A common question asked is, “How much house can I afford?” Let Capital Budget Strategies, LLC, Austin’s best Financial Coach, help you find the answer. We currently use only Zoom Conferencing, so we can help people all over the country.
Our Austin Financial Coach has met with attorneys, doctors, tech entrepreneurs and others who purchased large, beautiful houses in the best neighborhoods. However, when we work through the numbers together, some clients realize they purchased, “Too Much House.” That means they are spending too much of their income on housing and they quite stressed out over it.
Here is a good rule to follow: Never pay more than 28% of your gross pay on housing and its related costs. Remember, gross pay is your paycheck before taxes and all your deductions. Therefore, if you earn $100,000, your monthly gross pay will be $8,333. (After taxes and deductions for health care, dental, 401(k), etc., your actual net or “take home” pay may be more like $5,416).
Therefore, if you earn $100,000, it is recommended that you do not spend more than 28% (or $2,333) per month on your apartment, condo or house.
But wait, there’s more! But don’t forget, owning or renting includes several other expenses besides your rent or mortgage. Therefore, when determining how much you can afford for “housing,” include the following if applicable:
CONDO: Mortgage, condo fee, insurance, utilities, real estate taxes and parking
HOUSE: Mortgage, mortgage insurance, homeowner’s insurance, real estate taxes, homeowner’s association (HOA) fee and utilities
APARTMENT: Rent, insurance, utilities and parking
As an example, if you earn $100,000 per year, your 28% monthly housing limit is $2,333. So how much of that can be your mortgage payments? Let’s work the numbers:
$2,333, minus these extra monthly charges:
$ 150 (Utilities)
$ 125 (Mortgage insurance)
$ 550 (Real estate taxes)
$ 35 (Homeowner’s insurance)
$ 25 (HOA)
Total for Extras: $885
Therefore, available for mortgage payments: $2,333 – $885 = $1,448
If you have “good” credit, a mortgage payment of $1,448 could get you a $300,000 loan. Clients sometimes get confused and believe they could use the entire $2,333 “housing” allotment, which could get them a mortgage of approximately $500,000 loan. Then they get hit with the extras!
Two clients come to mind who purchased too much house. One was paying 42% of her income on a house, while another fell into the “right neighborhood, big house, Mercedes, private schools and country club” lifestyle – resulting in a net worth of negative – $300,000.
We can help! For only $149 (or $99 for first responders, medical personal, military and students), the Austin Money Coach at Captial Budget Strategies, LLC will conduct a private 4-hour session and teach you how to handle your money like an adult!
Together, we will determine your true Net Worth, analyze your spending, set up a Household Monthly Budget, an Emergency Fund, a Snowball Debt Repayment Plan, if needed, and even give you an idea how well you are doing saving for retirement. Finally, we will review your bank accounts and introduce you to on-line banking. Best part, we make your finances easy to understand and track.
Based on all this information, we will then determine how much house you can buy.
Buying a house or condo will most likely be your biggest investment during your lifetime. Make sure you can afford it, so you can enjoy it!
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