Q:

# How much do I need to make a year to afford a \$240,000 home?

A:

Buyers who follow a traditional path to home ownership typically need to make at least \$50,000 a year to comfortably finance the purchase of a \$240,000 home. According to SFGate, the traditional down payment on a home is 20 percent, or \$48,000 on a \$240,000 home, which leaves a maximum of \$192,000 remaining to be financed without resorting to mortgage insurance.

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Assuming \$192,000 in financing on a 30-year repayment plan, at 5 percent interest, the final payoff amount for the home is likely to be just under \$470,000, according to figures obtained from Mortgagecalculator.org. This translates to a monthly payment of approximately \$1,300 for the full 30 years.

Before issuing a home loan, lenders almost always assess the borrower's financial health. Apart from the credit check and financial history, lenders typically insist on establishing a minimum income threshold to ensure the borrower's ability to make timely loan payments. This ratio is known as the front-end ratio, according to About.com. A conventional home loan assumes a front-end ratio of no more than 33 percent. This means that in order to qualify the borrower must earn three times the projected monthly payment. A \$1,300 monthly payment, therefore, establishes \$3,900 a month as the minimum acceptable income. Assuming standard extra expenses for home ownership, this works out to just under \$50,000 per year.

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