How Much Home Can You Afford

How Much Home Can You Afford
How Much House Can You Afford? To put it simply, you can afford a home that costs as much as the monthly mortgage you qualify for. If you want a quick way to estimate what that mortgage amount might be you can take your gross monthly income (that is the amount you make before taxes on a monthly basis) and multiply it by .28. A rough way to think of it is about ¼ of your gross monthly income before taxes.

Most mortgage companies look at your "qualifying ratios". These figures help them determine how much they will lend you. The .28 above is one of two ratios they use. The second ratio, usually .33 to .36 is used to factor in your additional monthly debt. For example: if you make $4000 a month as your gross monthly income you would qualify for the 1st ratio at a monthly payment of 1120 (400 x .28) But let's say you have credit card payments or other loans that total $500 per month. So $4000 a month x .36 = $1440 per month less the $500 in loans = $940 per month.

You can see that these two ratios end up almost being the same payment amount unless you have a large monthly debt, then you would qualify for a less expensive home.

Talk to your agent if you need a list of lenders to consider.
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