Home Ownership - How Much Can I afford? pt.1

*Tips and Tricks underlined

While my roommate was having a fit about AC (in late July 2016); I ended up chatting with the landlord. Turns out he was selling the other apartment; he showed it to me. He said $125k. I said sold.

I purchased my first home in October of 2016. I'm a very simple guy. It was in the same complex. I knew the area and the price was reasonable compared to the crazy studios in DC for $250k+.

I already saved some money for the down payment; I was ready for about $10k if need be. I would have even used some of my 401k, if need be.

All my documents where electronic; so when the bank asked, I threw it all at them. They were surprised and impressed.

Armed with the Veteran Loan; I ventured into the unknown. We did the song and dance ie appraisal ($500) and inspection ($250). They asked for that random $1k earnest money to make sure that I wouldn't bail. Pretty much how it's laid out in the Infographic on the left.

A month later, voila! I was on the ground playing Kanye West's "Father stretch my hands, pt. 1" in a 2/2 condo with hardwood flooring and a fireplace. T'was a ratchet win indeed.

*Word of caution, you also have to pay home insurance upfront and tons of other fees. And God help you with Comcast installation.

My roommate couldn't believe that the process was so streamlined.

Here's the secret, it's not that hard if you have reasonable expectations and buying within your means.

This is my proven way to ascertain how much "HOME" that I can afford.

*Examples. A. Couple making $50k and $40k (respectively); B. Single person making $60k. Also note that I'll be co-opting the Net/Max Plan as well. These are also just estimation not hard facts. So don't go stir fry on me. The goal is to squirrel some funds away while being prepared for a baby maybe?

MATH!!!!

1. Start off with your total (combined) Salary/Salaries ie A. $90k; B. $60k
2. Add annual side hustle income (if any) ie $5k
3. Subtract 401k contribution (annual limit $19k each) ie A. $15k; B. $7.5k
4. Subtract IRA investments ie A. $10k; B. $5.5k
5. Subtract HSA investment ie A. $7k; B. $3.5k
6. Get your after tax (x 80%) ie total A. $50.4k; B. $38.8k
7. (Estimating) Subtract Food, Emergency Savings, Utilities, and other Expenses ie A. $12k; B. $10k <--- single pay more for everything.
8. Subtract Other Insurance ie A. $5k; B. $2.5k
9. Subtract travel (because you will go nuts) ie A. $10k; B. $5k
10. Subtract misc ie Clothes, Gifting, etc. (basically non essentials or other debts like student loans) ie A. $5.4k; B. $5.8k
11. Grand total for A. the couple = $18,000 and for B. the single person = $15,500
12. Divided by 12 Months ie A. $1,500.00 per month; B. $1,291.67
13. Let's say HOA is about $250 (subtract) A. $1,250; B. $1,041.67
14. Now used Google - Search for mortgage calculator

<--- Couple making a combined $90k/year can roughly afford a home for $265,000 but they have to have about $25k-$30k for the deposit and fees.

The Single Person making $60k/year can roughly afford a home for $225,000 but they have to have about $20k-$25k for the deposit and fees. --->

Conclusion:

As always, these aren't hard fast numbers. My goal is to spark your mind to start thinking outside the box so you can be ahead of the curve. Now go forth to Zillow!

For even more content such as this, stay connected with my Linktr.ee/GQ_accountant. You might also like A Man's Guide to Not Going Broke While Dating, Time to get your very own Linkedin Address, or The Seven Stages of Financial Freedom for Millennials. As always, share, like and definitely begin having the conversation about money before it is too late.