How Much House Can I Afford | What you need to know

Welcome to my channel! My name is Bobbie Ann and I am a Crye-Leike Realtor determined to help my friends and clients educate themselves when dealing in the real estate world. The video today covers what you need to know when asking the Question: How Much House Can I Afford? Additional information covered will include What is Debt to Income Ratio or debt to credit ratio, What is a good Debt to Income Ratio, How to calculate Gross Monthly Income, How much should I put down on a house, and when getting a bank approval, what you need to know!

Hello hello welcome back to my channel central arkansas real estate with bobby and if you are new to my channel don’t forget to subscribe and hit that little bell for notifications so you don’t miss anything i am a cry like realtor just in case you don’t know me and i am from central arkansas bryant arkansas to be more specific and i make videos for the public to

Help you guys with anything and everything that you need real estate related we talked about buying selling closing everything so if any of that interest to you or if you’re in the market to buy or sell or if you just want some general information about real estate check out all my videos and don’t forget again to subscribe today we’re going to answer the question

How much house can i afford and why that question is very important to know upfront so if you are interested stick around we’re going to cover that right now okay welcome back and thanks for sticking around so buying a house is one of the biggest decisions and a lot of times it’s one of the biggest purchases that you’ll ever make and in this video we’re going to

Cover things like what is a dti and what is monthly gross income versus your monthly net income how does a lender give you a mortgage approval anyway what what do they do to get you approved and how do they know how much to approve you for and we’re going to answer the question do you really want to buy a house for as much as a bank will loan you okay the question

Is how much house can i afford well the first thing that you need to do is you need to figure out what your dti is and what is that that is your debt to income ratio that is exactly what it says it is it’s your debt it’s a ratio comparing your debt to your income the debt to income ratio that most lenders will use is based off of your monthly gross income which

We’re going to figure out both we’re going to figure out your monthly gross income and then we’re also going to figure out your monthly net income and that’s important that we figure out your monthly net income also and i’ll tell you in just a minute but keep that number or keep that word in your memory bank monthly gross income versus monthly net income because we

Will be using both before i jump to deep into this i want to remind you that i am a realtor i am not a lender i don’t work for a bank i am a realtor and so these are just helpful tips to get you a basically head start in the process and get you some calculations in some methods that will allow you to get an estimated approval amount that way whenever you get your

See also  Buying a Fixer Upper, Fix & Flip, or As Is Home in Myrtle Beach - 11 Things to Consider

Pre-approval you’ll already have an idea of what you can afford and it’s not such a shock whenever the bank tells you what you’re approved for okay so your monthly gross income is your total annual income that means the total amount of money that you make gross in a year divided by 12 twelve months in a year so you’re dividing the twelve to get the monthly gross

Income now this is before taxes and government fees or anything like that that’s social security anything that’s taken out this is before it this is gross so you’re going to take again your annual gross income whatever you make before anything is taken out and divide it by twelve and that will give you your monthly gross income lenders will look at this monthly gross

Income number to determine to see if you can afford a mortgage payment now let’s go back to that word dti debt to income ratio a lender will look at your dti to determine your loan amount that they will approve the dti is a percentage so the higher the percentage of your de dti the lower the loan approval usually so you really want there’s kind of like a sweet spot

On these debt to income ratios that you want to stay within and most lenders recommend that your debt-to-income ratio stay below the 36 percent range so 36 percent is on the low end and that’s a very good dti whenever you get to 43 45 that’s up on the higher end of that sweet spot and there you’re getting kind of risky on whether you would get approval or not now

You can get a lender or with a higher dti however your approval amount may be lower if you’re a dave ramsey follower you’ll know that he recommends a dti of twenty-eight percent of your net income and that’s including your mortgage and all of your household debt and expenses okay let’s talk about this dti debt to income ratio and how to calculate it first you’re

Going to come up with your gross monthly income and then you want to figure out everything that is involved in your debt so you’re going to total up all of your debt and that includes everything that would show up on a credit report so car notes credit card bills now this is only the minimum monthly payment so that’s the only thing that’s gonna count against you

Is the minimum payment you don’t have to count against you the total amount that you owe so it’s only take into consideration the minimum payment and add up all of that debt so if it’s going to show up on a credit card or not a credit card but a credit report then you need to count it as debt and if you have school loans those are kind of like a different animal

