Here's A Quick Way To Figure Out How Much House Can You Afford

By
Real Estate Agent with Keller Williams Porter Ranch Calbre Lic 01200694

The stock answer given to this question is, if you rent and have cash for a down payment you can purchase a home. But what if you don't rent? Then here's the simplified version of what a mortgage broker would do with you.

Step One:  Annual Salary  

What is your gross monthly income from all sources? If your annual salary is $75,000, divide this by 12 and you'll see that your monthly income is $6,250.

Step Two: Monthly salary x percent you want to spend. 

Broker and financial planners ill recommend that you spend anywhere between 25% and 6% of your monthly income on household expenses. We're going to use 36%.  $6,260 x 36= $2,250.

Step Three: Calculate your debt. 

Add up your current monthly debt. This Includes things like a car, loan, insurance, school loans, credit cards, and any other personal debt your may have. All of this added together gives you your total debt. Just a guess, but let's say that these add up to $750 a month.

Step Four: Amount you want to spend- Total debt. 

Now, take that total debt and subtract it from the amount that you were willing to spend per month to get your maximum monthly payment: $2,250-$750= $1,500.

Step Five: Monthly payment x 12  

Multiply that house payment by 12 month, and you have $18,000 to spend each year.

 

Step Six: Annual payment interest rate.  

Divide this annual amount by the current interest rate (I'm using 10%, because it's a nice round number and a good average). So, $18,000- 10 leaves you with $180,000 available for a mortgage.

 

Step 7: Mortgage + down payment. 

Now, take the amount you've calculated that you can afford to pay for a mortgage and the amount of cash you have on hand to make a down payment and you get your purchase price.

So, using the current example: The mortgage was $180,000 plus you have $20,000 on hand for a down payment, then you can afford to purchase a home for $200,000.

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. JM Padron, CCIM, MRICS 06/13/2016 09:37 PM
Topic:
Home Buying
Location:
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Rainmaker
2,130,054
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Alberto Pacheco These are very good helpful tips to figure out value of a house.

Jun 13, 2016 01:46 PM #1
Rainmaker
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JM Padron, CCIM, MRICS
REMAX COMMERCIAL ASSOCIATES - San Diego, CA
CCIM, MRICS, Serving South Florida

This is a great and simple procedure, however I would do it more realistic once you calculate your monthly mortgage payment in step 4, you will need to find out the interest rate on the market and use a financial calculator.

you input $1,500 in PMT, 360 in N (number of payments) and solve for PV, this would be the amount of thr mortgage. 

 

Jun 13, 2016 09:36 PM #2
Rainmaker
210,749
Alberto Pacheco
Keller Williams Porter Ranch - Porter Ranch, CA
Experience and Trust

Thank you John for reading my posting

Jun 14, 2016 09:39 AM #3
Rainmaker
210,749
Alberto Pacheco
Keller Williams Porter Ranch - Porter Ranch, CA
Experience and Trust

JM thank you for reblogging it.

Jun 14, 2016 09:39 AM #4
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Rainmaker
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Alberto Pacheco

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