How Much House Can You Afford?
If you are interested in buying a home, it is a good idea to get preapproved for your mortgage. It will save a lot of time and aggravation. But how much house can you afford? To arrive at an “affordable” home price, you should follow the guidelines of most lenders. This means, your total debt payments should be no more than 36% of your gross income. Why do lenders use this guideline? It’s been shown to be a level of debt that most borrowers can comfortably repay.
For your income, you can consider all wages, monies from investments, dividends, alimony and any other money you earn. Then, you need to examine all of your debts. Debts include: credit cards, student loans, car payment, alimony paid out and any other debts you have. Also, you must include any savings you may want to save for (emergency fund, college fund, retirement fund, vacation fund, holiday fund etc.). Additional expenses include child care, school tuition, health car or any insurances.
Another thing you will need to consider is that if your down payment is less than 20% of the purchase price, you will need to factor in private mortgage insurance. Other costs for a house include your loan term (for how long you will have a loan, for example for 30 years), interest rate (this depends on your credit score amongst other factors), homeowner’s insurance (average is about $800 but depends on coverage, size and age of home amongst other factors), and real estate taxes (vary greatly from area to area; you can check with your city’s assessor’s office to determine your tax rate).
Once you have determined each of these numbers, you can find a mortgage affordability calculator on my website at lynnromano.com, plug in your figures and this will give you a rough estimate of how much home you can afford.
Happy house hunting and call me when you are ready to purchase your home at 702-274-6006!