FAQ: How much can I afford?
Buying a home is a numbers game, but it’s also an emotions game. That’s why from the get-go, we encourage buyers to only consider homes they can confidently (and comfortably) afford.
Setting aside what lenders often say, buyers should take the time to “try on” various mortgage payment scenarios and find the one that fits the best financially and feels the most comfortable.
That said, some guidelines can provide a starting point for answering the question: How much home is within my reach?
Most financial experts will tell you housing expenses should be no more than 28% of your total pre-tax income. This includes your monthly P&I mortgage payment, homeowners insurance, property taxes, and PMI payments (if applicable).
For example, if your salary is $55,000 per year, your gross monthly income is $4,583 ($55,000 divided by 12). Your total housing costs (principal, interest, taxes, and insurance) shouldn’t exceed $1,283 per month (28% of $4,583).
Keep in mind that total debt should be less than 36% of your total pre-tax income. This includes housing costs mentioned above and credit cards, car loans, personal loans, and student loans.
Save this post for later, and share it with anyone you know who has plans to buy this year.