Income NEEDED For Millennials and Gen Z To QUALIFY For A 450k House With A 6% Rate

Freddie Smith

11 Sept 202400:59

Summary

TLDRThis video script discusses the financial implications of a $450,000 mortgage with a 6% interest rate. It calculates that a 10% down payment and closing costs amount to $60,000 upfront. Monthly payments, including taxes and insurance, would be around $3,200. To qualify for such a loan, one needs a salary of about $100,000 with no existing debt, or $130,000 if they have $1,000 in monthly debt obligations. The speaker advises earning $150,000 to $175,000 annually to comfortably afford the house without becoming 'house poor.'

Takeaways

🏠 Purchasing a $450,000 house requires a 10% down payment of $45,000 plus closing costs of about $15,000, totaling $60,000 upfront.
📉 With mortgage rates at 6%, the monthly cost for a $450,000 mortgage, including principal, interest, property taxes, homeowner's insurance, and private mortgage insurance, is approximately $3,200.
💼 To qualify for this loan, you should ideally earn around $100,000 annually with no existing debt.
📈 If you have additional monthly payments like student loans, credit cards, or a car payment totaling about $1,000, you would need a salary of around $130,000 to qualify.
💡 It's recommended to earn between $150,000 to $175,000 annually to comfortably afford a $450,000 house at 6% interest rate, avoiding 'house poor' situations.
🔍 Mortgage rates are expected to decrease soon, potentially reaching 6%, which would affect the monthly mortgage cost.
🏦 The calculation assumes a combined cost for property taxes, homeowner's insurance, and private mortgage insurance of $200 per month.
📊 The script emphasizes the importance of not only qualifying for a loan but also ensuring that the house remains a pleasure rather than a financial burden.
💼 The script suggests that even if one qualifies for a loan based on income, it's crucial to consider the overall financial health and other monthly obligations.
🏡 The discussion highlights the total cost of homeownership beyond just the mortgage payment, including taxes and insurance, which are essential for a realistic assessment of affordability.

Q & A

What is the current mortgage rate mentioned in the script?
-The current mortgage rate mentioned in the script is 6.2%, with an expectation that it might soon hit 6%.
How much is the down payment for a $450,000 house if you put down 10%?
-The down payment for a $450,000 house when putting down 10% would be $45,000.
What are the estimated closing costs for the house mentioned in the script?
-The estimated closing costs for the house are about $15,000.
How much cash is required upfront to buy the house as described in the script?
-The total cash required upfront, including the down payment and closing costs, is $60,000.
What would be the monthly cost of a $450,000 mortgage at a 6% interest rate?
-At a 6% interest rate, the monthly cost of a $450,000 mortgage would be approximately $3,200, including principal, interest, property taxes, homeowner's insurance, and private mortgage insurance.
What is the minimum annual salary required to qualify for the loan without any other debt?
-To qualify for the loan without any other debt, one would need to earn about $100,000 annually.
If you have existing monthly payments like student loans or credit cards totaling $1,000, what salary is recommended to qualify for the loan?
-If you have existing monthly payments totaling $1,000, you would need an annual salary of about $130,000 to qualify for the loan.
What is the recommended annual salary to comfortably afford a $450,000 house at the current mortgage rate?
-The script recommends earning about $150,000 to $175,000 a year to afford a $450,000 house at the current mortgage rate without being 'house poor'.
What does 'house poor' mean in the context of the script?
-In the context of the script, 'house poor' refers to a situation where a significant portion of one's income is consumed by housing costs, leaving little for other expenses or savings.
Why is it important to consider more than just qualifying for the loan when buying a house?
-It is important to consider more than just qualifying for the loan because it ensures that you can comfortably afford the house without overextending your budget, which can lead to financial strain and a reduced quality of life.

Outlines

00:00

🏠 Mortgage Cost Calculation for a $450,000 Home

This paragraph discusses the financial implications of purchasing a $450,000 home with a 10% down payment and closing costs of $15,000, totaling $60,000 upfront. With mortgage rates at 6.2% and potentially dropping to 6%, the monthly cost is estimated to be around $3,200, including principal, interest, property taxes, homeowner's insurance, and private mortgage insurance. To qualify for such a loan with no existing debt, an annual income of approximately $100,000 is suggested. However, if additional monthly debts like student loans, credit cards, or car payments exist, totaling about $1,000, a higher income of around $130,000 is recommended. The speaker advises earning between $150,000 to $175,000 annually to ensure the home remains a pleasure rather than a financial burden.

