Personal Balance Sheet – April 2013

April was a great month financially since we received most of the cash for selling my websites. That means we were able to pile a chunk of cash onto our various savings goals, which in turn, led me to look at houses more — not that I’m really that much closer to being able to afford one. But it definitely let me to look at how much house we can afford.

I think our balance sheet pretty much speaks for itself at this point, so here it is:

personal balance sheet april 2013

Our net worth is up significantly from a year ago and I’m really looking forward to busting through the $100k mark this year. Our investments were responsible for about $1k in our increased net worth (once you take out our contribution), with the rest mostly coming from the sale of websites (after taxes — which currently show as a liability) and just normal savings from our incomes.

I also removed the $2k travel savings goal from the widget just because that savings was meant for our honeymoon, which has been paid for, but also overlaps with the wedding savings/spending, so it really didn’t make sense to have it sitting on there.

My personal of losing weight also saw good results during April. The good news is that I am down 5 pounds from March 31st (and for the year). The bad news is that I am basically where I was on January 11th. However, I have to keep reminding myself that that’s just the weight. And while my goal is quantified in pounds, its the overall health the truly matters and I look and feel better today than I did on January 11th because I’ve been exercising a significant amount. I exercised a total of sixteen times in April (compared to two in January).

How Much House Can I Afford?

Home ownership is definitely something that’s in my long-term plan, but I haven’t quite figured out where it fits in. One important aspect of determine when I will buy a house, is determining how much house I can afford. I obviously don’t just want to buy a house for the sake of buying a house, so I won’t be buying until what I can afford aligns with what I want.

The eventual approval for a mortgage is a complicated process, but there are some simple calculations that can be performed to get an idea about how much house you can afford. For example, the FHA publishes its loan requirements on its website. Zillow also offers a quick-and-easy calculation of how much house you can afford. But before you rush off to run the calculation, let’s look at these ratios a bit more.

Mortgage Payment to Income Ratio
Under this qualification ratio, the total mortgage payment (including principal, interest, taxes, insurance, amd PMI) is compared to your gross income as a ratio. This is sometimes referred to as a front-end ratio. The FHA states that it requires a minimum front-end ratio of 31%. You might see 28% mentioned as a common ratio required by private lenders (often expressed as 28/36 debt-to-income — the 36 applies to the next ratio).

To calculate this, you multiply your monthly gross income by the required percentage. For example, if you have a gross income of $8,333 (100,000/12), your mortgage payment should not exceed $2,333 (under a 28% ratio).

Total Debt to Income Ratio
This is where your other debt comes into play. This ratio compares your total monthly payment toward servicing debt with your income. Total debt adds auto loan, student loan, and credit card payments. For U.S conforming loans, the maximum ratio is typically 36%. By taking the difference between the two ratios (8%), you can see that your other debt servicing payments can be up to $666 per month.

Calculating Your Affordable Mortgage
Now that you know what type of payment you can afford, you’ll need to convert this into the amount of house you can afford (or qualify for). If we use today’s rates of 3.5% on a 30-year fixed mortgage, you’d owe about $45 per month for each $10,000 borrowed. You’d have to adjust for any PMI required.

Using the above example:
$2,333/45 = 51.84
51.84 x $10,000 = $518,400

So based on this example income and ratios (which mirror mine), I’d be able to qualify for approximately $500,000 worth of house. And then I’d add any down payment made on top of that.

By comparison, if interest rates are at 6%, then you’d use a ratio of approximately $60 per $10,000 borrowed, which would yield a total mortgage of $388,833.

As you can see, just by being able to take advantage of lower interest rates, I’d be able to purchase more than $100,000 more house for the same monthly payment. I know these aren’t the correct terms to think of as far as home purchases go since the higher 6% loan could potentially be refinanced later, but it’s hard to ignore the huge impact that today’s lower interest rates play.

Personal Balance Sheet – March 2013

March was a busy month. I sold a portion of my online business (nothing related to this website), which means I’ll be getting a chunk of money in April that will definitely help me reach my goals for the year. The stock market did well during March, which also helped my bottom line even though our expenses have been running a bit high with the wedding and other purchases.

We’ve managed to make great progress toward our goals this year. To be on track with a goal we need to be at least 25% done with the goal at this point and we’re there for the goals that we care about. The travel goal is really incidental to our Wedding fund since it covers our honeymoon and we already paid $4.5k of our honeymoon expenses (and we expect about $1-1.5k more, but we can just cash-flow this at the time so it’s by far the least important savings goal.

Personal Balance Sheet March 2013

My weight is basically back to where I started at for the year. However, during March, I shattered my workout goal, working out a total of FIFTEEN TIMES! That’s an average of every-other day! I can definitely feel the progress I’m making with increased muscle, but that didn’t help me reach my weight goals.

With a lot of things happening in March, I managed to write about the trends in two major markets, so make sure you check those out if you haven’t. Check out 2013 real estate trends and predictions, as well as my thoughts on the stock market reaching new highs.