Finally, apply the 10% rule.
Take your monthly income and divide it by 10. Your total car costs each month should be no higher than that. That includes your car payment, insurance, maintenance, and gas. (Your insurance company should be able to give you an estimate before you buy the car.)
First, calculate your monthly take-home pay, then multiply it by 0.70 to get the amount you can spend on living expenses and discretionary purchases, such as entertainment and travel. Next, multiply your monthly income by 0.20 to get your savings allotment and 0.10 to get your debt repayment.
The property must undergo an FHA appraisal to meet government health and safety standards. If your credit score is 580 or higher, you can make a down payment as low as 3.5%. For credit scores between 500 and 579, the minimum down payment required is 10%.
The premise is simple: pay an extra 10% of your monthly mortgage payment toward the principal each week, which can allow you to pay off the loan in approximately 15 years while lowering the amount paid toward interest.
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (including principal, interest, taxes and insurance). To gauge how much you can afford using this rule, multiply your monthly gross income by 28%.
This rule is basically to avoid paying the sticker price. Instead, look to buy at least 10% under the listed price. In real estate, there's a saying that most of the return is made at the time of purchase. Meaning that most of the money is made on the purchase rather than rental income.
How much is the down payment for a $400K house? You'll need a down payment of $12,000, or 3 percent, if you're buying a $400K house with a conventional loan. Meanwhile, an FHA loan requires a slightly higher down payment of $14,000, equivalent to 3.5 percent of the purchase price.
The FHA flipping rule requires investors to hold properties for at least 90 days before selling to FHA buyers. This rule impacts property flipping plans by imposing additional scrutiny on sales within 91-180 days. Investors need to factor these timelines into their investment strategies.
Credit score requirements
Most first-time home buyer programs require a minimum credit score, often around 620, to qualify for conventional loans. However, some programs, like FHA loans, are more lenient, allowing scores as low as 580 or even lower with higher down payments.
Here's an example: If you make $3,000 each month after taxes, $1,500 should go toward necessities, $900 for wants and $600 for savings and debt paydown. Find out how this budgeting approach applies to your money.
The 40/30/20/10 rule is a budgeting framework that separates what you earn into categories for spending your after-tax income: 40% for needs. The biggest category for most people is day-to-day needs. This includes housing, utilities, transportation, health care and groceries.
It can work well if your essential expenses are within 50% of your income and you want a balanced approach to spending and saving. 70/20/10 Rule: May be better if you aim to save more aggressively or have higher essential expenses that exceed 50% of your income.
Those will become part of your budget. The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings. The savings category also includes money you will need to realize your future goals.
A person making $60,000 per year can afford about a $40,000 car based on calculating 15% of their monthly take-home pay and a 20% down payment on the car of $7,900. However, every person's finances are different and you might find that a car payment of approximately $600 per month is not affordable for you.
How much should you put down on a car? A down payment between 10 to 20 percent of the vehicle price is the general recommendation.
Exceptions to the Rule: When You Can Have Multiple FHA Loans
The FHA recognizes that life circumstances can necessitate having more than one FHA loan. To be eligible for a second FHA loan, you must have at least 25% equity in your home or have paid down the FHA loan balance to 75% in certain circumstances.
The FHA 90-Day Flip Rule
If the timeframe from the new home sale contract and the ownership of the property is less than 90 days, FHA lenders will likely decline the mortgage approval. Therefore, as an FHA home buyer, you must wait at least 91 days before you can sign on the dotted line for your property.
If you're currently in the market looking to buy a triplex or fourplex with FHA financing, you need to see if the property's rents pass the Self-Sufficiency Test. To be “self-sufficient” means that 75% of the property's rents need to cover the monthly payments.
To comfortably afford a $600k mortgage, you'll likely need an annual income between $150,000 to $200,000, depending on your specific financial situation and the terms of your mortgage. Remember, just because you can qualify for a loan doesn't mean you should stretch your budget to the maximum.
Putting down 20% of the home's purchase price is a traditional and ideal down payment option. For a $400,000 home, a 20% down payment would be $80,000. This option may help you avoid private mortgage insurance (PMI) and can lead to more favorable loan terms.
A $150,000 30-year mortgage with a 6% interest rate comes with about an $899 monthly payment. The exact costs will depend on your loan's term and other details.
Key Considerations: Proximity to essentials, transport connectivity, neighborhood quality, and future developmental prospects. Base your decisions on data, not on gut feeling. Essential Tools: Market studies, comparative analyses, and on-ground visits.
The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.
One of the best things I ever did for my financial mental health was not care about purchases below 0.01% (1/10,000th) of my net worth. So, if you have $10k, you shouldn't think twice about spending $1. If you have $100k, don't worry about $10, etc. I call this the 0.01% Rule.