# How Much House Can I Afford?

##### You will learn:

What’s up guys john here i’m a certified public accountant who likes to talk about personal finance buying a house is one of the biggest decisions you’ll ever make in your life for some people it is very exciting for some it’s just so stressful just thinking about it if you’re doing it for the first time the big question hanging over your head is how much house

Can i afford to buy what is the mortgage payment is gonna be how much is going to be the housing cost and what other housing costs should i consider in this video i’m going to answer all these questions and go over a real life example please watch the video until the end so you will know how to do the calculation for your own situation there are actually many

Rule of thumb for calculating how much house you could afford i’m going to go over two rule of thumb here the first one is you could generally afford to spend four times of your annual gross income on on a house this is usually how much mortgage you could qualify for assuming you’re putting 20 down payment so say for example if you are making 50 000 a year then

50 000 times 4 is 200 000 that’s the amount of house you can afford a 200 000 house generally you could get a 1300 square foot starter home which is it’s a good size to start if you’re making two 125 000 a year then times four is five hundred thousand that’s the amount of house you can afford generally a five hundred thousand house you could get a three thousand

Six hundred square foot home which is pretty comfortable the second method is you could spend around 30 of your take-home net income on a housing cost that’s the second rule here so what include housing costs these are generally mortgage payment property tax insurance and utility this require a more detailed calculation but this is my preferred method let’s go

Over a real life example i just did for one of my client i’m going to show it on my whiteboard so joe and tracy joe’s salary is 125 000. tracy’s salary is 95 000. so their annual gross income is 220 thousand a year assuming their their net for this calculation we want to go with the net income assuming their net income is about seventy percent of the growth this

Means when you look at your pay stub 30 usually goes to work the payroll taxes income taxes 401k healthcare so you’re going to net with about 70 so your annual net income is going to be 154 000 then if you divide it by 12 months your monthly net income is going to be eight hundred thirty three now we’re going to start looking at how much house you could afford so

We’re gonna steal over here the house price my client is actually looking for a house they range from 700 000 to a million dollar and their question for me is what is the house they could afford so if we’re plugging the number 850 000 is the house they could afford because the 20 of the 850 comes up to 170. the mortgage amount for the remainder is going to be 680.