What Can $23 an Hour Afford When Buying a Home?
Let's say Jonathan brings home $23 an hour. He is an illustrative example, not a real client, but his question is one I hear in some form all the time: what kind of home can that wage actually put me in? The honest answer starts with math, not with a listing site.
Step one: turn the hourly wage into gross income
Lenders start with gross income, which is what you earn before taxes. A full-time schedule is 2,080 hours a year (40 hours times 52 weeks). Multiply that by $23 and Jonathan earns $47,840 a year, or about $3,987 a month. If your hours vary, lenders generally look at documented history, so the number that counts is what you can show you consistently earn.
Step two: the 28 and 36 guideline
A common guideline for income-to-affordability keeps the full housing payment at about 28 percent of gross monthly income, and all monthly debts together at about 36 percent. For Jonathan, 28 percent of $3,987 is roughly $1,116. Thirty-six percent is roughly $1,435.
Those two numbers do different jobs. The first caps the housing payment on its own. The second caps housing plus every other monthly debt, such as car loans, credit cards and student loans. Some loan programs allow higher ratios than these, so think of them as a starting frame, not a final verdict.
What counts as the housing payment
This is where many buyers get surprised. The housing payment is not just the loan. It is principal, interest, property taxes and homeowners insurance together. If you only compare a mortgage payment to your budget, you will overshoot. A home that looks affordable on the loan alone can land above the ceiling once taxes and insurance are added.
Why debts matter as much as the wage
Take the $1,435 total-debt figure for Jonathan. Every dollar of monthly debt he carries comes out of it. If he has a car payment and a couple of credit cards, what is left for housing may be smaller than 28 percent of his gross. That is why two people earning the same $23 an hour can end up with very different buying power. It also means paying off a debt can raise your ceiling, sometimes more than a small raise would.
Try this today
Here is the exact steps I would have Jonathan follow, and you can do the same:
1. Multiply your hourly wage by 2,080 and divide by 12 to get gross monthly income.
2. Multiply that by 0.36 and subtract every monthly debt you pay.
3. Multiply gross monthly income by 0.28.
4. Compare the results from steps 2 and 3. The lower number is your working ceiling for the full housing payment.
Then ask what that ceiling has to cover: principal, interest, taxes and insurance. Work backward from it to a home you can hold comfortably.
A note for the Charleston area
Here in the Charleston area, property taxes and insurance can differ from one property to the next. That is why I tell buyers to get both estimated early, before they fall for a specific house. Those two items can move the real payment, which moves your ceiling.
The bottom line
A $23 an hour wage does not have a single, fixed answer. It has a ceiling built from three things: gross income, monthly debts, and the full housing payment. Once you know your ceiling, you stop guessing and start shopping with a target. The program that fits best will depend on your situation, and that is the part I help sort out.
If you want me to run these numbers with your real income and debts, call me at 843-LOW-RATE. I find the path.
Home Loans Inc - Jason Sharon, Mortgage Broker. Company NMLS #1728740, Jason Sharon NMLS #1281448. Equal Housing Opportunity.
