How Much Home You Can ACTUALLY Afford (By Income)
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COST OF HOME WHEN BUYING:
First: Your mortgage.
In most cases, this is broken down between a mix of principle and equity, usually amortized over a period of 15 to 30 years – at which point, your home is paid off, in full.
Second: Property taxes.
This is typically based on a percentage of the purchase price, and it generally ranges anywhere from 0.4% to more than 2% of the property’s assessed value, every single year.
Third, Insurance.
This covers any damage that might happen to your property, and it's required by your mortgage company.
Fourth, Repairs.
In terms of how much this costs, some people use the 1% rule, which says you’ll spend 1% of your home’s value every single year on repairs – while others use the $1 rule, which says you’ll spend $1 for every square foot of livable space, every year.
Fifth, Other.
This encompasses potential HOA costs, landscaping, upgrades, routine cleaning, and every other part of homeownership you never really think of.
THE 28% RULE:
This states that you should spend no more than 28% of your monthly gross income on your mortgage payment, which includes property taxes and insurance. To calculate this, just take your monthly income – multiply that by .28% – and That’s the most you should be spending on housing.
THE 30/30/3 RULE:
No more than 30% of your gross income should go to your mortgage payment, property taxes, and insurance. You should only buy a property when you save 30% of the purchase price in cash (20% down payment, 10% buffer). Only buy a home that costs 3x your annual salary, maximum.
THE 9.35% RULE:
Essentially, the cost of ownership is largely going to consist of a 7% mortgage, 1.1% average property tax, 1% for repairs and maintenance, and 0.25% everything else – giving you a rough total of 9.35%. This means, you could take a $500,000 home – calculate 9.35% of that – and all of a sudden, you can see that it’ll end up costing you $46,750 per year, or $3895 per month, if you wanted to own it.
BUYING VS RENTING:
-If you don’t intend to stay in your home longer than at LEAST 7 years, renting will usually be cheaper.
-Renting is better if you can make a higher return from your down payment.
-Renting is better if YOU believe the market is going to go down, or – will stay completely flat.
-Renting is better because you have very little responsibility and upfront cost.
-Renting might be significantly cheaper than owning
HOWEVER:
-Long term (10-15+ years), owning tends to be the better choice.
-By owning, you’ll lock in your monthly mortgage cost until your home is paid off.
-By owning, there’s a psychological benefit that it’s “yours.”
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Dude I missed seeing these type of videos ! Currently watching it but cheers from your biggest and longest viewing fan from Colombia amigo !!!
Ah thank you! I figured I’d update this and make it specific for 2025!
Eh! Saludos desde Uruguay.
Wasn’t expecting you to bring up the hawk tuah coin. That made me laugh😂
😛
I’m 23 and just bought a $268k house making 70-100k a year in car sales. I’ve watched you for years and I have your knowledge to thank for a lot of it!!
I’m 29 and that’s exactly what I’m looking to do. I’d love to start $10k and under lot.
Do you have 80k in college debt? That’s what’s screwing me
@@skinz2820 2 year community college paid off, I did a $12,000 car loan at 19 and paid it off, then bought a 2nd car in cash, and have immaculate credit with only 3 credit cards. I have 0 debt other than the house, while almost maxing out my 401k, and planning to keep this house and rent it out in 7-10 years.
@@skinz2820 paid off my 2 years from community college and also paid off my auto loan. No credit card debt but 3 cards I use regularly. Immaculate credit score and money going into 401k every month.
@@skinz282080k? What did you goto school for and how much was entry level at the job you’re at now? I’m a degenerate, stuck in a cnc machine shop, trying to weigh my options
My landlord tried to make me pay for replacing expired smoke detectors… it’s always an argument when anything breaks if he is responsible for fixing it.
Yikes…yeah, Landlord’s (to my knowledge) are always responsible for providing smoker detectors
Take your landlord to court. I just took my apartment complex to court for charging me after moveout for normal wear and tear and they are settling with me because it’s cheaper to do so and I would win in court. Some landlords try to see what they can get away with and smoke detectors is definitely the landlords responsibility.
@@GrahamStephan they write all kinds of stuff into the contracts, and it’s far worse than a toss-up whether any of it’s legally unenforceable
My contracts is i supply the smoke detection devices but tenants are responsible for battery replacement 😅
If there is a fire in the house, and someone living there gets hurt, the landlord has opened him or herself to huge liability.
Went full ‘Dave Ramsey’ years ago. Paid cash for our home, got completely out of debt and started saving 40% of our income. It’s weird, because once a person starts saving, the less they really want to spend buying things.
Well done!
Yea but you part of the 1% the middle class cant do that.
You said weird. Ramsey would be proud.
That’s true, especially if you pay off debt by selling things. I feel like I got a true wake up call when trying to clear out things a while back and finding that things were actually only worth 1/10th of what I spent. It makes me not want to spend on things that are just going to be garbage in a few years.
