🧟‍♀️ How much house can I afford? Non-zombie update

[Deleted]

I know what I can actually afford mortgage-wise based on my budget, but I guess it is more of a question of what am I likely to get approved for. 

PDQ

I may be getting divorced and I'm trying to see if I'll be able to keep my house. I'll be looking to take out a loan for 80% of the current value of my house, so a total of $320,000 because I will have to buy out my H. 

My current annual salary is $83,367 plus another $5500 in bonus money.

I have no credit card debt, but do have 2 personal loans. One is currently around $30K and the monthly payment is $807 and the other is $16K and the monthly payment is $427. With no additional payments, the smaller loan will be paid off in 2024 and the larger in 2025. My current mortgage amount is $253,000 and the payment is $1183, obviously that amount will go up when/if I refinance.

My current FICO score is 798.

I know that there are different calculations that a lender looks at to determine whether or not they give you a loan, and I know that you guys can't tell me whether or not I'll get approved, but based on this information, how can I figure out what my chances are? Like, am I falling within the debt to income ratio they are looking for? Or isn't there also something about the mortgage payment not exceeding a certain percentage of your monthly pay? I'm not quite at the point of reaching out to a lender so I thought maybe you guys would be able to give me an idea or point me in the right direction of where I could research something like this. 

Let me know if you need any more info about my budget or anything, I'm basically an open book at this point. 

[wildrice]

What are the personal loans for? Is there any chance they might be partially paid by your H, or that they could be at least partially deducted from the amount you'd have to buy him out with?

I would be a little worried that regardless of what you might get approved for, your monthly payments might be too high. How much of that mortgage payment is currently going to taxes/insurance?

If you have about $1250 in debt payments and say a $1500 mortgage payment each month, that is going to leave you with (I'd estimate) less than 2k a month to budget for anything else. With kids to support I just don't know how that math would work. I assume things like utilities/insurance would eat up at least 1/4 of that.

Do you have cheaper options available in your area if you were to move? I totally understand not wanting to, but it might be your best bet.

[keweenawlove]

I'm far from an expert on this but my cousin worked as a mortgage broker for Quicken and said he had the ability to clear people for monthly payments up to 50% of their gross income. Not that anyone would actually recommend doing that!

[Deleted]

wildrice , the housing market where I live is crazy. I've only been in my house for 6 years and we paid $275K and the value is over $400K now. I've looked at stuff that is on the market right now and a decent place would cost me the same as it would to stay, if not more because even though we'd make a decent profit on our current house, I wouldn't have enough cash to put 20% down to avoid PMI.

Here is my draft budget:

Income: $5710
Mortgage: $1993 (this is my estimate for the new mortgage that includes escrow)
Auto Insurance: $125
Internet: $75
Netflix: $19
Cell phone: $175
Gas: $280
Personal Loan: $437.24
Personal Loan: $807.60
Electric: $230
Water: $50
Medical Bill: $50 (paid off August 2022)
Gym: $30
Acorns: $13
Groceries: $550

That would leave me with about $875/mth which would cover fun money and I would put money away for Christmas and then to build my savings. I'm anticipating a minimum of a 3% raise 1Q next year as well as my annual bonus which usually nets around $3k.

[wildrice]

Ok, that's not terrible. I think it's tight, but also I think you will be happier being divorced, so that isn't unimportant. I do think that if the debt is from joint purchases, your H should be responsible for at least some of it (or it should be deducted from what you owe him for the house). Hopefully that would help a little too?

[Deleted]

Dec 3, 2021 11:29:55 GMT -5 wildrice said:

Ok, that's not terrible. I think it's tight, but also I think you will be happier being divorced, so that isn't unimportant. I do think that if the debt is from joint purchases, your H should be responsible for at least some of it (or it should be deducted from what you owe him for the house). Hopefully that would help a little too?

We obviously don't have any sort of agreement in place yet because we haven't moved forward with anything, but with the numbers that I have run, it would include the difference in the debt that we are walking away with. My actual hope is to be able to get enough of a mortgage to buy him out and also cash out to payoff my smaller loan, to free up some money in my monthly budget, but I'm not counting on that. 

[laterz]

Don't forget to include home insurance.

[aprilsails]

That is a fairly tight budget, and you are going to have to talk to your lender to see what lending terms you can obtain. Until the personal loans are paid off, it looks like you will be foregoing all retirement savings. Is this acceptable? Do you have time to catch up? Just a question that should be considered in your calculations.

