Can you afford that house payment?

One of the reasons for the housing bubble bursting was people buying homes they couldn’t afford.  I don’t want to rehash all the reasons for this mess, but instead give you a different way of figuring out how much house you can afford to buy, and some insights on protecting yourself in these turbulent times.

Banks usually base payments on 28 to 33% of net income.  If the household take home income is 50K per year, at 28% that translates into a payment of $1,166.66 per month including principle, interest, taxes and insurance.   Using 33%, we come up with a payment of $1375.00.

Let’s explore an entirely different way to calculate your payment.  My method bases your house payment on the minimum wage of the state in which you reside.  I’m going to use $7.25 per hour because that seems to be the minimum wage figure in the majority of states.  I’m also going to include two wage earners in the household because that seems to be the norm.

Two people working full time at a minimum wage job will make approximately $2400.00 per month in gross salary.  Let’s be generous and say taxes and deductions come to $100.00 per person.  That means the net income to the household  is $2200.00.  When you figure 28% of that figure you come up with $616.00 for a house payment.  My husband and I are in our third house.  We have never had a house payment over $700.00 (PITI).  And, after finally sticking to Dave Ramsey’s way of managing money, we haven’t had car payments for over 20 years.

We live in unsettled times.  We have a maniac in the White House who is spending money that hasn’t even been printed yet.  Jobs are disappearing and new ones are not forthcoming.  There are people losing their jobs who believed it “could never happen to them.”  If worse came to worse and the two wage earners of the house were reduced to working minimum wage jobs, they would be able to keep a roof over their heads without too much trouble by using my “minimum wage” calculations.

To survive these turbulent times, one needs to become more self-sufficient and not be  not drowning in debt.