How early is too early?

Question

I am currently paying off debt and plan to be done with $111k by Sep 2021 at the latest (plan to get some side hustles to speed that up). I want to purchase a property within 6-8 months of finishing my loan payments and ideally I would use this year to continue learning and crunching numbers on properties that I find for practice, but have no idea what my budget should be because I have no idea what loan amount I might get approved for...I would like to do FHA for the 3.5% down and looking at qualifications I should be able to qualify, but I feel like until I actually sit down and see what exactly I can get approved for, there is a huge gap in my planning...

Alex Olson · Answer

@Itia Dow I would not look into the loan side of things until late this year/early next. For now, I would watch webinars pod costs and books. And save save save so you can have the best chance at house hacking as you say. Buy a duplex or better yet four plex to maximize your fha loan. Make sure it will pay your mortgage or more with the other renters in place! Good luck and keep going!

Account Closed · Answer

@Itia Dow depends on a lot of stuff and the best way is to actually get preapproved.

But for rough numbers for FHA they will want credit score at least 580 but aim for 620 or higher, debt/income ratio to be under 45%, under 43% is even better. That includes your new mortgage payment including PITI or principal, interest, property taxes, and insurance, as well as PMI insurance.

But this will tell you about what you’d get approved for.

Find a mortgage calc online to get principal and interest. Use websites to figure out average property taxes for homes you’re looking for. Figure $100/mo for PMI to be safe and $100/mo for home insurance.

Example:

$200k house for 30 years at 5%

Thats $1074/mo principal and interest.

Lets say property taxes are $6000/year, so thats $500/mo.

Total per month would be $1074+500+100+100 = $1774/mo TOTAL

Lets say your credit report shows $1000/mo total in minimum payments due to creditors. Your total debt/mo with the mortgage would be $2774/mo.

For 43% debt to income ratio, you would need to earn at least (2774/.43) which is $6451/mo in gross income, which is $77,414/year.

Thats the reverse calculation they would do to figure out what you’re approved for but that’s how it works for the most part.

Itia Dow · Answer

Thank you all for all of the very helpful advice! I am definitely working on networking more (a very weak point for me but trying to really push past it) and am absorbing all of the podcasts that I can and working on crunching numbers on at least one rental a day