How much home can I afford?

One of the first steps of buying a home is determining how much home you can actually afford to buy. Understanding the factors that affect home affordability is critical - you want to make sure that the homes that you are looking at are within your budget. As always, the first step of course is to contact your lender (that's us) for pre-approval.


What are the factors that affect what I can afford?

For most people, how much home you can afford is directly related to the amount of mortgage you qualify for. There are many factors that may impact your mortgage qualification amount.

  • Down Payment - This is the portion of your home that you'll pay in cash and won't be a part of your mortgage. The larger the down payment, the smaller your mortgage will be.
  • Income - How much money you have coming in every month is a key factor for how much lenders are willing to lend you.
  • Debt - How much debt you have will impact your debt-to-income ratio, which is important when it comes to determining how much you can afford.
  • Mortgage Interest Rate - The interest rate you're offered by the lender can significantly impact your monthly mortgage costs.
  • Length Of Loan Term - This determines how many years it will take for you to pay off your loan. The longer the loan term, the higher your monthly mortgage payments.
  • Other Housing Expenses - This can include things like property taxes, HOA fees, and mortgage insurance.


While not factored into your mortgage qualification calculations, you'll also want to carefully look at all your other monthly expenses. While lenders may be willing to loan you more, it might not be in your best interest to stretch your home budget if you have a lot of other expenses.


What goes into a monthly mortgage payment?

Many different factors make up your total monthly mortgage payments.

  • Principal - Part of your mortgage payment every month will go towards the total amount you borrowed.
  • Interest - Another portion of your monthly mortgage payment will go towards interest - the amount you pay to borrow the money.
  • Mortgage Insurance - If you make a down payment of less than 20% of the total cost of your home, you'll need to pay mortgage insurance monthly until you've reached 20% equity (for most loan options).


There are also other home-related fees that you need to budget for.

  • Property Taxes - The amount of property taxes you pay will depend on where you live, the type of property you own, and more.
  • HOA Fees - You'll pay monthly HOA fees if your home is part of a homeowners association.
  • Home insurance - Most mortgage lenders require proof of homeowners insurance in order to fund your loan.


In some situations, these fees are paid monthly with your mortgage payment. In other situations, you'll pay for these monthly yourself. However, you should still budget these into your monthly mortgage payment calculations and they will need to be paid regularly.


How much house can I afford on my salary?

Your salary and monthly income is the biggest factor when it comes to how much home you can afford.

As a general rule of thumb, your monthly debts (including your mortgage payments) should be less than 36% of your gross monthly salary (before taxes). This is your debt-to-income ratio (DTI).


Here's how you can calculate your DTI:

[(Total Monthly Debt Payments) / (Monthly Gross Income) ] x 100 = DTI

When making this calculation, you should include any of the following in the debt category:

  • Total expected monthly mortgage payments
  • Monthly student loan repayments
  • Monthly car loan repayments
  • Monthly credit card /line of credit repayments


An experienced loan officer or advisor can help you determine the right home budget for your financial situation.


Affordability Calculator



We hope this article was of value to you. For more great tips, bookmark our site and for all your mortgage needs, visit the A Team at TMFFMS.


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