[kitty]

Is health insurance and retirement already factored in to your income in the above budget? I make a bit more than you but take home a lot less because of health insurance premiums, daycare FSA, 10% to retirement, and possibly higher state taxes. I echo pp's sentiments in which you might find a lender to approve you but that doesn't mean it would make for a comfortable budget

[Deleted]

To answer some questions - my estimated mortgage payment would include insurance and taxes.

When I have to start paying an insurance premium (I wouldn't agree to start my own coverage until the divorce is actually finalized) that would decrease my take home by about $80/mth.

I am not currently saving for retirement other than a 6% base deposit from my employer. My H and I have been in debt pay down mode so I put my contributions on hold. I was trying to bulk up savings more than just the $1k minimum recommended by Dave Ramsey, but have since agreed to give H our liquid savings less $1k for me to maintain an emergency savings, and that amount will ultimately be subtracted from whatever amount we agree to for me to buy him out.

I can do a couple of things here. If I can make the above budget work, one of my thoughts was to take my raise in 1Q 2022 and start adding that to my 401K. Another thing I might try to swing is taking out enough on my refi to pay off the smaller loan. Ultimately, once I get a bigger padding in my savings, I would take any left over money each month to pay directly towards debt. I'm also considering picking up a second job on the nights that my kids aren't home.

Right now my main focus though is getting my H off of the loan and being able to pay my bills every month and then work on the specifics, the main one being increasing my emergency savings. I don't love the idea of starting out with only $1k in savings, but I do have credit cards if there is an absolute emergency that needs to be paid for, though of course, that isn't ideal.

[dr.girlfriend]

This was years ago, but when we bought our house I got approved based on my salary alone, and was approved for about $300k on what was a $70k salary at the time. It would have been tight to pay it all by myself, but without other huge expenses like daycare, etc., I think it would have been possible. I don't know how the personal loans would factor in, though.  I also don't know how this all works in a divorce situation as opposed to a straightforward sale -- my biggest concern would be one-time expenses which you don't have the funds to cover, like transfer tax on the house or refinancing costs, etc. In my area I know when you buy/sell it costs you like 2% of the home's value on each end, which is pretty pricey when you're taking it off of $400k.

[kadams767]

When you refer to buying out your husband, what does that mean? 50% of the equity in the home? If that is the case, if the numbers you posted are accurate, you'd be coming out of pocket outside of the mortgage refinance just to pay him, wouldn't you? I don't see how you'd be able to take out even more on the mortgage to pay off the smaller personal loan unless you increase your LTV from 80% to a higher mortgaged amount.

[Deleted]

Dec 3, 2021 16:31:23 GMT -5 kadams767 said:

When you refer to buying out your husband, what does that mean? 50% of the equity in the home? If that is the case, if the numbers you posted are accurate, you'd be coming out of pocket outside of the mortgage refinance just to pay him, wouldn't you? I don't see how you'd be able to take out even more on the mortgage to pay off the smaller personal loan unless you increase your LTV from 80% to a higher mortgaged amount.

It wouldn’t be a 50/50 equity split. When we almost separated previously, we had discussed finances and him taking a lower amount than 50% to account for some other things. If the house value stands as it is currently I’d be paying him about $43-$48K.

[awkwardpenguin]

A conventional loan will want a back-end DTI ratio less than 45%, which you’re right on the cusp of. FHA loans are more stringent, with a back-end DTI limit of 41%. It’ll be tight to qualify, and they’ll only count bonuses that have two years of documentation.

I think it’s doable, but you’ll have to work closely with a lender and see.

[krystee]

When you’re calculating his share, remember that when you sell, you’ll lose a chunk of the equity on real estate agent fees and closing costs. I feel like some of that should be deducted from his equity too because if you sold instead of buying him out, he’d be getting that smaller cut.

[smsm24]

Dec 3, 2021 23:24:42 GMT -5 krystee said:

When you’re calculating his share, remember that when you sell, you’ll lose a chunk of the equity on real estate agent fees and closing costs. I feel like some of that should be deducted from his equity too because if you sold instead of buying him out, he’d be getting that smaller cut.

Agreed - when we split the equity in the house I bought with my x the agreed upon value was a realistic market value less real estate fees, closing costs and cost of improvement needed to sell.

[seeyalater52]

You say that beginning your own health insurance once the divorce is finalized would be $80/month. Is that just for individual coverage, or does that include your kids? If I’m remembering correctly some of the kids in your household predate your relationship with your current husband so just want to make sure you’re considering that he may not continue paying their coverage if they’re on his plan currently. $80 is cheap for individual insurance but REALLY cheap for family coverage so just wanted to make sure you were accounting for that.