See also  Are these the Best Value Small Diaphragm Mics? (Only 49!) - Warren Huart: Produce Like A Pro

In this ballgame but you if i were you i would count those and that way if it doesn’t count against you then it’s just a plus but if it does count against you you’ve already accounted for that so go ahead and count your student loan debt as well just to be on the safe side but um get your monthly gross income and then all of your debt now that you have all of your

Debt and your monthly gross income you are going to get the number of your the total number of all your debt and divide it by your monthly gross income and that is your debt to income ratio i’m going to give you an example so let’s say that we have two people in a household and each person makes $50,000 so combined that’s $100,000 in this household their monthly

Gross income is divided by 12 so divided by 12 that is 8333 and 33 cents a month so that is their monthly gross income now their debt combined we’re just going to ballpark it at two thousand one hundred and twenty five dollars so that is their monthly debt so in order to come up with their dti debt to income ratio we’re going to divide their debt by their monthly

Gross income so we would say two thousand one hundred twenty-five divided by their gross income of eight thousand three hundred and thirty three thirty three and that gives us 0.25 five which is twenty six percent so that is a very low dti which is very good because it’s below the 36% and it’s even below thirty percent in twenty eight percent recommended by dave

Ramsey so um like i said this was just pulled out of a hat an example that gives you a good way to calculate your dti okay so here you want to ask yourself a question am i shopping conservatively or not basically am i going to be house poor or do i want to have some money so i can take a vacation or you know have a little bit of money and savings if you’re shopping

Conservatively you’re probably taking into consideration retirement unexpected events like illnesses or sicknesses vacations you know all of that you’re probably savings you’re probably taking that into consideration if you’re shopping on a more conservative level and if you don’t want to be house poor and you are kind of more conservative then this is a good rule

Of thumb to go back you want your mortgage payment to be no more than thirty percent of your gross monthly income i’m gonna take this one step further i want you to take your monthly gross income or your annual gross income divided by 12 to get your monthly gross income and then i want you to multiply that times 69 percent so what you’re doing here is you’re taking

Out everything that is taken out of that grossly that gross income so when you actually work and you get paid you don’t actually see what you make so you might make $20 an hour but when you get that check that’s not going to reflect $20 an hour that’s going to reflect your take-home so if you multiply this time 69% that’s giving you an idea of what you’re taking

See also  BUY TO LET MORTGAGES UK (2022)

What you’re able to take home okay so this act the number that you come up with that 69 percent is going to be your take-home and the rest we’re going to say it’s going towards taxes and 401k retirement everything that’s taken out of your check upfront and whatever is left over is that 69 percent that is called your net income so that’s what you actually have in

Your pocket whenever you go home at the end of the day if you’re feeling overwhelmed stop take a deep breath because we’re on the homestretch all right so we have our monthly gross income and we have our debt so and we have our net income so take your monthly gross income multiply it time to 69 percent to get that net income and gather up all your debt get the total

Of your debt and once you have your net income let you take home and all of your debt including let’s include a possible mortgage payment which we talked about we don’t want your mortgage to be any more than 30 percent of your gross flea income so all of your debt plus your mortgage payment and we’re going to divide that total debt by your total net income and that

Will give you a debt to income ratio based upon your take home which you actually bring home and the last tip that i want to give you today is about the cost of your home and putting down a down payment it’s important that your down payment is at least 20% of the cost of the home the home purchase price because if you do not put down a down payment of 20% at least

Then many times you will be paying at pmi which stands for private mortgage insurance and if you can’t avoid this then you want to because really it’s just throwing money into insurance it’s a way for the mortgage company to have confidence in the commitment of your loan and that’s exactly what it is it’s just insurance so you’re just giving the mortgage company

More money than what you would have to thank you so much for joining me today i hope you found this video helpful and informative if you did please like and comment and subscribe to my channel don’t forget if you have questions leave them in the comments and i will try to reply as soon as possible and get your questions answered and stay tuned for new and upcoming

Videos all about real estate until then i’ll see you next time bye don’t forget i’ve got some free stuff for you in the description oh

Transcribed from video
How Much House Can I Afford | What you need to know By Bobbie Ann