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Q: how much apartment can he afford? ( Answered ,   3 Comments )
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 Subject: how much apartment can he afford? Category: Business and Money > Finance Asked by: bugbear-ga List Price: \$20.00 Posted: 01 Feb 2004 08:44 PST Expires: 02 Mar 2004 08:44 PST Question ID: 302442
 ```Suppose someone makes \$95k a year, has assets of \$30k, no debt and very good credit. How expensive an apartment can he afford?```
 Subject: Re: how much apartment can he afford? Answered By: majortom-ga on 01 Feb 2004 12:03 PST Rated:
 ```According to Affordable Housing Online, government agencies consider 30% of income to be the maximum affordable housing expense, inclusive of utility payments. See: Affordable Housing Online http://www.affordablehousingonline.com/affordit.asp The 30% figure is also found on the web site of the United States Department of Housing and Urban Development. This figure is of course based on assumptions about the other regular expenses faced by the tenant. See: CPD - Affordable Housing - HUD http://www.hud.gov/offices/cpd/affordablehousing/index.cfm Since you are stipulating someone with no debt and good credit, I will assume that the maximum "affordable" level of 30% is acceptable for this tenant. I will further assume average monthly heating expenses of \$50, electric expenses of \$30 and water/sewage expenses of \$20, figures which are reasonable for most parts of the country. The HUD web site does not specify after-tax income, so I will also assume that 30% of pre-tax income is acceptable. One month's share of \$95,000 is \$7,916.67. 30% of this figure is \$2,375. Subtracting our estimated utility costs, we arrive at a maximum acceptable rent of \$2,275 per month. This is the figure you requested: the most expensive apartment the tenant in question can afford. As for how many rooms this will obtain for him, and what sort of view, location, etc. he can afford, this depends entirely on the location; I recommend searching the rentnet.com site to obtain typical figures for various apartment sizes in any area of interest. See: RENTNET: Find Apartments for Rent http://www.rentnet.com/apartments/home.jhtml?lnksrc=ts5``` Request for Answer Clarification by bugbear-ga on 01 Feb 2004 13:22 PST ```Sorry, I meant how expensive an apartment can he afford to *buy*. This is a question about mortgages.``` Clarification of Answer by majortom-ga on 01 Feb 2004 14:22 PST ```According to the Affordable Mortgage Calculator service provided by the American Banking Association, and assuming a 30 year mortgage, an interest rate of 4.5%, 1% closing costs, a 5% down payment, closing costs of \$900, property taxes of \$1,000 per year, and a total of \$950 for homeowner's insurance (assumed \$400) and condominium association fees (assumed \$550), the buyer can purchase a home costing \$430,458.77. Note that the entire \$30,000 is committed to the down payment in this case. The monthly total housing payment would be \$2,216.67, which is 28% of monthly gross income. Affordable Mortgage Calculator http://www.aba.com/aba/cgi-bin/howbigNT.pl``` Request for Answer Clarification by bugbear-ga on 04 Feb 2004 18:37 PST ```Where do you get all these assumptions? For example, is 4.5% actually the going rate for mortgages? And isn't a 5% down mortgage a bad plan? What do you get if you put 10% down?``` Clarification of Answer by majortom-ga on 05 Feb 2004 11:24 PST ```My assumptions about utilities are based on my own bills (as an experienced owner, in a situation comparable to what you're inquriing about, of two condominiums and a rowhouse in different cities) and on comparisons with neighbors. The mortgage rate I specified is not unusual for the last several years; you can obtain the current rate offered by any bank usually just by walking in and looking at the "today's rates" sign, although you may do slightly better with other mortgage lenders. Make sure you use a Fannie Mae approved lender (ask). If you wish to try a different set of assumptions you should feel free to do so. Your question did not specify any of these factors, or a particular area. I suggest you use the Affordable Mortgage Calculator that I linked to in my answer in order to get an exact answer for your situation. I hope this resolves your concerns sufficiently. Thank you!``` Clarification of Answer by majortom-ga on 05 Feb 2004 11:30 PST ```I also encourage you to read research_help-ga's comment below. He is correct: the realtor.com calculator is much more realistic than the rather optimistic calculator that I located and you should use that one rather than the American Banking Association calculator. And of course before making final plans you should certainly consult with a real estate professional.```
 bugbear-ga rated this answer: and gave an additional tip of: \$4.00 `an ok answer; thanks.`

 ```I would suggest that the asker speak to a financial consultant or mortgage broker or some other knowledgeable person and not rely on this answer. I can assure you with 100% certainty that a person who makes 95K a year and has assets of 30K could not afford, not would they be approved by a lender to purchase a property that costs over 430K.```
 ```I plugged the numbers given into the Home Affordability calculator of realtor.com. Assuming 95K income per year, 0 debt, excellent credit, and 30K available for a down payment: a lender would approve financing for a home that costs up to 300K.```
 ```My assumptions about utilities are based on my own bills and comparisons with neighbors. The mortgage rate is close to current rates. If you wish to try a different set of assumptions you should feel free to do so. Your question did not specify any of these details. I suggest you use the Affordable Mortgage Calculator that I linked to in order to get an exact answer for your situation.```