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How Much
House Can You Afford?
The loan amount for which you qualify
is based on two different calculations. Using what is known
as qualification ratios, lenders evaluate your income and long,
term debts to determine a safe amount for your mortgage payments.
A fairly standard ratio is 28/33. Certain mortgage plans sometimes
use more liberal ratios such as the FHA, which currently uses
29/41.
Understanding how it works: With a 28/33
ratio, you would be allowed to spend up to 28% of your gross monthly
income for mortgage payments. The lender will then run a different
calculation. This one is your loan payment and debt payments combined,
which may not exceed 33% of your gross monthly income. To calculate
exactly how much you may borrow, you also need an estimate of
current interest rates. As part of the amount you may also want
to include the property taxes, homeowners insurance, and if applicable
the homeowners association fees, which would also be considered
part of your monthly expenses.
You can begin the home buying process
by using my
Mortgage Calculator to determine how much you
can afford, or visit a realtor or lender and they can analyze
it for you.
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