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 out 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 2 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. Given below is a brief idea on what the qualifying ratios are all about.
Usually, mortgage lenders prefer you to have a Debt-to-Income Ratio not exceeding 36%. So, if you're spending more than 36% of your gross monthly income on your monthly debt payment, then chances are that you may not qualify for a mortgage.
However, the Housing and Debt-to-Income Ratios required for FHA loans vary from the figures given above. In case of FHA loans, the Housing and Debt-to-Income ratios should be around 29% and 41% 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. This can be done by using the How much house can I afford Calculator. This calculator asks for values of the following items:
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.
Samantha Taylor is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit. She has been an active participant in the forums wherein she offers mortgage advice and suggestions to people in loan problems. If you have a query on "how much house can I afford" related issues, you can simply discuss it with her in the Mortgage Forum.
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