“How much can I afford to spend on a house” is a relevant question that comes into the mind of thousands of homebuyers all over the world. To answer this question, the home affordability calculators offered by multiple lenders play an important role.
When you are going to buy a new home, it is very important to know how much mortgage you can afford. Your repayment ability is a principal concern to the mortgage lender. Prior to purchasing your dream home, you should have a fair idea about the amount of loan the mortgage lender is ready to lend you and the number of monthly payments that you can comfortably pay.
Seven Simple Tips
Following are seven simple tips that will help you determine how much mortgage you can afford:
- Before beginning the search for your home, speak with at least three loan specialists. These can be from your local bank, a larger national bank or a mortgage broker.
- At all times, you should be alert about the amount you are permitted to borrow. This amount differs from one lender to another depending upon your financial condition, assets, and income. Usually, the amount will be 4 times your annual income or up to 80% of the value of the property.
- The highest amount of your loan is also dependent on whether the mortgage is taken in your name only or in joint names with a co-buyer or partner. In case of a joint mortgage, the amount is typically 2½ times the joint annual income.
- To find out the highest value of the property you are able to buy, make sure to also set aside the amount required for a down payment.
- To estimate your monthly payments, work out your mortgage payments as a rough calculation. Utilize the information of the mortgage, for example, the amount of loan, repayment period and the rate of interest fixed for the mortgage.
- The expenses that should be added to your monthly payment include mortgage insurance (if the down payment is smaller), property taxes, homeowners insurance and utility expenses like water, electricity and gas charges.
- Finally, you should make a comparison between the expenses and your net monthly income and figure out if this mortgage amount is affordable for you.
Home Affordability Calculators
The home affordability calculator helps you rightly determine how much mortgage you can afford. This is a fast and brief technique to calculate your affordability.
The question “how much mortgage can I afford” is basically a combination of two questions: How much you are able to borrow? and, What is the amount of down payment that you are able to collect? These two questions are interconnected. The interest rate of the mortgage is also factored in heavily.
Information necessary to calculate home affordability
The following information is necessary in order to determine home affordability:
- Gross monthly household income
- Loan term
- Down payment amount you are able to pay (5%-20% of the buying price of the home)
- Your monthly debts (credit card payments, student loan, automobile loan, etc)
- Rate of interest or APR (% p.a.)
- Monthly property taxes
By using this information as inputs, you are able to calculate the monthly mortgage payment that you can afford and the maximum loan amount you can borrow. Subsequently, if you want to verify whether your monthly income is adequate to qualify or not, you can use your total monthly debt and monthly mortgage payment (principal plus interest) as inputs.
When asking, “How much can I afford to spend on a house?” we hope this article has been helpful to you. If you have any questions, please use the Contact Us link above.