongly believes in connecting all the dots and providing as much, or as little, information and communication my clients want or need. My expertise is in San Diego and Santa Clara Counties.

Experience

After 25+ years in the Financial industry, Sales and Marketing, I came to the real estate industry as a mortgage loan agent. From 2002 to 2010 I was my clients' Realtor and loan agent. Since 06/10 I have been strictly a Realtor.

Organizations
N. San Diego County Assoc. of Realtors California Assoc. of Realtors National Association of Realtors

Education/Credentials
CDPE (Certified Distressed Property Expert) CREDS (Certified Real Estate Divorce Specialist)

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