A few things you need to know to figure out home much house you can afford:
- How much money do I make a year?
- How much money do I pay on credit cards, auto loans, student loans, child support, etc. each month?
- What is my credit score?
- How much money have I saved up for a down payment?
These are the basic numbers that you need to know to start to figure out how much home you can afford.
A general rule of thumb is that you can afford a home three times your annual income. So if you make $60,000/year you could afford a $180,000 home. Of course each case is different and it is best to speak with your local mortgage lender first. Call or text me if you want me to refer you to a good one!
When the mortgage company goes to determine the amount of money they will loan you, the will look at two very important numbers.
- Your mortgage (Principal and Interest), taxes and insurance should be less than 28% of your annual income. In this case, your monthly income would be $5,000, thus 28% would be $1,400. Average annual taxes are $3,500 and annual insurance is about $500. To be safe, lets assume this breaks down to about $350/month. So the maximum mortgage you could pay every month would be $1,050.
- Principal, Interest, Tax and Insurance (the total amount calculated above) plus any monthly credit card payments, car loan payments, child support payments, student loan payments or anything else that would show up on your credit report should be less than 36% of your annual income. In this case, your monthly maximum would be $1,800.
Your credit score (which is likely better than you expect) and the amount of money you have available for a down payment is important, because it influences the interest rate you will get.
This calculator from CNN will help you figure out how much house you can afford.
When you figure out how much house you can afford check out what is available in your local area on my website. Happy House Hunting!
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