How much house can you afford?
One of the big questions you should consider at the very start of your home search is, how much house can you afford to buy? Many banks will use a debt to income ratio to pre-qualify you before you go to look at houses. Assuming you have good credit, this number will give you an idea of how much you will be able to borrow. Let’s say for example a bank uses a 28/36 ratio. This means that your house payment (principle, interest, taxes, and insurance) should not be more than 28% of your monthly gross income.
Example:
Monthly Gross Income: $4,000
Max House Payment: $1,120
The second number of the ratio is your total debt (house payment, car, credit cards, etc.). In our 28/36 ratio this means that your total debt payment should not exceed 36% of your monthly income.
Example:
Monthly Gross Income: $4,000
Max Monthly Debt Payments: $1,440
Please remember these numbers are just guidelines for how much you may qualify for, not how much you are required to buy.
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