In addition to your income, lenders consider the current interest rate, the amount of cash you have available for down-payment, your debt, real estate taxes, and home owners insurance rates when calculating the amount of home you can afford. 
Income - Typically, most people can afford to purchase a home 2.5 - 3 times their annual income. Mortgage lenders normally consider not only your salary or hourly wage but also retirement, disability, child support, alimony, commissions, and bonuses when calculating your income. For example, if you and your spouse have a combined household income of $100,000 then you can typically afford a home purchase of $250,000 to $300,000.
Debt - Ideally, you want all your debts including credit cards, student loans, car payments, etc to be less than 8% of your monthly income.
Interest rate - a higher interest rate creates a higher monthly mortgage payment. Therefore, the higher the interest rate the less you spend on a home. Many of my clients have recently obtained loans with rates around 4.375 -4.5% APR.
Down-payment - a larger down-payment creates a lower monthly mortgage payment. Therefore, the more money put down the more you can spend on a home. You can also avoid paying mortgage insurance by putting at least 20% down. Many of my clients have recently purchased homes with only 3.5% down payment.
Taxes & Insurance - both taxes and insurance vary from home to home. Higher tax and insurance rates create a higher monthly mortgage payment. Therefore, the higher the tax and insurance rates the less you spend on a home.
We are excited to assist you in all of your real estate transactions. Please contact us for a FREE (no obligation) consultation if you plan to buy and/or sell a home. Whether you are buying or selling a home, we will always work in your best interest while helping to make your real estate transactions as stress free as possible.
George Maynes
Prudential Fox & Roach, REALTORS®
530 Walnut Street - Suite 260, Philadelphia, PA 19106
George.Maynes@prufoxroach.com
Cell: 215-317-3007
Office: 215-627-6005
Comments(1)