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I am nervous because my partner and I just agreed to start house-shopping. We haven’t gotten pre-approved yet because we would just like to see what is in our area first.

We both have stable jobs, although they don’t pay much. The only debt we have is him: a $ 10,000 auto loan and me: a $ 1,700 student loan.

Is it reasonable to think that two adults could buy a house if they both had full-time jobs that only paid a bit above minimum wage?

We did the multiply by 3 thing and have a few houses at or below that price. We would be hoping for an FHA loan and we have the required 3.5% down payment (for the price range mentioned above).

I just don’t want to get laughed at when we try to get pre-approved!

3 Thoughts on Is the rule of thumb “Multiply your income by 3 and that is what you can afford” actually reasonable?
  1. Reply
    February 28, 2014 at 3:54 am

    I actually heard that the “rule” was 2.5 times your income…and that was way higher than my husband and I figured we could actually afford. We made a budget where we listed all of our monthy income, expenses and savings goals, and from that we figured out what sort of monthly payment was reasonable for us. Our house is actually less than twice our income and we are comfortable and have left over money for decorating, fixing it up, etc.
    You won’t get laughed at when you try to get pre-approved…don’t worry!

  2. Reply
    February 28, 2014 at 4:00 am

    go and get pre appoved first there is no one in our field that will laugh at you. But you don’t want to waste a realtors timew say looking at $ 500,000 homes when you should be looking at $ 100,000 homes

  3. Reply
    Rush is a band
    February 28, 2014 at 4:42 am

    The rule of thumb is that you can afford a mortgage between 2x and 3x your annual salary. With interest rates quite low right now, the number usually works out to be closer to the 3x number than the 2x number.

    The problem with a rule of thumb is that it is too vague.

    Looking in more detail, you should follow the 28/36 rule. No more than 28% of your gross monthly income in a housing payment and no more than 36% of your gross monthly income for all debt payments. All debt payments include mortgage, car payment, student loans, personal loans and credit card minimums. One of these two numbers will limit you. These ratios are affordable and even though some lenders might let you exceed these, I’d recommend against it (some lenders during the boom allowed more than 50% debt to income ratio and we all see how well that turned out).

    A housing payment is comprised of 4 or 5 items. Principal and interest (don’t take out an interest only or ARM loan), homeowner’s insurance, real estate taxes and private mortgage insurance (if putting down less than 20%). Any amortization calculator can give you information about principal and interest payments, but the real wild cards are homeowner’s insurance and real estate taxes. I live near a coast and homeowner’s insurance is very expensive and can expose you to a lot of financial liability. Real estate taxes can also vary wildly – I have personally seen anywhere from 0.5% of value per year to 4.5% of value per year. The typical tax rate is closer to 1.5%, but they vary significantly! On a house valued at $ 200,000 taxes could range from $ 83 a month (0.5% of value per year) to $ 750 a month (4.5% of value per year)!

    PMI can also vary significantly depending on how much you put down, the value of the mortgage and your credit score. I’d guess it could range from $ 50 a month to >$ 200 per month.

    Your credit score will have a significant impact on your interest rate which is a strong influence on the payment as well.

    good luck!

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