How Much Home You Can ACTUALLY Afford By Salary (Buying A Home Masterclass)

TL;DR

Many people rely on banks to determine how big of a home they can afford, but blindly following their guidelines can lead to financial trouble. It is important to consider factors such as income, debts, and savings before determining how much to spend on a home. Additionally, understanding the difference between an asset and a liability in terms of homeownership is crucial for building wealth.

Transcript

when most people go to buy a home they rely on their Bank to see how big of a home they can qualify for but if you're blindly trusting the bank's judgment as to how big of a home you can afford you are setting yourself up for financial disaster I'll show you if you were considering buying a 500 000 home your bank is going to look at four different ... Read More

Key Insights

• 👪 Relying solely on the bank's guidelines for home affordability may result in financial strain and limited ability to invest and save.
• 👪 Following a prudent financial system, such as the 75-15-10 plan, can help individuals determine how much home they can afford while still investing and saving.
• 🏛️ Understanding the difference between an asset (something that generates income) and a liability (something that requires ongoing expenses) is crucial for building wealth.
• ☠️ Supply and demand dynamics, as well as factors like interest rates and the economy, play significant roles in the housing market and can impact home prices.

Questions & Answers

Q: Can you explain the difference between the recommended 28/36 rule and the 43 DTI rule?

The 28/36 rule suggests spending 28% of gross income on housing costs and 36% on total debts. The 43 DTI rule allows spending up to 43% of total gross income on debt costs, including housing costs. However, following these guidelines may leave little room for investing and saving.

Q: Why do banks want to keep people in debt?

Banks make money by lending money and earning interest. The more debt a person has, the more money the bank earns. Therefore, it is in their interest to keep people in debt for as long as possible.

Q: How can individuals determine how much home they can afford?

It is important to consider monthly payment affordability, down payment, and moving costs. Following a prudent financial system, like the 75-15-10 plan, where 75% is spent, 15% is invested, and 10% is saved, can help determine affordability.

Q: Is it better to pay off a mortgage or invest in other assets?

Paying off a mortgage may provide homeowners with equity, but it does not necessarily build wealth. Investing in other assets, such as real estate or stocks, can provide higher returns and create more financial opportunities.

Summary & Key Takeaways

• Banks assess various factors, including income, debts, and credit score, to determine how much money they will lend for a home purchase.

• The recommended guideline is to spend up to 28% of gross monthly income on housing costs and up to 36% on total debts.

• Following the bank's guidelines may result in financial strain, leaving little room for investing and saving for the future.