Barbara Corcoran: How Much House Can You Afford?

"The faster you buy your first home, in my opinion, the better," says self-made millionaire and "Shark Tank" star Barbara Corcoran.

Buying a home may be the biggest purchase you ever make, and you want to be sure the one you choose is one you can afford.

Corcoran, who made her fortune in real estate, offers a simple formula to help you figure out just how much you should spend on your first home: "Multiply your salary times four and that's generally what you can qualify for." This formula assumes you're making a 20 percent down payment, she adds.

Based on Corcoran's equation, here's roughly how much home you can afford if your salary is:

$30,000 a year: $120,000
$40,000 a year: $160,000
$50,000 a year: $200,000
$60,000 a year: $240,000
$70,000 a year: $280,000
$80,000 a year: $320,000
$90,000 a year: $360,000
$100,000 a year: $400,000

While, ideally, you'll be able to make a 20 percent down payment, "if you haven't been able to muster 20 percent together, you shouldn't lose heart," Corcoran tells Make It. Some experts, like Bach, say a down payment of at least 10 percent is OK, though more is always better.

You can also look into Federal Housing Administration (FHA) loans, she says, which only require you to put down 3.5 percent. They do require mortgage insurance, though, she notes: "The problem with the FHA loan is your closing costs are going to be slightly higher: You generally have 3.5 percent in closing costs ... but with a FHA loan, you're going to be forced to buy additional insurance, which can amount to as much as 2 percent."

Another simple rule of thumb to follow, says Corcoran, is to aim to spend about 30 percent of your take home pay on housing costs. Keep in mind that this 30 percent encompasses more than just the sticker price of the home: It should include all homeownership costs, likes mortgage interest, taxes, insurance, maintenance and any renovations you might want to make.

At the end of the day, "the sooner you get into the real estate business for yourself, the better," so do whatever you can to get in the game, as Corcoran puts it. That might mean starting small, she says: "If you're thinking about buying your first one-bedroom, change your thinking — buy your first studio instead. If you can't afford a good studio, buy a little studio, the reason being is you want to trade up.

"Every single person who is living in a multimillion-dollar home started with something smaller that they didn't find acceptable. Lower your standards. Get something small so you have a chit in the game, and you can trade up the studio to a one-bedroom, two-bedroom, four-bedroom house."

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Real estate mogul Barbara Corcoran: Use this simple formula to figure out how much to spend on your first home | CNBC Make It.

[jessekuntz]

"if you make $125k, you're loaded." Not if you live in places like Seattle, SF, NY etc. A $500k house in Seattle is a tiny fixer upper.

[axl]

“Makes $125, 00 you’re loaded you can buy that half a million house”

Laughed in Californian.

[Johnny-Joseph]

Imagine being able to find a $200k house o.o

[orangeboy]

I'm living with my parents, and for that reason I'm out

[owengunter]

I'm Barbara and for that reason I'm out.

[jvansickle]

I think this is bad advice. Do not be house poor! Spent less than 3x your salary. Keep payments under 25% of your after tax income

[daveh]

Anyone else feeling that this video is SCREAMING YOU'RE POOR AT YOU?
Houses in Toronto Starts at 1 million for a shitbox.

[finance]

30%? Any other milllenials out there instantly laugh, then cry?

[MattSezer]

The big problem in a place like NYC are coop maintenance fees, which in many cases are at least half of what you mortgage payments would be. I guess based on this, a maintenance fee would include more than what is considered to be "housing costs, " since in addition to property taxes, it includes upkeep and at leas some of the utilities. Still, it seems like you can afford a lot more expensive home if it's freestanding rather than part of an apartment building. Also, coops often have stricter income requirements than banks.

[tixibdu]

I live in San Francisco, and for that reason. I’m out

[rajaouipalestini]

My poor dad teach me to never buy a house to live in it. But invest my money to bring more money.

[sadtoy]

I don't own a house but I do use common sense. What I mean by that is: what's your yearly income, monthly expenses, are you at risk of getting laid off, how much do you have in savings, how much student loans do you have (if any), what's you and your partners combined income (wouldn't recommend this because everyone gets a divorce and ends up selling the house anyway), etc. It surprises me how people are willing to sacrifice themselves for a house that they can't afford and how banks give them mortgages.

[Marinate]

40K sitting around to have 20% stacked up to buy a dump in ok I’ll keep renting in South Florida.

[fancyflower]

I feel like there’s some disconnect somewhere with these housing advise Or maybe it’s just because I live in NYC.

[damn]

I’m going to McDonalds. You guys want anything?

[kevinschmidt]

In Canada 4x your salary will buy you a 1 bedroom condo that's ~500 sq ft and the building is 60+ yrs old and needs renovating in an area of town you can't go out at night.

[cmac]

30% of my take home pay is roughly $400 😕 I am looking into alternative housing

[Kneephry]

4 times your salary? Don't fret about having 20% down? Is this a financial advisor or a paid advertisement by a realtor agency?

[ashleywallace]

So, basically I can never afford a house. Thanks for the heads up!

[j.hernandez]

That is not sound to me. I was told by a wealthy man one time that your mortgage payment should be no more than your take home a week. Which if you think about it is pretty fair. If all else fails you can at least pay your house. It's a lot easier to get the power back on than being foreclosed on. Just my thoughts.