Can a couple making $63,000/year afford a $155,000 house?

Question

We have about $13,000 in our bank account. However, we have $15,000 in credit card debt. I would try to pay off a big chunk of it, but I don't like to walk around with hardly any money in my checking account.

Answer 1

Can you afford it?  You should be able to.  The current rule of thumb is mulitply your annual income by 3 and that's how much house you can afford, assuming you don't have a lot of other debt like car payments or credit cards.  The other general rule of thumb is that your mortgage payment should not be more than 38% of your monthly gross income.

Bear in mind that your payments will be higher if you have to have mortgage insurance, and you usually do if you put down less than 20%.  Your payments will be even higher if your lender will set up an escrow account to pay your property taxes and homeowner's insurance.  

To give you an idea:  I bought my house for $155,000.00 at 5.75% (fixed rate for 30 years) and put 20% down, so I financed $124,000.00.  My monthly mortgage payment is about $1,070.00, but that includes an escrow account for the property taxes and homeowner's insurance.  If I had mortgage insurance it would cost about $100.00 more a month.  We have a car payment of $325.00 a month and no credit card debt -- we pay the cards off in full when the bill comes.

TIP:  Try to pay down your credit card debt as much as possible.  The interest rates on credit cards are a heck of a lot higher than the rate you'll get on a mortgage.

P.S.:  You don't always have to pay closing costs up-front -- in many cases, the lender will roll them into the mortgage.  The downside is you're financing more, but if closing costs are an issue you might be better off rolling them into the mortgage.

Answer 2

Unless you have other debts you haven't mentioned, such as car payments, or a really bad credit score, you should be able to get a loan. You'll need to provide a reasonable down payment which will require most of your savings, but that's a great way to utilize it.

Answer 3

Yes you can.  

Do you have any other debt?  Car loan? Furniture, student loans etc?

If you want.  Pay off 1/2 of your credit card debit.

10% down on the house is approx 15 thousand.

That leaves 140K plus other things to be financed.

150,0000 / 25 = 6,000 per year = $500 per month + interest

You could be paying about $530. approx. month.

Talk to your real estate agent or mortgage broker or financial planner.

Answer 4

You should be able to as long as you don't have other debts such as school, car, credit cards. Also be realistic with yourselves knowing that you need to pay to have electricity, heat, water, waste removal, insurance, security (optional).

You should try and negotiate a lower price with the seller and try to have them pay your closing costs (or look to Bank of America as they currently have a plan to pay all closing costs). In order to qualify for a good loan though, you will need to have a very good credit score.

When buying a home think of how much space you need, essentials versus wishes, and how close is the home to work and if you lose your job are there other places you can get work near your home.

Answer 5

You'll need 5,425 for your down payment on an FHA loan.  Depending on where you are probably about the same in closing costs, and again in PMI payments (lump sum at closing).  You should have $10k at least go to to closing with, which leaves you little reserves.  $150,000 mortgage would be about $950/month mortgage payment (not includling taxes and PMI if you didn't pay it at closing).  So about 17% -20% of your income would go to housing payments which is reasonable, and with your credit card payments about 25-30% of your income which is still very reasonable.

My suggestion, get the seller to pay your closing costs, you pay your down payment, you make MONTHLY payments on PMI rather than a lump sum ( you will qualify for tax deductions on that ), and keep some reserves but pay down your credit card.

Sounds like you can afford it.