How Expensive a House Can A Single Resident Making 45,000 Afford?

[TheDarkOne]

General range. I have 150,000 in debt and will be there 4 years. The housing market is pretty soft there. Discuss.

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[GatorMedMan]

Monthly income - other expenses = the answer to your very vague question.

 

[alreadylernd]

There are a number of mortgage calculators out there that will tell you your monthly payment based on loan size, interest rate and length of mortgage. You can play with the numbers to get a sense for the size of mortgage you can maintain, but one thing to always keep in mind is you don't want to stretch yourself too thin - you still will have to pay property taxes and any maintenance!

 

[sophiejane]

General range. I have 150,000 in debt and will be there 4 years. The housing market is pretty soft there. Discuss.

I would think very seriously about whether or not owning a home is the best choice for you. Generally, the less time you own a home, the less return you will get on your investment, unless you do major improvements, which I'm guessing you won't as a resident.

Unless you are really sure you want to stay and practice in the city where you do your residency, I'd put off home ownership for a few years. It's a big headache in many ways, and chances are, you won't save or make back the money you put into it in 4 years.

 

[tibor75]

It's a big headache in many ways, and chances are, you won't save or make back the money you put into it in 4 years.

That's the wrong way to look at it.

The question he should be asking is:

Is it better to own a home for 4 years or rent for 4 years. Just becuase he won't "make money" on a home, doesn't mean it's the wrong choice. If it causes him to "lose less money" than renting for 4 years, it's the better choice. On the plus side, he'll save on taxes. On the downside, he better be sure he gets a home in good condition.

Also on the upside = a home is a lot more fun than an apartment.

I had a home during my 3 year residency. Bought at 93,000, sold at 115,000

 

[sophiejane]

Also on the upside = a home is a lot more fun than an apartment.

I guess I'm a little bitter from refinishing hardwood floors all weekend on my new home. However, I am moving to an area with very cheap housing, and I am pretty certain with a little love up front on my 1940s home, I can have a decent return on it in a few years (hopefully to an incoming resident), especially since it is down the street from the hospital and in a great neighborhood.

I wouldn't call it "fun" unless you are into yardwork and home maintenance, both of which can add up, to the point of negating whatever you would "save" on rent. Even homes in good condition when you buy them can have big problems down the road. It is very much dependent on the market where you are and what you want to buy.

Keep in mind the uncertainty of being able to sell your home in 3 years. It is great that some can do it at a profit, but better to plan on either breaking even or taking a loss, unless you are in a fabulous area. I wouldn't do it as a single person--the only reason we considered it was because we have two incomes, and my husband is they handyman type.

 

[Amgen1]

http://www.mortgage-calc.com/

tons of online calculators for this

general rules/estimates:

1) you should not spend more than 1/3 of your income on housing

2) if you are making approx 42000/yr your take home after taxes/benefits/etc will be about 2700/month

3) based on a 30yr 5.75% mortgage, you will have a approx $650/month mortgage payment for a 110,000 house

4) you will still have property taxes (approx $3-4000/yr); home owners insurance (approx 150/month); and if it is a condo maintance fee (150-450/month)

5) closing costs are approx 15% of house value; you generally gain 3-4% per year that you own a house; therefore you should own for 4-5yrs to recoupe your closing costs

so you will be stretching yourself very thin with a 100,000-110,000 place.

if you have a parents/spouse that can help with a downpayment the cost will be less

the mortgage and property tax are tax deductible; that will help

 

[NinerNiner999]

Perhaps a better way to look at this question is how much will you be approved to buy a a home for. Typically, you total housing payment (Principle, Interest, Tax, Insurance - PITI) will max out at 38% of your gross monthly income, or $1425/month using your $45k salary example.

This comes out to about $185k for a home (assuming 6% interest rate for 30 years, plus $2500/yr for taxes and $600/yr for homeowners insurance). It will be more than this if you finance closing costs and prepaid items.

Only you will be able to judge how much you can comfortably afford, but don't expect to be approved for much more than $185k if you are going solo...

 

[f_w]

General range. I have 150,000 in debt and will be there 4 years. The housing market is pretty soft there. Discuss.

In addition to the question of 'what house can I afford right now', you should look into the follow-up question of 'what house will I be able to pay a mortgage on for a year until it sells during my first year out from residency'. (If you are planning to do a fellowship, that is a bigger issue than if you are going directly into practice.)

One colleague held on to his residency house for years after residency because it turned out to be a good rental property. There are allways incoming residents looking for housing, and a good relationship with the residency coordinators at your hospital can keep it rented for years to come (also, it had appreciated quite a bit, and somehow it would have killed him tax-wise to sell this house that was not his primary residency).

On the flipside is someone like my former landlord. He bought a condo in the late 80s (100% financed) and saw it loose 70% of its value in the early 90s. He then had to buy a house because he had gotten married and reproduced. Only in 2003, the condo was back to at least the value of the mortgage (allowing him to get out of it without having to bring cash to the closing).

Looking back, I should have bought something. In a 'soft' market, you have to be careful though.

 

[tibor75]

I guess I'm a little bitter from refinishing hardwood floors all weekend on my new home. However, I am moving to an area with very cheap housing, and I am pretty certain with a little love up front on my 1940s home, I can have a decent return on it in a few years (hopefully to an incoming resident), especially since it is down the street from the hospital and in a great neighborhood.

I wouldn't call it "fun" unless you are into yardwork and home maintenance, both of which can add up, to the point of negating whatever you would "save" on rent. Even homes in good condition when you buy them can have big problems down the road. It is very much dependent on the market where you are and what you want to buy.

