How Much Money You Need To Afford A $500,000 Home (Don't Listen To Banks) | Summary and Q&A

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January 22, 2024
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Minority Mindset
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How Much Money You Need To Afford A $500,000 Home (Don't Listen To Banks)

TL;DR

To afford a $500,000 home with a 10% down payment, you would need to make at least $142,000 a year according to traditional banking rules.

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Questions & Answers

Q: What is the 28/36 rule and how does it determine home affordability?

The 28/36 rule states that your total monthly housing cost should not exceed 28% of your gross monthly income, and your total monthly debt costs should not exceed 36% of your gross monthly income.

Q: Why is it advisable to follow Dave Ramsey's plan when buying a home?

Dave Ramsey's plan suggests that no more than 25% of your net income should be allocated towards housing costs. This ensures that you have enough money left to invest and build real wealth.

Q: What factors should be considered when determining the affordability of a home?

In addition to the mortgage payment, the down payment and moving costs should also be considered. These expenses can have a significant impact on the overall affordability of a home.

Q: What are the pros and cons of making a larger down payment?

Making a larger down payment can help build equity in the home and potentially lower the mortgage payment and interest rates. However, it may require sacrificing cash that could be invested elsewhere or used for other expenses.

Summary & Key Takeaways

  • Following the 28/36 rule, a $500,000 home with a 10% down payment would require a $3,300 monthly mortgage cost, equating to an annual income of $142,000.

  • However, it is advisable to follow Dave Ramsey's plan, where no more than 25% of your net income should go towards housing costs. In this case, an annual salary of $233,000 would be necessary to afford the mortgage.

  • It is important to consider the down payment and moving costs when determining the affordability of a home.

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