(Yes, the end of this post is finally here — thanks for sticking with me.) Our examples show that if you have a gross income of $50,000 and a Proposed Monthly Housing Expense of $958, financing a $150,000 home with the right down payment and financing combination is very do-able.
Of course, the greater the down payment is, the lower the mortgage payment. If you’re fortunate enough to have funds for a 20% down payment, you could comfortably afford a $745 monthly mortgage payment. The $213 cushion gives you some options, including increasing your home price budget. If you’re feeling particularly creative, you may consider financing with mortgage insurance, putting less down and using some of the funds for fixing up and furnishing your new home or for investments.
If you’re far away from a 20% down payment, our example provides good hope. You can stay at or well within budget with a much lower down payment. Less money to save for your down payment can shorten your path to homeownership.
As you go through your own example, you may want to play with bumping up your Proposed Monthly Housing Expense Ratio cap in small increments or reducing your loan amount to see where that gets you. You may also want to check on actual real estate taxes
and homeowners insurance costs
in your area.
Your calculations could reveal that you may not quite be ready to purchase a house. And that’s okay, because now you have the opportunity to assess and evaluate your monthly debt and living expenses. Maybe pay down some of your credit cards. Maybe trim a bit off your entertainment budget. It’s all in preparation for being an attractive candidate for a mortgage — but more important, to be able to buy a home of your own.
- There are a bevvy of calculators available that can provide you an answer to the question, how much house can you afford?, but they generally provide a maximum amount — one that may put a strain on your savings goals or your day-to-day living expenses
- I made up the term “All-Other-Monthly-Debt-to-Income Ratio”; you will not hear these words coming from your loan officer’s mouth
- I rounded numbers to the nearest whole number