I love helping buyers look for and find their dream home. However, it can be heartbreaking if they find and fall in love with a home they cannot afford. So I highly encourage my buyers to determine what fits into their budget before we start searching.
Recently, I read an article on HouseLogic.com that outlined the following four important tips:
1. The general rule of mortgage affordability. As a rule of thumb, you can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.
2. Factor in your downpayment. How much money do you have for a downpayment? The lower your downpayment, the higher the loan amount you’ll need to qualify for and the higher your monthly mortgage payment.
3. Consider your overall debt. Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.
4. Use your rent as a mortgage guide. The tax benefits of homeownership generally allow you to afford a mortgage payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
To read the full article, click here.