[sadlebred]

I didn't see anything for kids' expenses in your budget. What about clothes, shoes, activities, etc.?

[ellipses84]

I think you should talk to a lawyer and a mortgage broker in your area, if you haven’t already. If your STBX is agreeable there may be less traditional options. I’ve heard of people being able to keep the children living in the family home until they finish high school, and then sell / buy out. The risk of this is that it goes up even more in value marking it impossible to buy out, but consider if you’d want to move elsewhere after that anyway and could split the $$$ profits. Even if you refinance in your name now and buy him out, there could be an agreement for a longer payment plan or some other financial asset trade off. I understand wanting to have a clean break but with kids you’ll be in contact about a lot of things anyway.

Will you get child support or have to pay child support? If he has to pay, financial support can continue through college if the kids go immediately after high school.

Does he have more/ less saved in retirement or more/less debts than you?

Who is providing medical for the kids and could that change?

How much will lawyer fees cost?

Have you refinanced in the past couple years with the low interest rates?

Your budget seems very tight. I encourage you not to give up everything else you are entitled to just so you can keep the house. Worst case, you can find something else that works with your budget even if it means a bit smaller place, less land or paying PMI. And it would be ALL yours. That being said, you’ll likely make more money each year and are willing to take on a side job, so it should also work out great if you can get the house in your name only.

[wanderingback]

I would talk to a lawyer and mortgage broker.
The budget is tight but doable if you have no other options, people live on $875/month for incidental spending all the time.
What are the personal loans for? Can some of those expenses be your husband’s?

I think happiness is more important than a house so I hope you can move forward with the divorce if that’s what you want and find a nice place to live even if it’s not your current house. Your salary looks to be enough to afford to buy a house. A mortgage broker would be able to tell you all the specifics.

[suzubell]

Where are you with a car? You don’t have a payment listed, so hopefully it’s paid off and new enough to last a few years?

[sadlebred]

Another thing you should ask an attorney-is child support required by state law in your state? IE You don't have to give it up in order to get the house. Nor should you!

[ohgillian]

Hey HRH Queen Dick I or suzubell can you take care of the bot/spammer? Thanks.

[suzubell]

Feb 9, 2022 10:32:22 GMT -5 westennity said:

In such a situation, I would most likely hire a good accountant who would calculate everything precisely so that I wouldn't have problems later

Feb 9, 2022 11:02:18 GMT -5 ohgillian said:

Hey HRH Queen Dick I or suzubell can you take care of the bot/spammer? Thanks.

I can’t delete here since it isn’t my board. Sorry 😩

[Deleted]

Non-Zombie Update!

We have not moved forward in the divorce process and are "working on things" so we haven't further discussed the equity split. I did get approved for a mortgage that would be for 80% of the estimated value of our home based on the income above, but I withdrew that application for the time being. I'm honestly still pretty sure that I want to move ahead with the divorce even though we are working on things, so I'm still trying to get my ducks in a row.

That said, I just accepted a job offer this morning that will be a 60% pay increase. This would bump me in to a higher tax bracket, and so I ran some very preliminary numbers, and if I put 10% in to my 401K and assuming $500/mth of insurance premiums, I would net somewhere around $7300/mth. So, yeah. I'm pretty stoked. Hopefully I'll be back in a few weeks with a new budget for review.

[egeiger]

@sameoldstory, congrats on the new job!

[dr.girlfriend]

@sameoldstory, Congratulations!!!

[heygrey]

@sameoldstory, congratulations! Thats a huge increase!

[isabel]

You can ignore me…

I would seriously consider putting the federal maximum into your 401k (which is $20,500 for 2022). You’re getting a huge raise here, so before you mentally spend it, take care of your future self. You’ll still net a significant increase, which will give you more wiggle room for your living expenses. If you do it when you start this new job, you won’t miss the money and any future raises go straight to you because you’re already maxing out retirement.

Doing so may also bring you back down into a lower tax bracket for your full earnings because your taxable income will be significantly reduced.

It felt like a shit ton when DH and I did this and we had to adjust our budget a bit to make it work, but I am so grateful that we did. I feel so much less anxious about spending our money freely now because I know we’re in great shape for retirement.

[Deleted]

isabel, that is great advice. For now while still married (so not having to pay insurance premiums) even maxing retirement I'd still be looking at nearly $2200 a month more than what I am netting now. And to know that I'll be able to save that amount even if I ultimately end up single and to have my future protected, will be well worth it. We are super behind in retirement right now and putting in the max plus the company match will get me pretty close to being on track for me as an individual.