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How much house one can afford is one of the first important things one has to consider starting the home-buying process. Generally speaking, the recommendation is not to spend more than 28% of gross monthly income on housing. This covers your taxes, insurance, mortgage, and homeowner association costs. This advice provides a suggestion on how to decide on your home-buying budget using a seventy thousand dollar yearly income.
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Second step: figure out your gross monthly income. Find your gross monthly income first—that is, the amount you are paid before taxes are deducted. The most crucial first step in doing this is to split your yearly pay by twelve months. Your gross monthly income, when you make seventy thousand dollars annually, comes to five thousand eight hundred and thirty-three US dollars. Dividing 70,000 dollars by 12 months yields 5,833 dollars per month.
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One should double the highest monthly housing expenses by 028. To get the best monthly housing expenditure, therefore, divide this figure by 028 or 28 percent. Five thousand eight hundred thirty-three dollars times 028 comes to one thousand six hundred thirty-dollar value. The 28% rule thus dictates that, given a seventy thousand dollar income, the maximum monthly expenditure on housing should be one thousand six hundred and thirty-three dollars.
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Maximize Your House Value Right Now Knowing your maximum monthly housing payment now helps you to convert it into your maximum buying price for a house. To get to that, you will have to reverse the figures and make some presumptions about the variables like your down payment, the interest rate and length of your mortgage, taxes, insurance, and so forth.
Lets assume the following to determine the maximum home price: Lets assume the following to determine the maximum home price:
Down Payment 20 percent Interest Rate the current rate of 5 percent for the 30-year fixed rate mortgage Taxes Property $ 1 percent per annum Homeowners & Rental Insurance 50 dollars monthly No HOA fees Based on these assumptions, here's how you can calculate your maximum affordable home price: Based on these assumptions, here's how you can calculate your maximum affordable home price:
It is calculated to be in the tune of one thousand six hundred thirty-three us dollars as the maximum monthly payment. Monthly Less Taxes Property Insurance one thousand six hundred thirty-three dollars – one hundred dollars = one thousand five hundred thirty-three dollars
The maximum amount that one can afford to pay in terms of mortgage per month is One thousand, five hundred thirty-three United States dollars.
Mortgage Ceiling (calculated assuming an interest rate of 5 percent and time taken to complete payment of the mortgage is 30 years). Thus, the total amount of money is approximately two hundred eighty-five thousand US dollars.
285 Down Payment 20 20 Down Payment 20 Down Payment 20 of two hundred eighty five thousand equals fifty seven thousand dollars
Maximum Home Price 285000 plus 57000 equals 342000 dollars
Maximum home price based on the annual salary of seventy thousand dollars, 20 down payment, and the other assumptions outlined above are approximately three hundred forty-two thousand dollars.
Evaluate Different Down Payments The home price above is calculated at 20 percent down, but what if one chose to pay 10 percent down? You'd be able to purchase a home worth more than this but your mortgage payment each month would be higher. Lets run the numbers again with a smaller down payment: Lets run the numbers again with a smaller down payment:
Down Payment 10 percent Interest Rate 5 percent Property Taxes Insurance $100 per month This is the highest monthly payment of one thousand five hundred thirty-three dollars.
With 10 Down: Maximum Mortgage Amount It is approximately three hundred and fourteen thousand US dollars.
Down Payment at 10 It costs thirty-one thousand four hundred dollars.
Maximum Home Price 314 plus 31,400 is 314 + 31,400 = 345,400 dollars
Thus, by contributing less money at the initial stages, you can afford a slightly more costly house, which can be at around three hundred and forty-five thousand USD, going by this example. But this means that you have to pay private mortgage insurance and you own a limited amount of equity in the home from the start. Therefore, one is left with no option but to consider the advantages and disadvantages of each way.
Getting PreApproved Of course, it is possible to consider the maximum amount of money you are ready to spend, but it is critical to visit mortgage lenders to receive pre-approval. The lender will assess your ability to repay, your credit report, and your other debts to come up with the actual loan amount and interest rate.
The preapproval process therefore analyses the details and the specifics of your financial position rather than making assumptions. This will provide you with the right benchmark price for the home of your choice and make it easier to avoid overstretching yourself when looking for a home.
Be Careful When Setting Your Maximum Bid When visiting several houses in search of an ideal one, the price range should be considered but there should also be the margin of negotiation. If you bid the absolute highest number you are approved for, you do not have any room to maneuver. Suppose financing, appraisal concerns, or inspection expenses were still involved as well. This is why it is easier to negotiate when one is searching homes at the lower end of one's price range not to mention the fact that there is no pressure.
The very last thing that you want to do is bid and win a bidding war only to find out that you cannot afford the monthly payments in the long run. As for the houses, try to be strict as to what you can afford.
Buying on one income? Reduce the limit Last, acknowledge the fact that this 28 percent rule is based on two incomes making up the said seventy thousand total salary. If you are planning on buying based on one income only then you will have to turn the affordability levels upside down. Dependence on one income to cater for all the housing expenses and other expenses that are considered necessary in day-to-day life is a dangerous venture. Lower your home price cap by 20 to 30 percent or more if trying to shop with only one salary of seventy thousand per year.
Bottom Line Seventy Thousand Dollars per year means a maximum home price of around three hundred and forty-two thousand, using more traditional standards. This still leaves a lot of scope for getting good value for money in many sectors of the country. Research on deposits, the interest rates of mortgages within your state, taxes, insurance, and all the expenses that contribute to your payment. Shop with preapproval and stick to these limits while going through houses, for instance. This enables you to optimize for cost at a seventy-thousand-dollar income level.
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