How Much Do I Need to Make to Buy a House?
Purchasing a New Home? How to Figure Out the Salary You Need to Afford One
You probably come to Central Oregon throughout the year to ski at Mt. Bachelor and swim in the Deschutes River. There are also many work and entertainment opportunities in Bend, Sunriver, La Pine, Sisters, Redmond and Prineville. Relocating here in the near future is becoming a greater possibility. Is your salary enough to support finding the home of your dreams in Central Oregon? What factors should you take into consideration?
Home Affordability Relies on 3 Factors
You can’t just look at your salary and the home prices market to figure out if you can afford to purchase a property. There are three factors that will help you figure out the home price range that your salary can cover. You also want to have enough money left over so you can live within your means. Those three factors are housing payment ratio, mortgage payment ratio, and debt ratio.
Mortgage Payment Ratio
On average, you shouldn’t exceed your gross monthly salary by 28 percent when making your monthly mortgage payments. To figure out the maximum mortgage payment ratio, take your gross annual salary and divide this number by 12 months. Then multiply this number by 0.28. For example, if you have a gross annual salary of $60,000, then your monthly gross salary is 5,000 (60,000 divide by 12) as your monthly mortgage payments are $1,400 (5,000 x 0.28). You also need to consider property and real estate taxes.
You’ll need to check all monthly and yearly debts, including house payments, to figure out your debt payment ratio. You should include credit card payments, school loans, alimony, child support and car loans as debts. When you total up the number, your debt payments should be lower than 40 percent of your gross monthly salary.
Housing Payment Ratio
Your maximum housing payment ratio takes into account all your housing-related costs, such as home insurance, property taxes, association fees, and private mortgage insurance if you can’t put a down payment on the house that is larger than 20 percent of the home’s sales price. Your total housing payments per month should be lower than 32 percent of your monthly gross salary.
You should not exceed these amounts when paying for a house or getting a mortgage loan. If you do, you may find yourself struggling financially to make all the necessary payments. Also, keep in mind that each mortgage company will have different qualifications when figuring out your debt-to-income ratio. Basically, they are trying to figure out what existing debts you have to repay regularly and what debts you will be tacking on when buying your home. The mortgage company will then have a better understanding on whether you will repay your debts or end up defaulting on the mortgage loan.