Your Ability to Qualify

To figure out an approximation of your buying power, multiply your annual gross income by 3. For example, with a household income of $50,000, you could potentially qualify for a $150,000 home. Depending upon factors such as your individual situation, debts, and credit history, the actual number may be more or less.

 

Whether or not you can live comfortably with the amount of your suggested monthly mortgage payment is a decision best made by you, the buyer.

 

Housing Expense Ratio
I think a more practical way to determine your maximum monthly housing payment is a percentage of your gross monthly income.  A general rule is that your monthly mortgage payment plus your property taxes and insurance should be no more than 25% to 30% of your gross monthly income. Depending on the type of mortgage you choose, this percentage may change.

Debt-to-Income
Let’s first explain the term “Debt-to-Income” or DTI.  When you total all of your monthly credit payments, including your new home loan PITI (Principal + Interest + Taxes + home Insurance + mortgage Insurance) payment and then divide that total payment by your gross (before tax & benefit deductions) income will equal a percentage of your income that is devoted to debt payments.

 

Factors such as your income, monthly revolving and installment payments and credit history directly affect your buying power. Your monthly debt includes things such as your credit card bills and car loans, student loans, 401k loans, paycheck garnishments, and other expenses such as PITI, alimony and child support.

 

When all of the payments are totaled, the total monthly payments should not be more than about 45% of your gross monthly income for conventional loans and 49.5% for FHA and VA loans.

Items that are not included as part of your DTI:  Child care, utilities – such as cable, phone, internet, mobile, electricity, water, sewer, trash, life or auto insurance…

Some hints to help you determine a mortgage amount that makes it possible for you reasonably to meet your long-term goals and needs:

 

CRUNCH THE NUMBERS

Compose a budget including your estimated mortgage payment including taxes and insurance.

 

MURPHY’S LAW:

Utility costs should be included in your housing budget with an additional amount set for costs of future home maintenance and repairs.

 

LOOK AT THE BIG PICTURE:

Be sure to take other financial goals into consideration such as paying for college tuition or saving funds for retirement.

 

Resources

 

How much house can you afford? – CNN Money

How Much House Can I Afford – Home Affordability Calculator – Zillow

FHA Mortgage Calculator – How much can I afford?

How Much House Can I Afford Calculator – Yahoo! Real Estate

%d bloggers like this: