So here is where I stand/can afford, Help lease.....

Buying & Selling Real Estate
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So here is where I stand/can afford, Help lease.....

Michael Dunn
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes

So I finally got my taxes back in , and I know my numbers , via what I can afford, and it's looking a bit grim ( grim in the sense that I can afford a lot less of a house than I initially thought I could ).

Here's a quick breakdown:

based on my last 2 years tax returns and dividing that by 24 months, my monthly income comes out to $1,350.

Using a DTI of 47% and of 50% , and my monthly debts being $200 a month , this only leaves me with being able to afford a Monthly note of $425 - $450

Now, here's the dilemma ...... I owe $2300 in taxes this year ( so that leaves me with $2300 less that I could use to pay down my monthly debts, thus increasing the amount of house I could qualify for , and also it now leaves me with less that I could use for a Down Payment )

Now I still have $2000 saved up, not counting the $2300 I'll have to pay in taxes. So what do fellow BP members suggest I do please?

I could use that $200 I have saved up and pay down my debts, but then I won't have anything saved up for a down payment, and if this is the case, my only 2 options are........1. go with a VA loan, which would allow me to get into a house with zero down payment OR 2. I'd have to go with the THDA down payment assistance program ( which I really don't want to do ) and yes, number 3. Just wait a bit longer, and save up some more money ( which I don't want to do ) lol

Sorry for the Long post, just needing some advice from those that may have an answer/ solutiuon - Thanks as always - Michael

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  • Scott E.
    Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes
    12y

    Hi Michael

    A DTI of 47% / 50% is very high in my opinion. I'm more comfortable with DTI in the 35% / 40% range, but maybe I'm just overly cautious.

    I suggest you get those taxes paid off. If you don't pay them off, the IRS will put you on a payment plan which will put you in even worse a position for back end DTI.

    MAYBE consider doing the VA loan and get yourself into a 3-4 unit to have your tenants help pay for the mortgage, but even that is high risk with your income situation. The last thing you want is 2 months vacancy in the other units and a NOD calling your name.

    It will really hurt to break into your savings. You don't want to use every penny of your emergency fund, but use a chunk to get that $2,300 paid down. From there, work on paying off the rest and building your savings back up while you're at it. Do whatever you can to beef up that savings account as quickly as possible, even if it means getting a 2nd part time job. Once you're in a better position savings wise, this will come much easier.

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  • Bob E.
    Queen Creek, AZ · Member since 2014 · 2k+ posts · 1k+ votes
    12y

    I agree with @ScottSwink, I think you are stretched thin. Pay the taxes first. If you are still determined to buy something I would look at a 3-4 unit building and move into one of the units. Just make sure you have enough free cash-flow that you can build a a solid reserve fund quickly to cover any maintenance.

    You might also want to approach some friends or family members and see if they will invest in the property.

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  • Edward Burns
    Rockford, IL · Member since 2013 · 330 posts · 62 votes
    12y

    Based on your income, you would probably only qualify for a $50K property, putting your payment including PITI around your $450/month figure (depending on insurance and taxes which I figured at about $125/month).

    As others have stated, pay your taxes (you do not really have a choice). Look into the VA loan and use the $2K to cover the closing costs.

    Note: If you are planning on buying thinking that the tax deduction will lower your taxes, I doubt that would be case. So your FIT and SIT will probably continue. Also, with your income and the amount of taxes owed, I would make sure I was paying FIT on quarterly basis as required so not to incur a penalty.

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