How Much Should I Make to Get a $450,000 Home?

how much should i make to get a $450,000 home
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Thinking about buying a nice home? It is the American dream after all. Houses come in all price brackets, but if you’re wondering how much should I make to get a $450,000 home, I’ve got the answer for you here. Read on to find out.

how much should i make to get a $450,000 home

How Much Should I Make to Get a $450,000 Home?

There is a pretty simple calculation to determine how much you should make to buy a $450,000 home.

It suggests that you shouldn’t spend more than 28 percent of your yearly salary on your mortgage payments.

So, if your mortgage payment on this home is $1,800 dollars per month, you would need to make $6,428 dollars per month or $77,000 dollars per year.

Here’s a free calculator that will show you what you need to make to buy the home you’re dreaming of.

That’s simple enough but wait a minute…

There’s more to it than that.

How did we get to that $1,800 monthly mortgage payment?

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Your Downpayment

There’s no getting around the fact that you will have to put down a downpayment.

Unless you want to have to buy private mortgage insurance, you will need to put down 20 percent.

That means to buy this $450,000 dollar house you will need to come up with $90,000 dollars for the downpayment.

You will then actually be financing $360,000 dollars.

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Your Interest Rate

This monthly payment is based on you receiving a 4.5 interest rate.

If your rate is higher, then your monthly payment goes up and the required annual salary to afford this home will go up as well.

If you are lucky and get a lower interest rate, then you can make less to afford this home.

The rate you receive will all depend on your credit score and your debt to income ratio.

The debts you currently have will impact your credit score and your ability to afford this home as well.

If you don’t know your credit score, you can get a free credit report once a year.

You will want to do this anyway before you buy a home to ensure that everything reported on the report is correct.

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Your Closing Costs

You’ve got the downpayment, but now you have to cover closing costs. They can be thousands of dollars.

You’ll find that they tend to run between 3 and 5 percent of the loan amount.

So, in this example, your closing costs could be anywhere from $10,800 to $18,000 dollars.

You will need to be able to pay these at closing.

Realtor fees will be paid by the seller, so that’s something at least.

You can learn more about closing costs and how to afford them here.

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Your Mortgage Term

The above example assumes you will be getting a 30-year mortgage and a fixed-rate loan.

If you decide on a shorter-term mortgage then your payments will be higher, but you will save money over the long run.

You do want to make sure that you get a conventional loan and not an adjustable-rate mortgage. 

There is too much risk with an adjustable rate that the rate will go up and then you won’t be able to afford your mortgage.

That’s what happened in 2007 and 2008 when so many people lost their homes.

They had adjustable-rate mortgages that allowed them to buy their homes and make smaller monthly payments…at first..but when rates went up so did their payments and they ended up losing their homes.

As a homebuyer, it is up to you to understand exactly what loan type you are getting before you sign on the dotted line.

Always ask for and demand a fixed-rate mortgage.

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You’d be surprised what banks and lenders try to get away with sometimes.

When a friend of mine bought her current home, at the closing, they switched the type of loan from a conventional loan to an adjustable one.

At that point, she was kind of stuck and went ahead and accepted the loan but she immediately went elsewhere and got a new mortgage with a fixed-rate loan.

It was a real bait and switch by the bank, but things worked out fine.

Keep in mind, her house was super cheap, so even if the mortgage payments went up, she could still afford them. She just didn’t want to pay all that extra interest.

The only reason she went through with it was it took two months to get to closing and she really wanted the house. She just didn’t want to have to start all over and the sellers would have been pretty upset as well.

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Your Monthly Debt Payments

So even if you make enough money to get the lender to give you a loan, you have to ask yourself if you can really afford it.

Do you have the funds if something happens?

Take a hard look at your debt to determine if it makes sense buying a $450,000 dollar house. 

What happens if you lose your job?

Do you have an emergency fund?

Will the other debt you currently have make it difficult to pay your mortgage?

Are you going to be stretched too thin?

The point is, just because the bank says you can afford the loan doesn’t mean you really can.

If trying to come up with $1,800 or $2,000 dollars each month to keep a roof over your head completely stresses you out, then maybe you should consider a less expensive house.

To Sum it All Up:

A new home is a wonderful thing. Determining the needed salary to buy a $450,000 home isn’t difficult, but there is a lot that goes into whether or not this purchase is right for you and whether or not a $2,000 loan payment will work out for you in the long run. 

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