Mindmap

Keywords

💡Mortgage

A mortgage is a loan used to finance the purchase of real estate, where the property itself serves as collateral. In the context of the video, a $450,000 mortgage is discussed, highlighting the financial commitment required to purchase a house. The script uses this term to illustrate the calculations involved in monthly payments and the total cost of homeownership.

💡Mortgage Rates

Mortgage rates refer to the interest rates on mortgages. The video discusses a potential drop in rates to 6%, which significantly impacts the affordability of a mortgage. Lower rates mean lower monthly payments, making home buying more feasible. The script uses the term to emphasize the importance of timing in the housing market.

💡Down Payment

A down payment is the initial amount of money a buyer pays for a property, typically a percentage of the purchase price. The script mentions a 10% down payment on a $450,000 house, which is $45,000. This is a significant upfront cost and is crucial for qualifying for a mortgage and reducing the loan amount.

💡Closing Costs

Closing costs are fees paid by the buyer and the seller at the closing of a property sale. In the script, closing costs are estimated at $15,000 for the example house. These costs are an additional financial consideration beyond the mortgage payment and are part of the total expenses associated with purchasing a home.

💡Interest Rate

The interest rate on a loan is the cost of borrowing money, expressed as a percentage of the principal. The video discusses a 6% interest rate, which is used to calculate the monthly mortgage payment. The interest rate is a key factor in determining the overall cost of the loan and the affordability of the monthly payments.

💡Principal

The principal is the original amount of a loan, the interest on which is being calculated. In the context of the video, the principal is the amount borrowed from the mortgage after the down payment. The script mentions that the monthly payment includes both the principal and interest, which together form the bulk of the mortgage payment.

💡Property Taxes

Property taxes are taxes paid to local governments as a percentage of the property's value. The script includes property taxes as part of the monthly mortgage payment, emphasizing that homeowners must budget for these ongoing expenses in addition to their mortgage payments.

💡Homeowner's Insurance

Homeowner's insurance is a type of insurance that covers private homes against disasters and other damages. The video script mentions homeowner's insurance as part of the monthly costs, indicating that it is a necessary expense for homeowners to protect their investment.

💡Private Mortgage Insurance (PMI)

Private Mortgage Insurance is required when a borrower makes a down payment of less than 20% of the home's purchase price. The script includes PMI in the monthly costs, which is an additional expense for borrowers who cannot make a larger down payment.

💡Qualification

Qualification refers to the process of determining whether a potential borrower meets the criteria for a loan. The video discusses the income requirements for qualifying for the mortgage, suggesting that a borrower would need to earn around $100,000 to qualify without existing debt.

💡Debt-to-Income Ratio

The debt-to-income ratio is a financial metric that compares an individual's monthly debt payments to their monthly gross income. The script implies the importance of this ratio in qualifying for a mortgage, noting that additional monthly debt payments would require a higher income to qualify for the loan.

💡House Poor

Being 'house poor' means spending a significant portion of one's income on housing costs, leaving little for other expenses or savings. The video script advises earning more than the minimum required to avoid being house poor, ensuring that homeownership remains manageable and enjoyable.

Highlights

A $450,000 mortgage with a 6.2% interest rate could cost around $3,200 per month.

A 10% down payment on a $450,000 house is $45,000.

Closing costs are estimated to be around $15,000.

Total cash needed upfront is $60,000 for a $450,000 house.

At a 6% interest rate, monthly payments could be approximately $3,200.

Monthly costs include principal, interest, property taxes, homeowner's insurance, and private mortgage insurance.

A salary of around $100,000 is needed to qualify for the loan with no existing debt.

If you have existing monthly payments of $1,000, a salary of $130,000 is recommended to qualify.

It's advised to earn between $150,000 to $175,000 annually to avoid being 'house poor'.

Mortgage rates are expected to drop to 6% soon.

The house should be a pleasure, not a financial burden.

The cost of the mortgage includes various fees and insurances.

The calculation assumes a 6% interest rate for the mortgage.

The down payment reduces the amount needed for the mortgage.

Closing costs are an additional expense on top of the down payment.

The monthly payment estimate includes all housing-related expenses.

Qualifying for the loan depends on existing debt and income level.

Higher salaries are recommended for a comfortable mortgage experience.