How do you know what you can truly afford?

We are pre-qualified for a mortage, but how do you know what you can really afford? I have no idea what to estimate our bills such as electric, water, heat etc. I don't know what to do...

Do you know what you could afford per month right now with what you make?

For example, if you know exactly what you make and what you spend per month and know you could afford $3,000 max (mortage & tax & insurance) today - living in an apartment ... then you need to know that you can afford LESS living in a house with a bigger electric bill, gas bill, etc, etc. etc.


eta: I know it's not scientific, etc ... that's why I don;t pay attention to what the mortgage company tells you what you can afford. Know what you can afford today and work down from there.

It was really helpful for us to do an honest analysis using quicken. We sat down and put in everything we spend...everything. Then we decided how we could cut back to afford a house. It looked a lot scarier on paper than it really is. We found that with the tax deduction it made sense. We were able to claim married 1 or married 2 on our W2s to get a little more income in our take home pay. We ended up with $600 more a month toward the mortgage. Of course, that means less back at the end of the year, but who cares. The month to month is what counts. We still get back every year, but it's less.

Nobody can tell you what you can afford. It all depends on your comfort level with debt. Also, if you have outstanding loans and debt you will need to be able to continue to pay those on time.

If you make $100,000 combined, after taxes thats approx $65,000 net divide by 12 is approx $5400/mo. Now do your expenses, loans, debt, rent..etc. That will tell you what you can swing.

since you are a mlsli junkie...use the calcultor to figure out an avg payment for a mortage ... base it anywhere from 5 to 6 percent.

take the taxes, divide it by 12 months...

them you have your other expenses.. .
eletric
cable
internet
food (remember, you gotta eat)
etc....

you need home owners insurance (from what i understand, it isn't much).

find out your monthly incomes.... and the rest is subraction.

Dont try to over extend your mortage (this is what we did and thank god we didnt go forward)


Keep in mind though with the mortage (to get a true sense), take to various people (brokers) about types of mortages cause it can vary your payment greatly (by great i mean $100 a month or more)

I think I read something like it should be no more than 20 or 30% of your income; but that was too scary for me; being technical I like real numbers. As someone said above, its not that hard, just an exercise in excel. Here is what we did.

Take your joint monthly NET income and subtract the following, substitute if you have real numbers:

Electric (150.00)

Water (30.00)

Heat (200.00)

Cable + internet (100.00)

Phone-wired, local, long distance (40.00, depends on your usage)

Phone - cell

Food (per month, including lunch, coffee, snack, etc)

Car payments

Gas monthly (add it up, its alot)

Car maintenance (cars do break and need oil changes)

Car insurance

Entertainment monthly

Credit card monthly

Student Loan monthly

Medical insurance (if not included in gross pay)

Home owners insurance (estimate 100 a mnth)

Property taxes (you know better how much a month it would be as you know where you are looking, I think we estimated on 7K a year)

PMI (if you dont have 20% downpayment)


After you do this, you know about how much you have left over to pay your mortgage

Use the online calculators and see how much the monthly payment for an $xxx,000 loan would be at 6.0%. Do a couple in the range, see what you feel most comfortable with. Remember, you will also need money to fix the house up, and oh yeah, emergency money.

Then, if you are not going to roll in your closing costs take your downpayment and subtract $20,000. This is what you REALLY have as a downpayment. Add whatever is left of your downpayment to whatever mortgage you feel comfortable with monthly. That's how much of a house you can afford.

I like doing worse case scenario; that way all you can get is happy surprises. I want to be able to sleep at night, knowing I can pay the bills, that I dont need to worry too much. Those brokers and calculators will say you can get a half million dollar mortgage; which you could, but many people they give the money to probably go into forclosure the next year.

Once we found ahouse we liked and wanted to bid on...our agent told us we could ask Q's of the homeowners. For example, how much is a tyoical water bill, electric bill, etc.


If you go on MLS....there is a mortgage calculator (I'm sure you know this) and you could play around with some numbers.


Good Luck!

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Posted by Danielle&Scott

Thanks for the information. We found a house we like and got pre-approved, but I am still afraid we won't be able to afford everything. I guess we have to sit down with a mortgage broker.

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Where?

Congrats....Hope it all works out!!!!

Don't let the mortgage broker tell you - you should know what you can afford. They don't. They just want to give you a larger loan.

Yes I know. When we got pre qualed he gave us the shpeel that we could afford more than we were pre qualed for. We are actually going to go to a different broker, The broker Danielle's sister used. Danielle has to call him today.

Thanks

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Posted by Danielle&Scott

Thanks for the information. We found a house we like and got pre-approved, but I am still afraid we won't be able to afford everything. I guess we have to sit down with a mortgage broker.

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Oh Lord, please do not go to a mortgage broker for advice!!! Thats like going to the grim reaper for medical advice :)

Someone gave a very detailed analysis above about writing down every bill per month and thats the best way to do it.

Only YOU know what YOU can afford.

good luck

I just inserted the new mortgage in our current excel budget sheet and analyzed what happend.

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Posted by D&C

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Posted by Danielle&Scott

Thanks for the information. We found a house we like and got pre-approved, but I am still afraid we won't be able to afford everything. I guess we have to sit down with a mortgage broker.

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Oh Lord, please do not go to a mortgage broker for advice!!! Thats like going to the grim reaper for medical advice :)

Someone gave a very detailed analysis above about writing down every bill per month and thats the best way to do it.

Only YOU know what YOU can afford.

good luck

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Totally Agree!! We just over estimated the monthly expenses to see what we could afford. If you can swing it with the over estimated expenses than you'll be able to do it. I DEFINITELY would not ask the mortgage broker!!!