If you're shopping for a mortgage to buy a home, it's essential to find out first how much house you can afford. Depending upon your affordability, you can look for lenders who'd be ready to offer you the required loan amount.
How lenders judge your affordability:
Usually lenders check your mortgage affordability with the help of two ratios – Housing Ratio and Debt-to-Income Ratio. So, if you're concerned about "how much house can I afford," you need to satisfy the qualifying ratios. Here is a brief idea on what the qualifying ratios are all about.
Housing Ratio: This gives an idea about the percentage of monthly gross income you can spend on your monthly mortgage payment. Ideally, lenders need you to have a Housing Ratio within 28 percent. This implies that your monthly mortgage payment shouldn't exceed 28 percent of your gross monthly income.
Debt to Income Ratio: This number reflects what percentage of your gross monthly income is spent on your monthly debt payments (mortgage and other debts).
Usually, mortgage lenders prefer you to have a Debt-to-Income Ratio not exceeding 36 percent. So, if you're spending more than 36 percent of your gross monthly income on your monthly debt payment, then chances are that you may not qualify for a mortgage. However, in the case of FHA loans, the Housing and Debt-to-Income ratios should be around 29 percent and 41 percent respectively.
How to calculate how much you can afford:
If you'd like to find out "how much house can I afford," all you need to do is find out whether you can afford to make monthly payments on your desired mortgage amount. You can determine this by using the 'how much house can I afford calculator.' This calculator asks for the values of the following items:
· Desired mortgage loan amount
· Loan term
· Mortgage interest rate
· Other debt payments
· Property tax payments
By putting in the above values, you can work out the probable monthly mortgage payment and how much income you should have so as to pay off the mortgage comfortably. Thus, you'll get an idea on how much house you can afford to pay for.
File photo
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