How much do you need to earn to purchase a home in Orange County?

Looking to buy a home in Orange County but not sure how much you need to earn? On this week's episode I talk to Mina Yasuda from Guaranteed Rate Affinity and we'll break down the average home prices in Orange County and explore the necessary income levels to afford them. We'll also dive into the various factors that can impact your ability to purchase a home. Whether you're a first-time homebuyer or simply curious about the housing market in Orange County, this video will give you some valuable insights and tips to get you ready to purchase a new home. So, sit back, relax, and let's crunch some numbers together!

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Josh Alexander

Hey, Orange County renters have you ever wondered how much you need to make within your household in order to be able to purchase an average price home within Orange County? Well, you're not alone. So on today's episode, I'm going to be talking to Mina from Guaranteed Rate affinity. And we're going to be going over a bunch of different things. But the two biggest topics are going to be one how to understand how much you need to make to be able to purchase the home that you're looking for. But number two, we're going to actually run some scenarios for you and show you how much you need to make in your household to be able to purchase some average price homes within Orange County. So if you've been thinking about buying a home within Orange County, then this episode is definitely going to be for you. So let's go ahead and get into

Okay, Mina, thank you for coming onto the show today, it's always nice to be able to get your professional opinion and kind of go over all the numbers involved with what actually it actually takes to be able to get a loan, especially at Orange County when everything is so expensive. So today, I want to have you on here to basically go over one, what you need to do to be able to figure out how much you can actually qualify to purchase. But then number two, what some scenarios are, we can run to kind of give people an idea of how much you need to make as a household to be able to afford an average condo and an average home inside Orange County. So thanks for joining us today. And let's go ahead and jump on into it.

Mina Yasuda

Yeah, and thank you for having me in terms of I guess what the banks and lenders are doing when determining what you qualify for, no matter the bank or lender you speak with ultimately, it's the same calculation that we all go through since you know, the guidelines are set by the government agencies, Fannie Mae, Freddie Mac, and the HUD for FHA. But the main calculation we're doing is something called a debt to income ratio. And I feel like a lot of people are gonna laugh, because it's actually very simple math that we do on a daily basis, despite me being good at calculus when I was growing up, it's not really helped me my job. But with that being said, the max debt to income ratio that you have to keep your mortgage payment, or I guess, to qualify is going to be 50%. Now all that really means is to, you know, make numbers easier. Let's say, Josh, you have a $10,000 a month gross w two income. Okay? Now 50% debt to income ratio means that we just need to make sure that the home you're purchasing the monthly payment on that property, plus any current debt obligations, you have the payments on them, all of that combined cannot exceed 50% of your $10,000 a month income in this example. So that would be $5,000 a month. So if you were to not have any debt obligations, you would qualify as long as the housing payment does not exceed 5000 a month. If you have a 500 a month car payment included in that. Now the housing payment that you can qualify for will go down to 4500. Combined, it just has to remain out or under 50%.

Josh Alexander

Okay, perfect. Yeah, that makes sense, because that's I mean, that's one of the biggest questions I hear a lot with DTI is okay 50% DTI? Is that just a mortgage payment? Or does that include anything else? So that's one thing that I definitely want to clear up because it it definitely impacts the amount of home you can afford. If you have, let's say, a luxury car, you're spending $800 a month on this car, now you want to go buy a home, you're going to severely limit the amount of home you can purchase because you have an $800 car payment. So it's good to be able to know what is included in these DTI numbers. So you can kind of start calculating and kind of figure out what exactly you need to be able to do to be able to afford the maximum amount of home that you can. So car payments. Number one, what are some other things that are you looking at with that DTI?

Mina Yasuda

Yeah, so it's essentially anything that pops up on your credit report. And so that's going to include student loans, credit cards, personal loans, and kind of a quick note on the student loan part of it. So it's very common right now, especially after the pandemic and all the craziness we went through. A lot of the student loans are currently in deferment. And so what's going to happen when we check the credit is is going to show with $0 a month payments? So of course, you know, what the heck do the lenders even consider, depending on what the balance is, most of the loan programs will allow us to use either 1% of the balance and we have to count that as the monthly payment in the debt to income ratio calculation. Or much actually, quite a few loan programs have recently switched it to like conventional and FHA, for example, now, you can just use half a percentage point of the student loan balance. And so if it's $1,000 balance of a student loan, I mean, I wish it was that low for everyone but dollar balanced. And 1% of that would be $10 a month, we have to count half a percent of that would be $5 a month you have to count. So actually, in reality, student loans don't make a huge significant impact. Because even if you have a $20,000 student loan balance, we only have to count $100 a month, a payment obligations.

