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CAN YOU AFFORD IT? (House Edition!)



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so today we're going to be talking about

whether or not you can afford a house

that you are looking at or maybe

unfortunately you're in a situation

where you're already in a horse in a

house oh my god I might be leaving that

in there now I just want you guys to

know I just wanted to share an update

with you guys I'm going to be doing a

really massive holiday giveaway I don't

have the details for it yet but I'm

going to be giving away off for example

at least one free enrollment in my stock

market mastery course I might be giving

away a free membership to passion to

paycheck as well maybe a one-year

membership so I'm gonna be doing a

massive giveaway I'll keep you guys

posted on that but I want you guys to

leave me some comments in the screen in

the description of other things you

might be interested in whether it be

books or do you want Amazon gift cards

or possibly I don't know what iPhone

something like that let me know what the

major giveaway items are that you guys

would be interested in and hopefully I

can make it happen and you know give

back to you guys because you've given me

so much but anyways let's get to the

point of this video and talk about

whether or not you can afford a certain

house and we're gonna look at the

numbers and I'm actually going to be

using Dave Ramsey's numbers here as well

because I was doing some research and

he's like the really conservative side

and we're also going to share the

traditional advice out there as far as

whether or not you can afford a certain

house so first of all let's talk about

the traditional model of whether or not

you can afford a house the traditional

model says that you can take out a

30-year mortgage on a property and you

should be able to reasonably afford 35%

of your pre-tax income per month can go

into your housing expenses and this

should also include things like your

housing insurance as well just so that

way that's your total cost of your

housing payment as well as maybe your

taxes and things like private mortgage

insurance if you have PMI as well so

that's like your total housing bill

right there so according to the

traditional model that can be up to 35%

of your monthly pre-tax income on a

30-year mortgage now Dave Ramsey is very

conservative and he's honestly a genius

when it comes to helping people get out

of debt and he's definitely a big

inspiration to my channel so I want to

give him a shout-out in this video I'm

sure he doesn't need it but I really

like his model

as far as buying a house because this is

a very conservative approach he says

that a 15 year mortgage is the only way

to go don't even think about a 30-year

mortgage and the maximum housing payment

is going to be 25 percent of your post

tax income now notice over here we said

pre-tax on the traditional and Dave

Ramsey says even less 25 percent of your

post tax income is his guideline for

what you can reasonably afford for a

housing payment so let's go ahead and

crunch these numbers using $100,000 for

comparison's sake that would be like

$100,000 mortgage which is very

inexpensive but down at the bottom here

these are more practical examples

whereas the top one I just wanted to use

it for comparison sake so you guys could

see the drastic difference in the

monthly payments of the Dave Ramsey

model versus the traditional model okay

so if you had $100,000 as a mortgage for

30 years at 4% your monthly payment on

that 30-year mortgage would be 477 a

month which is obviously much lower than

most people are paying for their housing

payment for their mortgage now following

that Dave Ramsey model on the same exact

value of $100,000 on a 15-year mortgage

at 4% that housing payment is now 740 a

month so significantly more than that

30-year mortgage obviously because it's

a much shorter term so if we would have

followed this model let's say you were

trying to have a housing payment of 477

dollars a month

what would your salary need to be to

afford that following the traditional

model so according to that traditional

model if you had about sixteen thousand

five hundred dollars of pre-tax income

you would be able to reasonably afford a

housing payment of 477 per month now

following the Dave Ramsey model okay if

you had a housing payment of 740 because

remember he says that the 15 year

mortgage is the only option then you

would be 25 percent of 35 thousand 520

post okay now that number is a lot

closer to what most people probably take

home in fact many people out there

probably have thirty five thousand five

twenty pre-tax income all right so the

Dave Ramsey model is super conservative

and in your model may fall somewhere in

between there I just wanted to show you

guys the lenient side versus the

conservative side that way you guys can

get an idea

where your numbers should fall but if

you guys are looking for the best-case

scenario then I would follow that Dave

Ramsey model I mean those numbers are in

place for a reason this guy knows what

he's talking about all right so let's go

ahead and do a practical example now

okay so we know that the average salary

is forty four thousand one hundred forty

eight dollars and as such your post tax

salary assuming 33% taxes would be

twenty nine thousand one hundred

thirty-eight dollars per year as your

salary so if this was your salary if you

were the average person out there how

much house can you afford

now this isn't how much house you can

buy because you can buy a lot more house

than you can probably afford because

someone's gonna lend you that money but

this is about what can I actually afford

how can I be comfortable with my life

and not be burdened by a crazy housing

payment so following the traditional

model there okay on forty four thousand

one hundred forty eight dollars so your

pre-tax income on that salary is thirty

six seventy nine and following the

traditional model your housing payment

can be 35 percent event or 1287 per

month now how much house can that buy

you if we're assuming a four percent

interest rate on a 30-year mortgage then

you could afford a $270,000 house now

would I go out there if this was my

salary would I buy a two hundred seventy

thousand dollar house absolutely not I

don't think that you guys should follow

this traditional model I think that is

way too lenient and that would put most

people in a pinch as far as having a

almost a $1,300 a month housing payment

when you're only making about forty five

thousand dollars a year I think that is

way too high now let's look at the Dave

Ramsey model just to compare so 25

percent of your post tax monthly income

which would be about twenty four twenty

eight after we account for about thirty

three percent taxes that would mean that

your monthly payment would be 607 per

month that is what you can reasonably

afford now remember Dave Ramsey says a

15-year mortgage is the only way so you

could afford a eighty-two thousand

dollar mortgage for 15 years at four

percent interest that would be what you

could afford as far as the house so

that's just crazy to me guys that if you

follow the traditional model they say

you can spend two hundred seventy

thousand dollars on a house while Dave

Ramsey says you can afford eighty-two

thousand dollars worth of house because

he obviously says to do the 15-year

mortgage so where is your number gonna

lie it all depends on your tolerance for

risk and your comfort because if you're

somebody who is good in other areas of

your life as far as spending and you

have your budget under control maybe you

can afford more house maybe you'll be

leaning more towards the traditional

model but if you're someone who is super

conservative and you want to have a

positive cash flow of $500 or more to

invest or do something else with then

you're obviously going to be more

towards that Dave Ramsey that

conservative model as far as what you

can afford for a house I want you guys

to you know do these numbers for

yourself figure out what your what your

salary is what you make per year and

then go through the traditional model

and then the Dave Ramsey model and see

how much house you could realistically

afford given your current salary all

right I know many people make the

mistake of buying way too much house

than they can afford and there's a term

for this called house broke we mentioned

this in one of my other videos where

pretty much your monthly housing

payments eat up all of your income and

you got barely two nickels to rub

together at the end of the month so you

don't want to be in that situation but

then again if you follow that Dave

Ramsey model I don't know what kind of

house you're gonna find for $82,000

maybe you'll find a shed in the woods

depending on where you're looking but

anyways guys I thought this would be

kind of cool to compare these two and

give you guys an idea of what you can

afford for a house if you guys enjoyed

this video please drop a like if you're

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taking the time to watch this video

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