How Much Can You Afford?
Simply put, you can afford a house that costs as much as the largest monthly mortgage payment you qualify for.
A quick way to estimate the size of mortgage you qualify for is to take your
gross monthly income (that's before taxes and other deductions) and multiply
it by .28. This works out to just over 1/4 of your gross income.
Mortgage companies use something called qualifying ratios to determine how
much they'll lend you. Most mortgage companies use either a 28/36 ratio or a
25/33 ratio. The first number in each pair is the percentage of your gross
income that the lender would consider acceptable as a monthly mortgage
payment (i.e. if you make $3,000 per month, 28% of that is $840 per month).
The second number in each pair is used when all debt payments are
considered, not just the mortgage. (i.e. if you make $3,000 per month, but
also have a $250 a month car payment, 36% of $3,000 is $1,080, minus the
$250 car payment equals $830).
For more information about your monthly mortgage payments and how much you qualify for, contact MARK Z. & Associates.