Josh Alexander

Gotcha. Okay, and then for the credit cards, that's your minimum monthly payment, right, not just what your normal payment is on there.

Mina Yasuda

Exactly. And then it's also important to remember when a bank checks your credit, like nothing's concrete and set in stone. So for example, if I noticed that you know, a particular credit card that payment is hindering you from qualifying, then I might recommend, hey, if you pay this off, or be sure to pay it off, by the time we're about to close, then you can qualify. And I can just check the box to say to be paid and still qualify you under that. And so we continue to work through these scenarios, depending on of course, what home you're trying to purchase and how the qualifying looks.

Josh Alexander

Gotcha. And this is why everybody, it's so important to talk to a lender way before you're ready to actually go out and start purchasing a home. Because they're going to be able to give you recommendations and a game plan for you to be able to figure out the best way to take care of this type of debt to maximize the amount of home you can afford. So it's important to note that you don't want to contact him a week before you start calling looking for homes, you want to be able to get some time. So if you do need things fixed, whether it be your credit score, or trying to figure out what you need to do on the debt side of things to be able to afford more home, you have time to do so. And you're not in a timer.

Mina Yasuda

Yeah. And on that note, too, I kind of want to add really quick, when it comes to game planning to purchase a home even if you think that you're much farther out, how do you game plan and strategize about how to obtain or get to a goal if you don't have a full clarity on what the banks are even doing when qualifying you or what exactly goes into a mortgage payment. Right. And so definitely, it's not the kind of typical image some people have in their minds of a huge person a suit with an approved and denied stamp in both hands. It's just a conversation. It's just an educational process, if anything.

Josh Alexander

Exactly. Okay, perfect. So now let's go ahead and get into a lot of people want to know, is how much does somebody need to make as a household to be able to afford, let's say, an average condo and an average home in Orange County. So I know you ran some numbers for us. So let's kind of go over that first. So let's talk about how much someone needs to be able to make and the household to be able to afford an actual condo inside Orange County.

Mina Yasuda

Yeah, so the purchase price that we're using for this example, we're using $700,000 purchase price with both a 20% and 10% down payment at the average of where I've seen the rates in the current few weeks. And they've been jumping around quite a bit. It's very annoying and frustrating. But yeah, it's been in the past couple of weeks anywhere between 6.1 to 6.5. And so I'm using about six and a quarter, just the starting point, for example. Now, with a $700,000 property with 20% down, of course, condos come with an HOA too. So I'm taking into account an HOA of 300 a month. And also just to have a realistic kind of I guess, number and scenario ran, I kept in mind maybe about $300 a month of debt obligations aside from this mortgage. Okay. So with all of that in hard

Josh Alexander

payments, and that yeah, so that's like the car payments, credit cards, all that stuff an average of $300 a month.

Mina Yasuda

Exactly. And so if we include all of that together, essentially, if you're looking to qualify with a 20% down payment $700,000 condo 300 A month HOA. You're looking at a total household income you need of about 115,000.

Josh Alexander

Okay, gotcha. And then you said you also did it for the 10% as well.

Mina Yasuda

Exactly. And then for the 10% down, assuming the same exact parameters 300 month Hoa 300 A month payment, or debt payments, aside from the mortgage, you're looking at a total income or household income, you'll need to earn up 128. So 112,000

Josh Alexander

Gotcha. So basically, so let's say you're living in a household of two people, which is pretty typical. Right now you're renting a place you're trying to purchase your first condo. I mean, if everybody in the house so if both people in the house are making around $75,000 a year, there's a good chance you're gonna be able to afford to be able to purchase a condo within Orange County. Is that correct?

Mina Yasuda

Definitely. I mean, 75,000 between two people with 150,000 income you could actually afford and qualify for a much higher price than this condo. Yeah.

Josh Alexander

Gotcha. Okay, perfect. Now let's go ahead and move on to the single family home. So what kind of numbers? Do we have more? Look at that side of things.

