How Much House Can I Afford? (Buying a New Home)

In this video, I discuss how much home you can expect to afford when you are looking to buy. This video makes a few different assumptions – and it’s important to understand this is not a set rule – just principle I’ve picked up from others.

Guys welcome back to the channel in today’s video i got another great one for you really excited to bring forward this content we’re gonna be talking about real estate and uh if you guys have been a long time viewer of this channel you know i tried to get into real estate investing before pandemic hit all these different things started happening and it just

Didn’t work out now i’m in a much better financial position to actually be competitive with my offers you see what was happening before is my uh my offers with the fha loan was putting around three and a half percent down it just wasn’t competitive enough people were beating me out by cash offers that were well above the market asking price without even going in

Inspecting the properties or anything and so i realized hey i got to take a step back slow this down save up capital figure out uh what i can afford for housing and that’s exactly what i want to talk about in this video in this video here today what we’re going to be talking about is how much house you can afford when you’re looking to buy real estate so let’s just

Jump right in if you guys are brand new to the channel i just want to say welcome my name is dalton this is dlitztv and on this channel we talk about all things investing as well as carving a path to financial freedom now this video here today is kind of a conjunction of a bunch of different uh information out there on the internet i’ve been watching a lot of

Different influencers a lot of real estate investors talk about their principles when it comes to buying a property what they’re comfortable with paying and one of the big influencers in this was whiteboard finance so the spreadsheet you’re going to see was a big draw from his video on this and i just take it a little step further because there are other things

That i think are important to account for when it comes to i guess buying that property and uh and looking at the numbers so what i’m gonna do is just quickly jump open the spreadsheet and uh we’ll start going over some of the information all right so as you can see right here this is what i like to call the housing affordability calculator and i’ve highlighted

The sections in blue the ones that uh you may change and the other ones are pretty much are going to stay the same they’re just equations that are going to fill in automatically so when you’re looking at this uh it’s important to kind of have a property in mind i was looking at zillow just to find a random property that i could apply this to there’s one in my area

Look at that 299 thousand dollars you can get a lot of great information from this so what i’m going to do is pop this in and fill it in as if i were to buy this property now this isn’t one that i’m considering this is just one as an example so if i did 299 000 uh it’s going to populate some of this information for you right away so you’re going to have your 20 down

Payment which is an estimate basically when it comes to buying a property putting 20 down is important because you can get rid of what’s known as a pmi which is private mortgage insurance which basically just lets lenders know that you’ve got some skin in the game it’s a it’s kind of a sunk cost it’s a payment that you’re making uh that you’re not really reimbursed

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It’s not going towards your housing so it’s important that if you can get rid of any extra expenses you do so and putting 20 down is going to allow for that so for when you look at this property getting 20 down you’re looking at around 59 800 for that and you see the loan amount would then equate to two hundred thirty nine thousand two hundred dollars now it’s

Important to understand the annual interest rate which you can get from a lender uh let’s just say for assumption i mean it’s pretty low right now let’s go with three point one percent uh i need to make sure that i put the percent sign in there otherwise it’s not going to calculate right so let’s do that 3.1 percent the life of the loan so basically what is your

Mortgage how long is the period you’re going to be paying this in years so a lot of people will opt for a 30-year fixed-rate mortgage so let’s go for 30 years right here i’m going to go ahead and enter that in and it’s going to calculate just a little bit more information now basically after what this is saying is your payments per period on this mortgage is going

To be 1021.42 the sum of the payments that you’re gonna make so what you’re gonna be paying in total the house is listed at 299 thousand dollars after everything is taken into account you’re gonna be paying a total of three hundred sixty seven thousand seven hundred and twelve dollars now that’s that’s uh taking into account the interest cost which you see right

Below it uh which is a hundred twenty eight thousand five hundred and twelve dollars so yeah when you buy a property it’s kind of uh kind of common sense you’re gonna be paying a little bit more in terms of uh paying back that loan so in this particular case it equates to a rather significant amount over a hundred thousand dollars and then you get down to this

Estimation section where this is where it’s important to uh take a look at zillow or another uh another website to get some real estate information so i want to get the taxes off of this so i’m just gonna scroll down on the right-hand side here we’re going to look at how much we’re actually paying monthly i guess and yearly in taxes on a property like this so

You can see that the property taxes here is 434 a month or 523 dollars a year so i’m going to enter 5203 right here five two zero three um let’s do that and i’m gonna hit enter and then you’re gonna get insurance which is annual let’s pop back here see if there is mortgage insurance you can get home insurance at 105 a month or 12.56 for a year so let’s go with

Uh 12 let’s go ahead and do 12.56 enter that in right there now hoa this is only kind of uh if you’re buying like a condo or something that requires you to pay hoa fees which is basically like little maintenance fees uh and on this particular property it’s actually nothing so i’m gonna put zero here but if you did have an hoa you can enter it in this chart as well

And then i just like to accumulate and get an understanding you know what if i included utilities how much am i going to be paying for that type of stuff and so let’s just assume that you’re paying around 150 a month in utilities as well so that’s going to bring your total payment to 1 709. and per month now getting to the right side of this this is where things

