How much house can you afford?​

How much house can you afford?

I have a friend who is in the market for a new house. And as we discussed his upcoming purchase, I encouraged him to run the numbers and make sure that what he was shopping for was something he could truly afford.

This resulted in the following finanical model being born and I liked it so much that I figured that I’d share it here as well to help anybody else that may be shopping for a home right now too.

How the model works

Financial models are prepared so that a user can input a set of values (designated by blue text) and in return a table is generated displaying a range of results.

In our model, we have three variables that we are manipulating.

Once a user inputs their values for each of these variables, a range of results is produced within a table. The middle row of the table is in bold and that is the baseline from the user’s inputs. Above and below that is a deviation from the user’s baseline of +/- 2%, per row.

What is the purpose of this?

The purpose of this model is to check if your designated sale’s price, interest rate, and annually salary comply with Dave Ramsey’s 25% rule; which essentailly says that out the door each month, your mortgage payment, at maximum, should be 25% of your take home pay.

Why is this important?

You’ll learn in this world that most people don’t give a damn about you, they just want your money. And that couldn’t be more true in real estate.

Your agent isn’t on your side, and your loan officer isn’t on your side.

So don’t think they are.

Just like every other sociopath in America, they only care about themselves. As a result, your loan officer and real estate agent are going to do everything in their power to get you to buy the most expensive home they can because it results in more money going in their pocket at the end of the day.

Don’t buy into it. Don’t let someone trick you into becoming house poor. Because with proper budgeting, not only can you find a house within your budget, but when you do you’ll still be able to take those vacations and spend money on Christmas and Holidays without having to leverage debt in order to do so.

Debt is dumb, cash is king.

Stay woke.