Can I AFFORD that? : ARDELL's Seattle Real Estate Blog

ARDELL's Seattle Real Estate Blog

Oct. 5, 2006 - Can I AFFORD that?

Today we are going to answer the question, Can I afford that? The price point is approximately $300,000. Since this is a minimal price for single family home, we need to answer the question, "How high can we go?" The target is to keep the payment at about $2,000 a month.

We have already ascertained that the house will likely be a 3 bedroom, 1 bath rambler style with a big lot and great schools. When looking at payment, we first have to subtract the monthly cost for real estate taxes and fire insurance. Each area may have different taxes. Today we are looking at Arrowhead Elementary where the annual taxes are expected to be $2,900 to $3,200 a year. We will set aside $300 a month for taxes and fire insurance, leaving $1,700 for the principal and interest, mortgage payment.

The First Mortgage is for 80% of the sale price. Let's put the sale price at $330,000 to open up the options a bit. 80% of that is $264,000. As of yesterday the rate for this situation would be 6.125%. That would put the payment on the First at $1,604. Whoops! Already getting close to the total! Let's look at the Second at 10% of Sale Price and a rate of 8.25%, that would be $33,000 and a payment of $247.92.

$300 T&I + $1,604 + $247.92 = $2,151.92 Total Payment at $330,000 sale price.

I am still amazed at times at my instincts :-) When I first met Mr. and Mrs. Adrianna, I told them to prepare to be $150 over the $2,000. I swear I hadn't looked at any property or done any of the numbers yet and LOOK AT THAT! $151.92 over the bogey! It scares me how accurate instincts become over 16 years of doing this stuff.

So if we can keep the taxes and insurance costs a little under $300 a month and the price at or under $330,000, we should be just fine.

Tomorrow...how much cash do we need to close. Stay tuned!

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Oct. 5, 2006 - re: Can I AFFORD that?

Posted by Adrianna

Along those lines, since we've been renting, we have no idea how much utilities are per month. Any idea so I can plug it into the budget?

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Oct. 5, 2006 - re: Can I AFFORD that?

Posted by ARDELL DellaLoggia

Honesty, no I really don't. Two reasons I don't. One, it is not part of the real estate purchase and sale equation. Two, many years ago when I started in real estate, I used to get utility bills from owners, but the differences between the person selling and the person buying were dramatic. It gave a false impression as often the people selling were empty nesters who were frugal with utilities and the buyers were people with 2 or more children who used a lot more water and electricity. One teenage girl can throw the numbers off the charts :-) Since we are not taking into consideration that rent is NOT tax deductible and your entire monthly payment IS mostly tax deductibe, I think it is safe to assume that those tax write offs might equal any difference in utilities. You pay your own electric now, correct? How about water? What utilities do you pay now and do you rent a house or an apartment? The only budget items that I factor into the equation are the ones that lenders factor into the equation, debt payments, car payments, etc...

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Oct. 5, 2006 - re: Can I AFFORD that?

Posted by Adrianna

Right now we pay electricity, which includes heat. If we buy a place that uses gas to heat, then I'd have no idea what to guess. Our landlord pays our water/garbage bill. I will ask a friend with twins what theirs runs and at least get a clue that way.

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Oct. 5, 2006 - re: Can I AFFORD that?

Posted by ARDELL DellaLoggia

I'll ask a friend who lives in a similar sized house in Kenmore.

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ARDELL DellaLoggia On Seattle Real Estate including Kirkland, Bellevue, Redmond, Green Lake and most areas around Lake Washington North of Downtown Seattle. Phone: 206-910-1000 - Mailto:Ardell@RainCityGuide.com