How much house can I afford?
The first step in looking for a home is to go to a bank and get pre-approved for a loan, which will tell you exactly how what price range of home you can afford.
Most lenders agree that your total debt payments should be no more than 36% of your gross household income. This has been shown to be a level of debt that most borrowers can comfortably repay.
If you want to estimate this yourself, you can do the following:
Calculate your gross household income per month, and multiply by .36 (36%)
Add up your credit card, student loan and car payments, and any other debt payments, and subtract from the amount above. This will tell you the maximum monthly home payment you could handle while staying under the 36% threshold.
Use a mortgage calulator to estimate what home price would give you a monthly payment that falls below the above amount. Be sure to factor in 1% property tax and 0.4% for homeowners insurance. If your down payment is less than 20% of the purchase price, you’ll also need to included private mortgage insurance into your calculation.
if you have other savings need like retirement and college, or additional expenses such as child care, private school tuition, health care, or alimony payments, be sure to reduce the maximum target.
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