If you’re looking to start shopping for a new home but need help determining what you can afford, make sure to contact us, and we’ll be happy to help.
There are many factors involved in determining how much “house” you can afford. If you fill out a form online, you may easily get approved for a $500,000 loan. But does that mean you should spend that much money? Does it mean you can really afford that monthly payment?
By working with our mortgage team, we can help you determine what home price actually works best for your monthly payment. We will also ensure that you find a housing option that fits with your financial and future goals.
How to Calculate What You Can Afford
Our mortgage calculator estimates how much house you can afford by considering several factors:
- Where you live
- What your annual income is
- How much you have for a down payment
- What your monthly debts/spending are
This estimate will give you an overview of what you can afford when considering buying a home.
To get a more precise idea of what you can afford, go one step further by applying some of the advanced filters to include the costs associated with owning a home. The advanced options will include the mortgage interest rate, homeowners insurance, private mortgage insurance (if applicable), type of loan, and the property tax rate. The more variables you add to the calculator, the closer you will know how much you can afford.
Calculating Your Annual Income
To determine how much mortgage you can afford to pay each month, figure out how much you earn each year before taxes. This needs to include salary, tips, wages, commissions, etc. If your spouse or partner contributes to the monthly payment, include their earnings into the gross annual income for your household. Once you determine the amount, divide it by 12 to find your monthly income.
Follow the Debt-to-Income Rule
The 28/26 debt-to-income rule asserts that you don’t want to spend more than 28% of your monthly income on housing-related expenses and not spend more than 36% of your income against all of your debts. This includes your new mortgage. If you keep within these parameters, you will have enough money left over for your monthly expenses and even have some left to save.
We Are Here to Help!
If you’re looking to start shopping for a new home but need help determining what you can afford, make sure to contact us, and we’ll be happy to help. Subscribe to our videos as well to begin your education on the home buying process.