Start to get interesting you can see that uh this is kind of where it takes into account the salary and the wages for the people who are buying this property so maybe it’s not just you that is making a payment here maybe you are bringing somebody else in on this purchase maybe a a husband a wife a significant other that you’re you’re looking to buy a property with

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Uh but in my case i’m just trying to buy this on my own with my own personal income now in this case let’s just say we’re taking the average income for a u.s worker at 56 000 we’re entering that right here basically what we’re trying to get is the mortgage utility and income to be around 30 percent now this kind of comes from dave ramsey and uh and his way of

Thinking you want to be around 30 of your take-home pay and so i entered 56 000 for the annual income rate here just as a rough estimate and you can see that the total gross income again is 56 000 but then you take it a step further let’s think uh you’re paying some in taxes right when you’re when you’re being paid money you got to pay taxes maybe you’re putting

Some money into a 401k so it’s hard to assume that maybe your salary is 56 000 you are not making uh or taking home 56 000 at the end of the day so what i did for an estimate was just estimated 30 is is not going to be there so let’s say after all this stuff your take home is now thirty nine thousand two hundred dollars okay so your monthly net income based off

That so the thirty nine thousand two hundred dollars divided by twelve is going to get you the three thousand two hundred and sixty six dollars and sixty seven cents so basically looking at that number i would say that this house is not necessarily affordable for somebody with this income level looking to buy a 300 000 house but there are ways that you can get

Around this right and so i have a different uh a different set down here where you can actually house hack right you can rent out rooms you can take on roommates to be able to offset some of this cost so let’s say uh this house was a three bedroom one bath so you could take on as much as like two or three extra people if you were looking to bring in some extra

Income and so when you look at this let’s say uh my girlfriend was going to pay me some rent when she was staying here and i won’t charge her as much as the going rate of going right around my area is probably about 900 per person but let’s say uh she was paying 600 for this what we’re going to find is that wow we’re a heck of a lot closer to that 30 percent

We’re at 33 percent down here now let’s say that we we took on another roommate right we got one of my friends who was down and uh they decided to chip in as well in terms of rent so we’re gonna look at this number right here we’re gonna equate this out to let’s say 825 we’re still giving them a a decent discount per month and then you can see obviously the new

Percentage drops all the way down to eight percent so on this property where you’re paying seventeen hundred dollars i’d really be paying around eight percent or two hundred eighty four dollars out of my own pocket to afford this so something that’s not really affordable up front becomes a little bit more affordable if you start to think a little bit outside the

Box now up here you can see that there’s other sections to this chart there’s extra income so you guys know i work a nine to five job right and i’m also getting some side income on youtube so maybe you got some extra income coming in uh i calculated this out to be monthly so let’s say just from youtube alone i’m able to pull in an extra two grand a month and so

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When i do that obviously the initial number gets much closer to that 30 percent it’s at 36 so i would need significantly less money from other people in order to get that down to the 30 percent target rate that i’m looking at but let’s say that you were just taking on another income let’s say maybe my girlfriend was making some money and her salary was around

I guess fifty thousand dollars for example here how is that going to affect these numbers now you can see it becomes a lot more manageable when you have more people obviously that are coming in on this uh purchase with you and so let’s say uh then i got a raise right so this next column is just to account for any uh any extra like raises or if you just wanted to

Toy around with it see new values coming in here so let’s say my annual income went all the way up to 65 000 and let’s say my girlfriends is now 67 000 uh how is this going to affect what we’re making for payments here uh it’s really kind of interesting to see all these numbers uh obviously goes down way further to 22 percent your monthly income uh taking out the

Housing expense would be around 5990 so it’s really important that you get an understanding for this and uh basically when you look at that thirty percent you just wanna know like that’s that’s a that’s kind of a solid principle you’re not going to be stretching yourself out too thin and all of this should be made knowing that you have an emergency fund in place

Knowing you’ve got around six months if you were to lose your job if anything were to happen you were going to be able to make these payments for an additional six months scramble figure out get on your feet figure out you know if you lost your job you can get a new job in that time um and and just be able to understand you know if something happens you want

To make sure that you have capital backed up to uh to get yourself out of the hole that you’ve been put into and so that’s kind of what i’ve been looking at right now there’s a lot more that should be taken into account especially if you’re looking to real estate invest for passive income maybe you’re looking for a property to rent out right there’s a lot of

Different ways that you want to go about it but this is kind of general principle for just buying a property that you were planning on living in for for an allotted period of time and so uh this is kind of one of the early stages uh getting back into the real estate investing that i’m looking at and i just wanted to share this information with you guys so if you

Did take anything away from this video i would really appreciate it if you just hit that like button it helps promote my channel get it out on other home pages and if you guys are interested in following along with my wealth building journey maybe start building some wealth on your own then i again great channel for you to check out so anyways guys thank you so

Much for checking out this video and have a great day

Transcribed from video
How Much House Can I Afford? (Buying a New Home) By DLITZTV