How To Determine How Much Of A Home You Can Afford

Posted on: 8 August 2018

When you choose to buy a house, you should make sure you are completely ready for this big event. Buying a house is costly, and owning a house is a big responsibility. If you want to handle this wisely, you should determine how much of a home you can afford before you start searching. There are many ways to do this, and here is one option you could use, which bases the answer to this question on the amount of income and debts you have.

The information you will need to complete this calculation

To use this particular calculation for determining how much you can afford for a house, you will need several different pieces of information. This includes the amount of your monthly gross income and the amount of your monthly debts. The monthly debt amounts should include any car payments you may have, credit card payments, or other types of loan payments. You do not need to add in other expenses, such as insurance or utilities.

How to use this information to determine how much you can afford

The first step you should take is multiply your gross monthly income by 36%. For example, if you earn $5,000 a month, this would amount to $1,800. This amount shows you how much you can afford to pay for your mortgage and other regular debts each month.

Secondly, add up your monthly debt payments. If you do this and have $800 in monthly debts, you should subtract this amount from the first amount. In this example, you would subtract $800 from $1,800. This would give you the answer of $1,000, and this answer tells you that you could afford to have a mortgage payment of $1,000 a month.

How to interpret the answer to this

Once you know how much of a mortgage payment you could afford, you will need to determine how much of a house you can afford, and the easiest way to do this is by looking up a loan calculator and playing around with it. You should plug in the $1,000 payment along with the current interest rate, and this should reveal to you the top amount you could spend on the purchase price of a house.

If you have performed this calculation and are ready to buy a house, you can contact a real estate broker to help you find homes within your price range.