How to Buy A House WITHOUT GOING BROKE | How Much Home Can I Afford | Real Estate Investing

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Being house broke is one of the toughest things to have to deal with when it comes to personal finance. And unfortunately, there is a fairly sizable number of us that have experienced being house broke at one point or another in our lives. And in the interest of trying to lower the number of home buyers that will end up being house broke in the future, I thought it would be a good idea to do a quick video on how much we should be spending on housing.

As is the case with many other big financial decisions there are a few different rules of thumb that people throw out there when asked the question how much home can I afford so today we're going to analyze the three major ones, talk about their advantages and disadvantages, and show some examples of how they work in tandem with the rest of our budget so that you can decide which rule of thumb would be best for your situation.

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[henni]

Using gross pay for any metric imo is dumb, and will leave you in the worst situation.

[dropthebassline]

I use the 28/36 rule but with take home pay instead of gross income. Works very well!

[paulargueta]

Great information. The key is executing and taking action. Too many people watch and do little to nothing with the information.

[jackpalmer]

Here in Toronto there's a cardboard box you can lease for 36% of $100, 000 per year

[stephthinks]

Where do bills come in? Electric, water, gas, internet, cable which are fixed? Also why do we look at Gross Income and not Net Income?

[phillipstrimbu]

Shouldn’t buy a house until you have 3 to 6 months of living costs in savings for emergencies

[Bulletcore]

My mortgage is 17% of my income. I am 8 years away from paying it off, but when I first got the house it was closer to 45% 😂

[clee]

A big thing missing from these calculations is upkeep expense. I think this should be included in the monthly cost. For my home I figure about $150/month for large future expenses such as roof, A/C, water heater, plumbing repair or any other potential issue. This is set aside each month in a separate account (and in addition to the regular emergency fund since these are planned future expenses). Even with that included our home is less than 20% of NET pay. I think a lot of people don't think about these costs when they buy a house and when they do come up they have to take out a loan which ends up costing even more. Just take the roof for example. If a roof replacement is $12, 000 and needs to be done every 15-20 years...that comes to $50-$67 per month over the long term. It all adds up.


We definitely have a slightly above average household income but for a family of 5 we would have to make some major cuts if our housing costs were higher.

[personalfinancedeclutter]

I love this video! I remember my home buying process was like walking though a minefield, lol! I would get my notes together and make a video about my journey soon!

[PaulfromChicago]

If John and Jane have credit card debt and student loans, they can't afford any house.

[bellanoche]

Great video! I didn't know about the Dave Ramsey approach, but I think it's a wise idea for most people! After maxing out a 401K, we spend 18.79% of our take home pay on a mortgage with no other debt (cars are paid off) or 11.68% of our gross. We were still able to get a nice place, just opted for a large townhome over single family to get more bang for the buck. Plus we aren't people who enjoy yardwork, so it is a good setup for us. We try to pay double or triple our mortgage payment each month.

[mkite]

I’m with Dave Ramsey. Before you buy a home, become debt free, build an emergency fund of 3-6 months of expenses, then save up a down payment of at least 10%, preferably 20%, and THEN you’re ready to buy. And the guideline is only a 15 year fixed where the payment is no more than 25% of your take home pay. As Dave says, “If you buy a house when you’re broke, it makes you broker. That’s why they call it a mortgage broker.” Seriously though, buying a home when you’re broke is not a blessing, it’s a curse. The furnace goes out, the AC breaks, whatever. You end up financing it or putting it on a credit card or borrowing against your 401k because you have no emergency fund because you aren’t able to build one because all your cash is going to the banks because you’re broke and deeply in debt.

[travelinglakan]

best video I have seen the topic today. thanks.

[patrickilboudo]

I am always cautious about using gross income instead of net income when evaluating these metrics. Using net income will give the best estimation. Just a thought. Otherwise, thanks for the video

[BrightSl]

I love how this doesn't account for the fact that they are likely renting a home currently. That ties into these "debt expenses"

[rentospropertymanagementso]

Helpful tips to look at when purchasing a home. Thank you for all the calculations shared.

[nazcr]

On the 25% method by Dave Ramsey, he adds that you should buy a house if you're debt free and if you have at least 20% of down payment. If you can't keep the mortgage payment less than 25% of your take home, then you should save more down payment; which would be easy to do since you're not using money to pay off debt. He also recommends to only get fixed rate 15 year loans.

[TheRosswise]

I built a house using a third of what I was approved for. As such, I got it paid off in four years. If you go back 60 years, the average size for a new house was 1000 square feet. Mine is about that. Don't buy more house than you need, it just costs lots of money in the long run.

[ReaveIdono]

This was a great video to help me understand at least a little on how much house I can afford!!!!

[pyrosp]

The first example is very similiar to my costs and income except for the fact of no down payment, and owe just a little more on college debt. Where I'm located at getting a $1500 mortgate rate is practically impossible without getting a terrible house with several issues with it and being like 80 years old.