Keep in mind the uncertainty of being able to sell your home in 3 years. It is great that some can do it at a profit, but better to plan on either breaking even or taking a loss, unless you are in a fabulous area. I wouldn't do it as a single person--the only reason we considered it was because we have two incomes, and my husband is they handyman type.

I bought a home built in the 1940s. My lender refused to approve my mortgage at the last minute because hte roof was old. The seller was stuck so they and us split the price of a new roof. So basically I got a home with a new roof for 50% off. Had the home 3 years. No problems at all.

 

[mlw03]

In addition to the question of 'what house can I afford right now', you should look into the follow-up question of 'what house will I be able to pay a mortgage on for a year until it sells during my first year out from residency'. (If you are planning to do a fellowship, that is a bigger issue than if you are going directly into practice.)

One colleague held on to his residency house for years after residency because it turned out to be a good rental property. There are allways incoming residents looking for housing, and a good relationship with the residency coordinators at your hospital can keep it rented for years to come (also, it had appreciated quite a bit, and somehow it would have killed him tax-wise to sell this house that was not his primary residency).

On the flipside is someone like my former landlord. He bought a condo in the late 80s (100% financed) and saw it loose 70% of its value in the early 90s. He then had to buy a house because he had gotten married and reproduced. Only in 2003, the condo was back to at least the value of the mortgage (allowing him to get out of it without having to bring cash to the closing).

Looking back, I should have bought something. In a 'soft' market, you have to be careful though.

i think condos are a riskier investment than are single family houses. even in a really cruddy market, a house shouldn't go down in value over 4 years, and like you said, renting the house is always a good option that may even be a source of positive income if you can work it out right.

 

[f_w]

i think condos are a riskier investment than are single family houses. even in a really cruddy market, a house shouldn't go down in value over 4 years,

Well, the kind of home you are likely to afford on a 45k salary is going to be in the 'starter home' market. While houses are certainly more stable than condos, you have to look at that particular segment of the local housing market. And unfortunately, seemingly minor changes to the local economy (like the local car-parts plant shutting down) or whacky school-board decisions and rezoning can really put a crimp in the value of a lower end single family home. And these things are hard to predict, particularly if you are not a long-time member of the local community or have access to someone who is. Realtors are basically used car salesmen. They will often 'forget' to mention such minor issues as arsenik or PCBs in the local drinking water or a tribal land claim dragging through the courts for 20 years.

So yes, I think it can be a great idea to buy a small house as a resident and I regret not having done it at the time. But the people who are telling you that this is a risk-free sure-fire way to come out ahead at the end of your residency often have a financial interest in making you believe that. So, do your due diligence and think through some of the potential scenarios. Just because you can 'afford' a $1200 mortgage, doesn't mean you should do this. And by god, stay away from adjustable rate or interest-only adjustable rate or negative amortizing adjustable rate mortgages, particularly if you have to finance more than 80% of the purchase (btw. if you are married, you are borderline low-income in the goverments eyes. so you might qualify for FHA guaranteed mortgages and the like).

and like you said, renting the house is always a good option that may even be a source of positive income if you can work it out right.

If you know that a rental property is another part-time job. Unless you are willing to give up your 15% margin to a management company.

 

[f_w]

And then there is allways the double-wide

 

[Doc Oc]

From what I read, if you are a first time home buyer and are buying a home below a certain cost (I think 115,000), then you qualify for FHA regardless of income. However...

FHA does their own inspections, and their regulations are very tight. Well, they don't DO the inspections, but they have criteria that must be met in order for them to ok financing your home. Basically, they know that if you are going FHA, you aren't exactly financially comfortable enough to fix major, or even minor, defects. They want to protect their investment, thus they will ask the buyer to fix EVERYTHING that doesn't meet their criteria. Alot of buyers will only agree to this if they are desperate. There might be a home that is fine, but needs alot of masonry on the porch, has a deck that needs to be painted and protected from water, etc. and FHA will refuse to finance you if these things aren't done. Thus, it is much harder to find a home in that price range that fits their criteria.

In addition, for an FHA mortgage, you pay PMI for the LIFE OF THE MORTGAGE, unless you refinance at some point. There are doctor loans that you can get without PMI. We got a loan from a local bank in the small town that I'm in and they waived PMI to compete with the doctor loan that I was approved for through Bank of America.

Before you buy, make sure you know how long your student loans will be deferred for. If you have to start making payments in your third year, and didn't figure this in, you dont' want to risk getting foreclosed on and wrecking your credit. Check both your federal and private loans.

My husband works, but we still went low for our income and bought a $140K home so that we could start paying off my loans.

Pay attention to school districts too, like the previous poster said. Ifyou have a good realtor, they will tell you this stuff anyway, but to ensure that they are more honest, it might help to let them know you are reselling in three years and if they do a good job you will reuse them. Then, finding a resellable home that is more likely to appreciate might mean more to them. Our realtor was recommended by current residents, so I'd start there instead of randomly calling someone. And make sure your agent is a buyer's agent.

Ok, that's enough, good luck!

 

[sophiejane]

I bought a home built in the 1940s. My lender refused to approve my mortgage at the last minute because hte roof was old. The seller was stuck so they and us split the price of a new roof. So basically I got a home with a new roof for 50% off. Had the home 3 years. No problems at all.

Good to hear. I'm hopeful. Ours has a new roof and new central AC/heat, new tile floors in baths and kitchen. It's solid. Just the floors were crap.