How Much Income Do You Need To Buy A House?

Home Loans are made against your ability to repay. While the mortgage loan is secured against the house, it is really made against your income. That’s what mortgage lenders are look for, income to offset liabilities. Yes, a house payment is liability for a borrower. Oftentimes, there is a disparity between how much house you “want” and how much house you “can” purchase given your gross monthly income, payment comfort level, consumer debt obligations and amount you are looking to borrow.

 

How much income you need to purchase a house will vary by your payment comfort level including any consumer and or other monthly debt obligations you might have.

Some Important Terms To Understand:

Mortgage Payment:  principal, interest, property taxes insurance and mortgage insurance if needed

Consumer debts: minimum payment obligations on things such as auto loans, credit cards, student loans, personal loans, installment loans

Other debt obligations:  alimony and/or child support or any other court ordered repayment obligation

 

Here’s  simple mathematical formula:

(Target Mortgage payment + consumer debts) ÷ .45 = Gross Monthly Income needed to qualify

 

Running the math….

If your target mortgage payment is $2000 per month and you have consumer debts of $300 per month, you will need $5111 gross monthly income to offset your housing expense and consumer obligations.

 

How Much Loan Amount For How Much Payment

*Loan Qualifying Tips

  •  For every $100 in mortgage payment you need approximately $225 in income
  •  For every $100,000 financed expect a mortgage payment of approximately $725 per month

Based on these tips (assuming no consumer debt):

One could estimate in order to borrow $300,000 expect a mortgage payment of $2175 per month. To increase the mortgage payment (raising purchasing power) by $100, you’ll need an extra $225 in monthly income.

 

That is only half of the equation…

 

Down Payment becomes another important factor in determining how much income is needed to buy a home.

There are various programs with varying down payment requirements. Consider the following possibilities using a purchase price of $300,000 (assuming no other debts)

 

Conventional Loan 5% down/$15,000– approximate mortgage payment$1863 per month

→Gross Monthly Income Needed: $4140

Government FHA Loan3.5% down/$10,500– approximate mortgage payment of $2007

→Gross Monthly Income Needed: $4460

Government USDA Loan 0% Down/no down payment required-approximate mortgage payment of$1833

→Gross MonthlyIncome Needed: $4073

 

So at the end of the day how much income you need to purchase a home is predicated on your monthly income, consumer debt obligations and down payment.

*For every dollar of debt, you will need double that in income.

Here’s  an example:

$300 car payment needs at least $600 per month or more in income to offset the car payment

*Debt erodes income, less income translates to less purchasing power

Does buying a home make sense?

Yes, so long as the amount you can borrow for your desired purchase price is in sync with your debt obligations and of course your down payment. Discover how much you can borrow today by getting a complementary pre-qualification online. See how much income you need to buy a home now!

 

 

 

 

 

 

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9 Comments

  1. […] Here is a helpful blog post that talks about how much income you need to a buy a Sonoma County home. […]



  2. […] are obligated to pay a monthly basis including a potential housing payment is added together and divided your gross monthly income as long as it is 45% or lower, you’re in good shape. Once they have an idea of what […]



  3. […] have enough income to take on at least a total house payment of $1500 per month when buying a home. How much income are we talking about? At a minimum, just shy of $40,000 per year, 55% of a $1,500 mortgage […]



  4. […] could become crucial in your endeavor to purchase not only the right home, but ultimately the home you can afford. Let’s say there’s $5,000 left on your car loan, you have the cash in the bank and the […]



  5. […] Paying Off Debt When Buying a Home: When buying a home, and prior to attaining an accepted purchase offer, paying off debt to qualify is simply a function of learning how much more buying power is achievable by eliminating debt like credit cards, student loans or car loans. A qualified mortgage lender can run “what if” possibilities, which could become crucial in your endeavor to purchase not only the right home, but ultimately the home you can afford. […]



  6. […] Home Buying- paying off debt to qualify is simply a function of learning how much more in purchase price is achievable if the debt was eliminated. A mortgage company can run scenarios like this  showing you “what if” possibilities  which could be crucial in your endeavor to purchase not only the right home, but ultimately the home that you can afford. […]



  7. […] liability). One of the biggest obstacles home buyers will continually face despite market swings is showing enough income to offset other payment obligations (consumer debts) as well as a proposed housing payment. When […]



  8. […] As we know, a house for $350,000 using half of the $725 per month in PITI generates a monthly payment of approximately $2,537.50 per month. Assuming no other monthly payment liabilities, using a 45% debt to income ratio, a consumer would $5638 per month in income to offset the house payment in ordo qualify for the mortgage. […]



  9. […] The federal lending requirements in place today prevent a lender from cherry picking which income years to use for qualifying. That’s right for example if you’re 2013 income year was strong, but, 2012′s […]



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