How to Determine How Much you can Afford for Rent or a Mortgage

You deserve your dream house!

Foreclosures and evictions happen when people inadequately estimate their income and buy or rent homes that they can't afford. But with a little bit of work, you can avoid that mess. Now if only you could get that toilet to stop leaking...

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Things You'll Need

• calculator
• paystub from your employer

Instructions

1. Obtain a paystub from your employer. These are attached to your weekly paycheck. You will need this to determine your annual gross income(income before taxes). Make sure you have obtained a paycheck for an average week (if you worked a lot more or less than usual in this week, your results will be wrong).

2. Look on the check for gross pay during the current pay period. For someone making around $25,000 a year, it will be about $500/week. Remember, if you get paid twice a month, you'll need to divide the gross income by two to get one week's pay.

3. Once you know how much money you make in one week, multiply that number by 4.3. This will tell you how much you make in a month. As a general rule, you should spend about 28% of your gross income on rent or a mortgage. You can determine how much money that is by multiplying your monthly gross income by 0.28. This will give you your highest possible payment.

4. Another rule is that you should not spend more than 36% of your gross income on all of your living expenses. This includes the electric bill, gas bill, heat, water, etc. If you remain within the 28%-36% rule, you should not be in danger of foreclosure.

Tips & Warnings

• Don't forget to add in your spouse/significant other's gross income if you will be renting or buying together.

• Generally, a mortgage company will lend you less money if your debt is very high compared to your income.

• If you know that you spend a lot of money on "unnecessary" items, spend less money for a home than this calculation suggests.

Resources

• How to Buy a House