Mina Yasuda

Yeah, so we're, I used an average of where single family homes are in Orange County and it's a little bit above a million, but I just use the flat $1 million mark. Okay. Now, same calculations in terms of the assumption that maybe estimate 300 a month of debt obligations, but no HOA being considered since single family. Okay. Now at 20% down, you're looking at a household gross income of 151,000 that you'll have to be earning to qualify for a million dollar purchase. Okay, and now getting into 10% down, same parameters, you're looking at a household income of 169,000 that you'll have to be earning.

Josh Alexander

Gotcha. Okay. So perfect. So I mean, obviously, the amount is not a giant step up when looking from 700 to a million but when you have to factor in an HOA, when again, you're going for a condo that is almost like kind of part of your DTI because you're spending extra to $300 a month, that's not really going towards your mortgage that you had to calculate into that when you're going to purchase a condo or sadly.

Mina Yasuda

And I'll note too, that with the HOA, I think a lot of people kind of forget about the fact that, you know, the mortgage is amortized over a 30 year timeframe. In most cases, if you're in a 30 year fixed loan, that's a long time, right. And so an extra like 510 $1,000 to lower the loan amount doesn't make that much of a significant impact your payment. But, you know, boom, an HOA payment of 300 a month, 400 a month, if we were to equate how much additional loan amount would actually shift your mortgage payment by three to 400 bucks. It's literally like 80 90,000. That's why a home priced higher with no HOA and sub sometimes having a lower or the same payment as a home price much lower, you know, with a higher Hoa, for example.

Josh Alexander

Yeah, so that makes sense. So if you're basically looking for a condo, you might be able to afford a single family home, maybe it's not in the same area, but slightly outside the area, you're looking in for a little bit higher price and end up actually saving money. Because you don't have that each way you don't have that Edik of HOA not to worry about the HOA raising rates on you and a bunch of other things that come with having a homeowner's association attached to your home value. So that doesn't have to be able to know and understand on there. Okay, perfect. Well, I think that's kind of what I wanted to talk about today. Because I know it was a big question a lot of people's mind is how much they need to make before they can even think about that. So if anybody wanted to get a better idea of what they they can be able to make, so they can actually run the numbers themselves, and for their personal circumstances figure that out. What's the best way for them to get in touch with you?

Mina Yasuda

Yeah, I mean, if you'd like I think the Yeah, the name of my actual picture right here. The mortgage, that's my instagram handle where I post the live educational content. But additionally, yeah, I'll have Josh include my phone number somewhere around this video where you can call me to be honest, because yeah, I just want to remind everybody that you are not making this commitment, or you're not contractually obligated to purchase a property when you talk with a lender. I just want more people to start the process early and begin asking the right questions earlier. Because when I think about for myself, I bought my first home when I was 25. And I didn't have help from family. But the only reason I felt comfortable and was able to do that was because I had the knowledge being in the industry I'm in. And so that's what I recognize. I'm like, wow, I'm really not that special and more people decades ago, if they knew about it, and so I encourage anyone to just give both of us a call and just talk through a lot of these scenarios, then you can gameplan a lot more proactively and get to the goal quicker.

Josh Alexander

Absolutely. And that's something that I tell all first time homebuyers as well as that you need to be able to talk to a lender, don't be scared of them. They're not going to hurt you they know their intent or money actually all Yeah. All they're doing is basically trying to help you and figure out a game plan to be able to get you into a home, it's completely free. Like Mina said, there's no contracts, you have to sign it just helping you have a better financial picture of what you need to do if you can't currently afford a home where you need to go and Heidi to do it to be able to get to a point where you can. So if you're thinking about buying a home, but you're unsure if you can afford it, make sure you reach out to a lender first so you can get the information to make a more educated decision. Well mean that thank you again for joining me. As always, it's nice to have you on here to clarify anything that has to do with the loan side of things, I appreciate it. And one last thing if you do want to figure out exactly how much you need to be able to have in your bank account to be able to afford a current home in Orange County. Please make sure if you haven't already, check out my latest video on how to afford a home in Orange County. And that gives you all the information you need to know to be able to figure out how much you have saved up to be able to get into home, which is also part of the equation as well. So until next time, everybody stay healthy. Stay happy, and I'll see you on next week's show. Bye