What Price House Can You Buy?
Fill in either (A) the income fields in the left column to solve for your maximum home price, or (B) fill in the home price in the right column to solve for the resulting monthly payment. A Annual household income Monthly car payment Monthly credit card minimum payments due Monthly student loans Monthly property taxes Maximum home price Mortgage amount Down payment Monthly mortgage payment $ $ $ $ $75,000 $0 $0 $0 $163 460,672 # 437,638 # 23,034 # 2,649 $ But can I really afford a home of this price?
After-tax monthly income Housing cost % of income* Total debt cost % of income Income for food, clothing, utilities, entertainment, health, travel, etc
OR
B
$
(Put a zero here if you are using the left-hand column)
4,250 66% 66% 1,601
$
This calculation assumes a 5% cash down payment and 6% average interest rate on 30-year 3-year ARM 80/15 loans (i.e. non-conforming, no PMI). Your actual maximum mortgage amount could be higher or lower depending on a number of factors such as down payment amount, credit history, stated vs documented income choice, fixed vs variable interest rate choice, and actual market interest rates.
* Despite what the bank is willing to loan you, a typical rule of thumb is that what feels affordable for most people is spending only up to 33% of take-home pay on rent.
Financial Comparison of Buying and Renting
Based on buying a $461000 home and renting a home of comparable size and quality. Buying ($2,649) ($154) ($77) ($200) ($97) ($725) $700 $1,187 $0
Market depreciates or stagnates and you owe tens of thousands of dollars at closing when you sell - if you can't pay, then you can't sell, and thus can't move.
Housing payment Property taxes Exterior insurance Maintenance Purchase transaction costs** Sale transaction costs*** Income tax savings+ Potential appreciation -- good case**** Potential appreciation -- bad case**** Downside risk
Renting ??? * $0 $0 $0 $0 $0 $0 $0 $0
Rent escalates at the maximum rate permitted in your lease each year renting may be preferable in year one, but significantly more costly than owning 3 years later.
If rent for a comparable home is less than $2020, then renting is more cost-effective than owning (assuming a good case of appreciation). If rent for a comparable home is less than $3200, then renting is more cost-effective than owning (assuming a bad case of appreciation). Actual rental rate for a home of comparable size, location, and quality to the one you would purchase*:
$0
* Rent payments should exclude utilities, in order to be comparable to mortgage payments. NOTE: No rent escalation is assumed. ** Upfront payment is divided over 36 months of living in the home, for comparison purposes. *** Payments made upon closing divided over 36 months. **** Profit realized upon sale divided over 36 months. Good case reflects 3% annual appreciation, bad case reflects 0% appreciation. Depreciation is also possible, as is faster appreciation. NOTE: Zero price appreciation actually results in a net cash loss to you of the entire amount of closing costs, or some 5% of the purchase price; depreciation results in proportionally greater losses. + Assumes 100% of mortgage interest is tax deductible (i.e. household AGI is less than $140k), and marginal tax rate of 32%.