@@followthelies4 Worse when you find things you have not even used… and used high interest credit to pay for.
The key is to buy and hold. Buy something you can afford and hold it. Real estate is a great investment, and it’s worth the money even if it costs you a little more because you’re living in it
Totally!
The only regret I have in real estate is selling any property!
it’s not just interest rates. It’s people locked into expensive houses who can’t sell because of those rates. People who bought are litteraly stuck where they live because moving would cost twice as much. Realistically houses need to crash. Especially if rates go higher and wages stay stagnent.
The only way to unfreeze the housing market is for rates to come down. It will create more buyers and sellers although usually that does bring prices down with it eventually. But the other aspect is if someones home drops in value are they really going to want to sell, I mean the crap houses definitely people want to get out of those but imagine someone is chillin in a really nice home and their house drops in value they are more likely going to just stay where they are at until prices come back up which could take a really long time depending on how long it takes
@@kpuff8282 Prices could come down as well, and they are in many parts of the country. If rates do go back down to 3% we are going to have a lot of other problems happening in the economy. We are only slightly elevated from normal interest rates historically right now, which is why I never bought into the FOMO tactics of Real estate agents when rates were low. I wasn’t ready to live somewhere 20 years so if I had to sell my home when interest rates inevitably rose I knew I would be in a world of hurt. The other way they could unfreeze is if wages rise rapidly, which has happened. It’s likely going to be a bit of everything, prices coming down some, interest rates coming down to maybe 5% or so, and the real estate market is going to be flat for awhile so inflation will pseudo bring the price down as well.
The median income working individual in the USA ($60K/year) can’t afford a house that costs more than $200K. The median priced house in the USA today costs $400K-$450K. Let that sink in. Even the few ‘tiny home’ house subdivisions that are being built in some parts of the country tend to cost $250K-280K. Sounds like a recipe for disaster really, compared to how things were 40-50 years ago, or even 20 years ago for that matter.
Average people can’t buy incredibly lucrative and desirable things. Only people with high incomes can. This is pretty standard throughout the world.
The fact that we just bought a $1.3m house on a $230k combined salary terrifies me haha
Two words: move inland. Housing is only expensive in places where everybody is fighting tooth and nail to live. Drive 45 minutes outside of town, though, and house prices plummet.
@@ruizspeaces , that would scare the $hit out of me!
if you just find a wife and she earns the average too, you can afford the median house no problem, why would you buy a house if you don’t want to have a family anyways.
I like it. Feels like Graham’s old school videos.
Ah thanks!
As someone who’s been through the fixation on home ownership instead of making sure things make financial and life sense…. Detach from the emotion and really think it through. Both from a ‘do I want this lifestyle’ perspective and a ‘run the numbers’ perspective. Vids like this and even deeper dives into actual cost and what it’s like to own a home are awesome. FWIW I’ve owned 3 homes, the first was an absolute financial and lifestyle disaster. The lessons learned from that made the next 2 AMAZING lifestyles and both mega profitable. Be patient, be smart!
Yeah, regardless of what the numbers say, if you don’t have a bit of a DIY streak in you, maintenance will kill you. It basically costs $300 to have a skilled trade even look at your house nowadays, so if you’re skittish with basic plumbing and wiring tasks, renting might be for you even if the math says it’s not financially optimal.
@@bvoyelr Truth. Friends in skilled trades work too, swap skills or just pay them more than they make hourly at their day job, everyone is happy!
My biggest struggle with these types of videos is that it always refers to total house price, but since everyone has different amounts of down payment saved, wouldn’t it make more sense to say how much mortgage (how much you can borrow) you can afford based on your income.
I can tell you if you make $80,000 and you pay $2,000 for rent, you’re going to be broke your whole life and crushed when the landlord increases your rent.
You should be able to survive with a income and rent payment of that amount. You probably could save about 5-10K a year. In 10 years you have enough for a 400K house.
You really should be fine if those are your income and rent numbers. You still have a few thousand dollars every month for non-housing expenses, which for a responsible person means a really good amount for retirement investments. Though if you don’t live in an HCOL area you should be able to find places for less than 2k/mo, so my concern would be that this person probably isn’t known for being financially conservative.
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A key factor often overlooked is that over 25% of new homes are being acquired by investors, rather than individuals seeking primary residences. Even if Baby Boomers decide to offload their properties or more housing stock enters the market, it won’t alleviate the underlying issue. Wealthy investors will continue to absorb the available inventory, which will keep home prices elevated.
There’s also a lack of discussion about the role that major financial institutions-banks, private equity firms, and giants like BlackRock-played by purchasing properties post-2008, treating them as investment assets. It’s impossible to fully understand the current housing crisis without acknowledging this trend. Additionally, larger luxury properties are inherently more profitable than smaller, more affordable homes, leading developers to prioritize luxury developments for higher returns.
