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Step 1
Calculate your gross monthly income. To do this, multiply your hourly wage with your weekly hours. Then take this figure and multiply it by the number of weeks you work per year (usually 52). Example:
$20 per hour x 40 hours per week = $800 gross income per week
$800 gross income per week x 52 weeks per year = $41,600 annual gross income
• NOTE: If there is more than one member of the household who will be contributing to the household budget, do this calculation for all members and then add them together to get the gross annual household income. -
Step 2
The FHA, Federal Housing Administration, recommends the following system for determining loan eligibility. Even if you are not applying for an FHA loan, this is the safest system to use. They recommend spending between 29% and 41% of your gross income on your mortgage payment. The first column below represents your gross annual household income. The second column represents a minimum monthly payment (29% of gross adjusted to monthly) and the third column is a maximum monthly payment (41% of gross adjusted to monthly). Find your income in the first column to locate the range of payment which you can afford.
$20,000.00 -> $483.33 - $683.33
$25,000.00 -> $604.17 - $854.17
$30,000.00 -> $725.00 - $1,025.00
$35,000.00 -> $845.83 - $1,195.83
$40,000.00 -> $966.67 - $1,366.67
$45,000.00 -> $1,087.50 - $1,537.50
$50,000.00 -> $1,208.33 - $1,708.33
$55,000.00 -> $1,329.17 - $1,879.17
$60,000.00 -> $1,450.00 - $2,050.00
$65,000.00 -> $1,570.83 - $2,220.83
$70,000.00 -> $1,691.67 - $2,391.67
$75,000.00 -> $1,812.50 - $2,562.50
$80,000.00 -> $1,933.33 - $2,733.33
$85,000.00 -> $2,054.17 - $2,904.17
$90,000.00 -> $2,175.00 - $3,075.00
$95,000.00 -> $2,295.83 - $3,245.83
$100,000.00 -> $2,416.67 - $3,416.67
$105,000.00 -> $2,537.50 - $3,587.50
$110,000.00 -> $2,658.33 - $3,758.33
$115,000.00 -> $2,779.17 - $3,929.17
$120,000.00 -> $2,900.00 - $4,100.00
$125,000.00 -> $3,020.83 - $4,270.83
$130,000.00 -> $3,141.67 - $4,441.67
$135,000.00 -> $3,262.50 - $4,612.50
$140,000.00 -> $3,383.33 - $4,783.33
$145,000.00 -> $3,504.17 - $4,954.17
$150,000.00 -> $3,625.00 - $5,125.00
• NOTE: These figures should take into account an impound account to take care of property taxes and insurance payments. -
Step 3
Once you have figured out the range of payments you can afford, get a quote on several different terms of loans from the lender. It is best to get these in five year increments. Choose the one that best accommodates your budget. It is never advisable to take a term over thirty years although some lenders do offer these. For information on reducing payments in other ways, see the resources section below.
