Home Ownership - How Much Can I Afford?

Table of Contents

*Tips and Tricks Underlined

While my roommate was having a fit about AC (in late July 2016); I ended up chatting with the landlord. Turns out he was selling the other apartment; and showed it to me. He said $125k.

I said sold

First of all, I don’t think your first purchase should be that complicated. You need to know the price and understand how much you can afford. I ended up purchasing my first home in October of 2016.

It was in the same condominium complex. Additionally, I knew the area and the price was reasonable compared to the crazy studios in DC for $250k+.

Reducing my expenses the year prior and increasing my income also helped. Secondly, I already saved some money for the down payment; I was ready for about $10k if need be. I would have even used some of my 401k if need be.

All my documents where electronic; so when the bank asked, I threw it all at them. They were surprised and impressed.

Armed with the Veteran Loan; I ventured into the unknown. We did the song and dance ie appraisal ($500) and inspection ($250). They asked for that random $1k earnest money to make sure that I wouldn’t bail. Pretty much how it’s laid out in the infographic.

A month later, voila!

I was on the ground playing Kanye West’s “Father stretch my hands, pt. 1” in a 2/2 condo with hardwood flooring and a fireplace. T’was a ratchet win indeed.

*Word of caution, you also have to pay home insurance upfront and tons of other fees. And God help you with Comcast installation.

My roommate couldn’t believe that the process was so streamlined. She was pretty pissed about it but since she was thinking of breaking the lease due to other job prospects, there was no need for me to stay. This was an opportunity of a lifetime. And it was all made possible by reducing my expenses and disciplining my urge to spend and flaunt money, otherwise known as lifestyle creep.

Here’s the secret, it’s not that hard if you have reasonable expectations and buying within your means.

Here’s my proven way to ascertain how much “HOME” that you can afford

*Examples

A. Couple making $50k and $40k (respectively);

B. Single person making $60k. Also, note that I’ll be co-opting the Net/Max Plan as well. These are also just estimations, not hard facts. So don’t go stir fry on me. The goal is to squirrel some funds away while being prepared for a baby maybe?

How You Calculate the Home Price using Math and Logic

1 Start off with your total (combined) Salary/Salaries ie A. $90k; B. $60k

2. Add annual side hustle income (if any) ie $5k

3. Subtract 401k contribution (annual limit $19k each) ie A. $15k; B. $7.5k

4. Subtract IRA investments ie A. $10k; B. $5.5k

5. Subtract HSA investment ie A. $7k; B. $3.5k

6. Get your after tax (x 80%) ie total A. $50.4k; B. $38.8k

7. (Estimating) Subtract Food, Emergency Savings, Utilities, and other Expenses ie A. $12k; B. $10k <— single pay more for everything.

8. Subtract Other Insurance ie A. $5k; B. $2.5k

9. Subtract travel (because you will go nuts) ie A. $10k; B. $5k

10. Subtract misc ie Clothes, Gifting, etc. (basically non essentials or other debts like student loans) ie A. $5.4k; B. $5.8k

11. Grand total for A. the couple = $18,000 and for B. the single person = $15,500

12. Divided by 12 Months ie A. $1,500.00 per month; B. $1,291.67

13. Let’s say HOA is about $250 (subtract) A. $1,250; B. $1,041.67

14. Now used Google – Search for mortgage calculator

**Couple making a combined $90k/year** can *roughly* afford a home for **$265,000** but they have to have about $25k-$30k for the deposit and fees.

The Single Person making $60k/year can *roughly* afford a home for **$225,000** but they have to have about $20k-$25k for the deposit and fees.

Conclusion:

As always, these aren’t hard fast numbers. My goal is to spark your mind to start thinking outside the box so you can be ahead of the curve. Now go forth to Zillow! Additionally, here are 7 things that I wish I knew before buying a home.