How much will I need to buy a house?

How much do you REALLY need to make to buy a house?

• I made just under $90K last year, expect to make between $90 and $100K this year and will break the six figure mark next year. For a long time I thought this was the kind of money you really needed to make to be able to realistically afford buying a modest home (at least in the metro NYC area). However, all of the "affordability calculators" out there are telling me I can afford much more home than I'm willing to believe. My vehicle is paid for. I have 0 credit card debt. My student loans are paid off. Yet, I can't seem to justify being able to afford even a $200K home. After including property taxes, insurance and so on, the monthly expenses seem to come out to MORE than half of my monthly take home pay. How on Earth can so many people afford homeownership? Seems to me you can't COMFORTABLY afford a home that costs much more than what you would make in 12-18 months. Forget 2-3X annual salary.

• Answer:

  At 4.5% interest, a 30 year mortgage would cost you $5.07/1000 borrowed. So, $100k = $507/month and $200k = $1014 a month. Depending upon the taxes, condo fees, insurance on the particular places you are looking at, the principal and interest payment for a $200k loan would only be about 12% of your income. How did I get that? Let's say you make $96k - that equals $8k/month. $200k mortgage at 4.5% is $1014 or 1014/8000 = 12.68 of your gross. The rule of thumb is for all debt payments to be roughly 35% of your income or less....the $200k example is well within that range if taxes aren't exorbitant on the house. Also, rates are actually well under 4.5% right now, so the numbers would actually be even more manageable than my example.