How to Find Out How Much You Can Afford When Buying a House
Purchasing a new home is a significant undertaking. Many prospective homeowners struggle with estimating a housing budget. According to CNN Money, most lenders won't lend you more then 36 percent of your total gross income. Taking a few minutes to determine how much you can afford is a good way to start your house search.
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Instructions
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Calculate annual gross income. Annual income can be found on pay stubs or on your 1040 tax return.
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Determine how much you can afford for a down payment. Evaluate savings, retirement accounts and other resources. Most lenders require borrowers to make a down payment of 3 percent to 20 percent depending on the lender and loan product. If you put down less than 20 percent, you can be subject to private mortgage insurance (PMI), increasing your monthly mortgage payment.
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Make a list of monthly debt obligations, including car payments, student loans, credit card payments and other obligations. List each monthly payment amount and total your monthly obligations.
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Estimate a mortgage rate. Check online comparison tools or talk with a lender about current rates.
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Estimate property taxes and homeowners insurance. Ask your real estate agent for a ballpark figure on property taxes in your area. Insurance can range from $400 to more than $600 annually depending on the property and coverage you choose.
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Use an online calculator and enter your annual gross income, down payment, monthly debt, mortgage rate, annual property taxes and homeowners insurance to receive an estimate of home affordability.
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Tips & Warnings
Consider contacting a lender before starting your house hunt. Online calculators provide a good way of estimating a housing budget. However, a lender can give more accurate figure.
Trust your instincts when determining affordability. If a calculator says you can afford $1,800 a month, for example, but the figure seems high, perhaps reconsider.
