How Much Income Do I Need To Buy A House ?

Definition of "How Much Income Do I Need to Buy a House ? "

The time is here: you decided you will buy a home. Congratulations!

But soon after you get motivated to do, conscience kicks in and makes you ask yourself: how much income do I need to buy a house?

Well, it will depend first on the location of which this house is located and also on the type of house you want to buy, obviously.

If you don’t know that yet, and that decision is contingent to the available income you have, here are some informational points for you to understand how much income you need to buy a house:

You have two options when buying a home. The easiest one is when you can take the whole amount out of your own pockets at once. All you need to do is find out how much is the asking price of the home you want to buy and see if it won’t hurt your savings. This is not for everybody, of course. Considering that in 2017, the average home price in America was $398,900; you’d have to have a lot of dough to do that without suffering a huge hit on your finances, right?

The second option is the most common: through a mortgage loan in which a lender buys the house at once, and let’s you live in there while you pay monthly until that value meets whatever the value you both set in the bilateral contract of your mortgage. It is here where calculations start to kick in because it’s not so much your decision, but the mortgagee’s. So it’s important to have some of the guidelines behind their calculations to figure out not only how much income you need to buy a house but other aspects as well.

Mortgage companies use ratios to analyze your mortgage payment. The housing payment ratio (or front ratio) used in this calculation is 30%. The housing expense, or front ratio, compares your total mortgage payment to your monthly income. So the total debt expense ratio (or back ratio) is 36%. This total debt expense, or back ratio, compares your total monthly obligations including your total mortgage payment to your monthly income.

Do you know what is a credit score and how does it impact real estate? A solid credit history is of the utmost importance. If yours is weak, lenders might be wary even if your income is solid.

And you can’t forget that once you go the mortgage way, there will be a down payment, so you need to account for 3.5 to 20% of the total value of the home and add to all the calculations done to assert the ideal income to buy the specific house you want.

So, as you can see, there are no systematic formulas to answer the question of how much income one needs to buy a house. Each lender will weigh the several factors differently and propose a different strategy to cover their risk. That’s why it’s important having a real estate agent by your side to advise you of the best safest paths to success in the housing process.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Mortgage Questions

Popular Mortgage Glossary Terms

The rate charged the borrower each period for the loan of money, by custom quoted on an annual basis. A mortgage interest rate is a rate on a loan secured by a specific property. ...

A contribution to a borrower's down payment or settlement costs made by a home seller, as an alternative to a price reduction. ...

The definition of credit risk is at the core of lending. Banks lend money to businesses and individuals and expect to recover the principal and win interest. Banks offer a variety of loans, ...

A variety of unsavory lender practices designed to take advantage of unwary borrowers. Predatory lending covers much the same ground as Mortgage Scams and Tricks/Scams by Loan Providers. ...

Same as term Bridge Loan: A short-term loan, usually from a bank, that 'bridges' the period between the closing of a home purchase and the closing of a home sale. To qualify for a bridge ...

The most recently published value of the index used to adjust the interest rate on an indexed ARM. ...

The frequency of rate adjustments on an ARM after the initial rate period is over. The rate adjustment period is sometimes but not always the same as the initial rate period. As an example, ...

If you’re a student in medical school, a resident or a medically qualified doctor, you must know the definition of Physicians Mortgage Loan, also known as Doctor Loans. Why? Because, ...

A mortgage on which the borrower gives up a share in future price appreciation in exchange for a lower interest rate and/or interest deferral. SAM's in the private market had a brief ...