How Much Can You Afford?
How Much Can You Afford?
Before you begin shopping for a home, it’s important to know how much you can afford to spend on homeownership. You will want to plan ahead for the various expenses related to homeownership. In addition to purchasing the home, other significant expenses will include heating, property taxes, home maintenance and renovation as required. Two simple rules can help you figure out how much you can realistically pay for a home. You must understand these rules to understand if you will be able to get a mortgage.
Affordability Rule 1
The first rule is that your monthly housing costs (principal, interest, property taxes and heating/cooling expenses) shouldn’t be more than 32% of your gross monthly income. If you are thinking of buying a condo, you should also include half of the monthly condo fees.
Affordability Rule 2
The second rule is that your entire monthly debt load should not be more than 40% of your gross income. Your entire monthly debt load includes your housing costs plus all your other debt payments (car loans or leases, credit card payments, lines of credit payments, etc.).
Your Maximum House Price
The maximum home price that you can realistically afford depends on a number of factors. The most important factors are your household gross monthly income, your down payment and the mortgage interest rate. For many people, the hardest part of buying a home — especially their first one — is saving the necessary down payment.
How to Calculate your Mortgage Payments
Use the mortgage calculator on my website to run some numbers and get an idea of how much house you can really afford. There is no point in being house poor. Buying a house is likely the largest and most significant investment you will make in your lifetime so it’s best to “get it right”. If you have questions, give me a call. I’m always happy to help.