How Much Can I Afford?

How Much Can I Afford?

How High Can My Payment Be and How Much House Does That Buy? As a general rule, you should take the time to set your own limit on a monthly payment amount before you even begin to get prequalified.  By analyzing your budget, income and monthly bills, you will set your comfort zone for a monthly payment.

When it comes to qualifying, think 43%.  43% represents the general industry standard for a home loan applicant’s total debt-to-income ratio (DTI).  This percentage is calculated by comparing a total of all monthly payments, including the proposed house payment, with an applicant’s total gross monthly income.

Here is a simple example:

Homebuyer A has an annual salary of $36,000.  Homebuyer A has a $250 car payment, a $100 student loan payment, and a $25 credit card payment.  The total of Homebuyer A’s monthly payments is $375, and their gross monthly income is $3,000.

43% of $3,000 is $1,290.  If we subtract $375 (total of monthly payments) from $1,290, the difference is $915.  This $915 generally represents the maximum house payment that Homebuyer A can qualify for including principal & interest, property taxes, insurance, and homeowner’s association dues.

NOTE: Payments used to calculate your total of monthly payments include, but may not be limited to any installment payment on a loan or debt, car payments, student loan payments, mortgage payments, child support, alimony, IRS payments and others.  Monthly payments that are not used to calculate your total of monthly payments include car or health insurance, phone bills, utility bills, bills for monthly services, and others.

The best advice that you can follow is to set your own budget and then speak to a licensed loan officer, but you can use the method above to get your own idea.

Generally, take 43% of your gross monthly income to get the maximum amount that you can qualify for.  It is necessary to subtract any monthly payments (as described above) from that number.  You can use one of our mortgage calculators to get an idea of how much of a loan corresponds to a specific payment.

Do not forget to account for taxes, insurance and homeowner’s association dues when calculating your potential price range or total payment.

If you are ready to start the application process, click HERE.

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