Look at your debt now and going forward.Īs you're calculating how much home you can afford, you need to look at your current debts and what lies ahead in your life. There are other expenses you need to examine, too. Just because your lender says you qualify for a $500,000 loan doesn't mean you should borrow that much. So your specific situation may be different. Lenders also look at your income sources, credit score, and debts and assets. All your debt - including car payments, credit cards, student loans and, of course, your mortgage payment - shouldn't exceed 36% of your income before taxes.Your mortgage payment, including taxes and insurance, shouldn't be more than 28% of your total income before taxes.Though situations can vary, some mortgage lenders decide by applying what's called "the 28/36 rule." If you're going to borrow to pay for your home, you need to know how lending decisions are made. Why take-home pay? That is the money you have available to meet your bills, long-term financial goals and other obligations. For example, a family bringing home $4,000 per month after taxes should shoot for a $1,000 to $1,440 housing cost. It's also important to think about potential changes to your income, other financial obligations and how much cash you'll have on hand for a down payment and other costs.Ī general rule is to keep home costs, which includes mortgage payment, property taxes and insurance, between 25% and 36% of your take-home pay. To figure out your starting price range, look at your monthly budget to see what kind of payment you can comfortably make.
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