How Much House Can I Afford?
When looking at the cost of buying a home, examining how much house you can afford is key. Figuring out what kind of monthly house payments you can swing will help determine what sort of down payment will be necessary in order to make the house fit within your budget. Taking into account your debt-to-income ratio, gross income and expenses can help eliminate doubt. Once you know what price range of house you can afford, you can begin the fun part - house-hunting.
Probably the single most important factor in determining how much house you can afford is your debt-to-income ratio. These numbers represent the amount of gross income versus the amount of debts. Monthly debt payments include credit card payments, vehicle loan payments, student loan payments and legally binding payments such as alimony, child support or judgments. Make a list of all your monthly debt payments, which should include the minimum payments only. Add those numbers up and that figure will play an important role in financing a home.
Figuring out how much house you can afford is much easier with the help of a calculator. Get exact numbers when you work with our mortgage calculator. Homebuyers seeking specific monthly payments can enter those figures to get the precise loan amount. Or if the total price is more important than monthly house payments, enter the loan amount to get estimated mortgage payments. Homebuyers can also change the number of years and interest rates to see how those differences affect outcomes.
Next, look at all the sources of income received on an ongoing basis. These can be gifts, alimony, rent, dividends, social security, as well as earned income. Add these numbers up then divide by 12 to get a monthly figure. Write this new number next to the debt number and you will have your debt-to-income ratio. Typical lenders like monthly debt to equal no more than around 36 percent of a homebuyer's income. Say a buyer brings in $75,000 a year, which is equal to $6250 a month. His monthly debts average out at $2250. Monthly house payments could not go over $1750 for him in a traditional loan. The cost of buying a home may seem small at first but many things can happen and the lender wants to make sure he has hedged his bets well.
If monthly house payments look so small, don't get discouraged. Homebuyers can get creative and use smart strategies to purchase the home they want. One thing to do is make sure you want and need the house in question. How much house you can afford is about knowing you can afford a smaller model and making the right decision at that stage in your life. Another idea is lowering those monthly debts. Getting rid of monthly debts will give you more buying power and a newfound confidence. If set on getting a home that will have significantly higher monthly house payments than you can afford, put up a substantial down payment. This action will give buyers instant equity and may lower interest rates as well. The cost of buying a home may seem overwhelming but with careful planning, it can be done right.
Whether you're looking for your first home or your dream home, finding out how much house you can afford is a vital step in home ownership. Consider the cost of buying a home and dive into those financials. Figure out the maximum monthly house payments you can afford and if you need a larger down payment than anticipated. Take it slow and use a calculator. Figure out what you can afford, find a house in that price range and become a happy homeowner.