I expect home prices to decline in the future, but for now, I recommend diversifying investments away from real estate. With high mortgage rates, recession signals, and stricter lending standards, shifting capital into financial markets or commodities like gold is a safer strategy. Housing prices may need to drop 40-50% before the market stabilizes. In times of uncertainty, seeking independent financial advice from a knowledgeable expert is crucial.
This sounds promising! Do you have any professionals or advisors you could recommend? I really need help with proper portfolio allocation.
Certainly, there are a handful of experts in the field.
I’ve experimented with a few over the past years, but I’ve stuck with Jennafer Beaver Turner for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
I just copied and pasted Jennafer’s whole name into my browser, and her website appeared right away. You’ve saved me several hours of arduous research, therefore I appreciate it.
Damn owning a home now is insane. Wish i bought one before 2020 and got a 3% mortgage. Some people are set with cheap monthly payments now and a lot of equity. KISS those days goodbye for new buyers.
Don’t have a job = can’t afford housing.
Have a job = can’t afford housing.
So why have a job?
I’m closing in on my retirement and I’d like to move from Regina to a warmer climate, but the prices on homes are stupidly ridiculous and Mortgage prices has been skyrocketing on a roll(currently over 7%) do I just invest my spare cash into stock and wait for a housing crash or should I go ahead to buy a home anyways?
You have a very valid point, I started investing on my own and for a long time, the market was really ripping me off. I decided to hire a CFA, even though I was skeptical at first, and I beat the market by more than 9%. I thought it was a fluke until it happened two years in a row, and so I’ve been sticking to investing via an analyst
This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? i’m in dire need of proper portfolio allocation.
I’ve shuffled through investment coaches and yes, they can be positively impactful to an individual’s portfolio, but do your due diligence to find a coach with grit, one that withstood the 08′ crash. For me, Lisa Grace Myer turned out to be better and smarter than all the advisors I ever worked with till date, I’ve never met anyone with as much conviction.
The issue is that either the renter or the owner must in some way pay insurance and property taxes if they want a “permanent roof” with utilities like electricity, gas and water. Because of this, many people—at least in California, where I currently reside—are living in tents. No taxes, rent, mortgages, or insurance. The number of people who tell me they live in their car that I meet amazes me. Its crazy out here!
If anything, it’ll get worse. Very soon, affordable housing will no longer be affordable. So anything anyone want to do, I will advise they do it now because the prices today will look like dips tomorrow. Until the Fed clamps down even further, I think we’re going to see hysteria due to rampant inflation. You can’t halfway rip the band-aid off.
Home prices will come down eventually, but for now; get your money (as much as you can) out of the housing market and get into the financial markets or gold. The new mortgage rates are crazy, add to that the recession and the fact that mortgage guidelines are getting more difficult. Home prices will need to fall by a minimum of 40% (more like 50%) before the market normalizes.If you are in cross roads or need sincere advise on the best moves to take now its best you seek an independent advisor who knows about the financial markets.
@@PASCALDAB I will be happy getting assistance and glad to get the help of one, but just how can one spot a reputable one?
I’ve stuck with SHARON ANN MENY since the pandemic, and her performance has been consistently impressive. She’s quite known in her field with over two decades of experience, simply look her up.
@@PASCALDAB Thank you for this tip. It was easy to find your coach. Did my due diligence on her before scheduling a phone call with her. She seems proficient considering her resume.
Best way I have explained it is tell people how much they would be paying in interest. Most of the people are never putting down 20% or more especially younger homebuyers and once they see how much would be paid in interest rent looks a whole lot better.
Retirement isn’t about stopping work; it’s about having the freedom to choose what you want to do. Invest wisely today to secure your options for tomorrow.🇺🇲
I recently sold half my tech stock holdings due to all-time highs, leaving me with $400k. Should I invest in ETFs now or wait for a market correction considering potential inflation?
Celebrating a $30k stock portfolio today from a $6k start. Investing wisely has given me time for family and future plans.
From $37K to $45K that’s the minimum range of profit return every week I thinks it’s not a bad one for me, now I have enough to pay bills and take care of my family.
James Clark’s market insights have consistently led to profitable decisions.
Sounds interesting. I was planning to invest some few £ in some coins, stack them up and leave them for a few years, but seeing this changed my mindset. Thank you very much
I refuse to buy. I literally pay 24% of my income monthly while renting (pre tax). If I bought a home in my state, that number would jump to 52%. This is based on the minimum down payment (3.5%).
Why would I ever buy when I can take 10% of my extra income and invest in the stock market and still be at 34% of my income which is 18% less than what it would cost me to buy a home.
This is the problem and why I laugh at Real Estate agents saying things like, “you don’t want to rent the rest of your life”….