How Much House Can I Afford

While buying a home the lenders not only make a check of your income and assets but also look for the down payment you have. Generally, all of your liabilities, obligations, auto loans, potential property taxes, credit card debt, and overall credit rating is checked. Before moving forward it is suggested that you should have a clear idea that how much of a mortgage you may be able to obtain.

Here, comes the role of the How Much House Can I Afford Calculator. With the free online Calculator, you can now get a clear idea that how your front-end and back-end ratio affects the maximum monthly payment you can afford. Also, based on the interest rate you can find out the maximum purchase price for a home.

What is the 28%/36% rule?

The 28%/36% rule is a good rule of thumb used to calculate how much house can I afford. It is one of the accepted calculations for determining home affordability.

A 28%/36% rule says that you shouldn’t expend more than 28% of your gross monthly income on home-related costs and 36% on total debts, as well as your mortgage, credit cards, and other loans.

Factors For Calculating How Much House Can I Afford Based On Monthly Payment

Key factors that are considered while calculating home affordability are as follows: 

1) Mortgage Payments: It is a kind of loan or a monthly payment that is paid back as a loan for example as an ‘auto’ loan or financing jewelry.

2) Down Payment: A down payment is an amount of money that a buyer needed to pay in the early stages of purchasing any expensive “commodity” or “goods and services”.

3) Mortgage Term: It is a time limit in years or months to pay back the loan amount in that period.

4) Interest Rate: It is an annual rate at which the mortgage is financed.

5) Estimated Taxes: These are the taxes that are paid for the mortgage yearly.

6) Estimated Insurance: The insurance that is expected to pay yearly for the financed mortgage.

7) Home You can Afford: It is the asking price or the amount of money demanded of the mortgage that one can consider for purchasing.

8) Approximate Mortgage Needed: After considering all of the factors that are listed and provided, the amount calculated must be the mortgage loan one needs to apply for.

Now you can easily plan your finances in a better way with the help of an affordability calculator. To calculate your home affordability and plan your finances better check out the given procedures for calculating home affordability manually. 

Find out How Much Home Can I Afford Manually with Steps?

To figure out how much house you can afford, you have to just crunch a few numbers. Let's learn how to solve this problem step by step and later solving with an example.

Step 1: Figuring out 25% of the Take-Home Pay

It is very essential to stick to the resulting number so that you can stay within your budget and tackle other financial goals as well. 

Assume that you are earning $9,000 a month and according to that your monthly house payment should not be more than $2,250.

Step 2: Determine Your Home Budget

To determine the home budget you need to divide the home price by 180 months (that's a 15-year mortgage) and then multiply the decreasing monthly principal balance by the interest rate. 

If you are earning $9,000 a month, you can simply afford these options on a 15-year fixed-rate mortgage at a 4% interest rate:

• $337,980 home with 10% down payment ($33,798)
• $380,228 home with 20% down payment ($76,046)
• $434,546 home with 30% down payment ($130,364)

Step 3: Consider the Closing Costs

You must keep in mind that a down payment isn’t the only cash you’ll need to save up to buy a home. You also have to factor in closing costs. The closing costs are about 3–4% of the purchase price of your home.

Assume that if you’re purchasing a $500,000 home on multiplying that by 4%, we get an estimated closing cost of $20,000. Thus, adding that amount to the 20% down payment ($76,000), the total cash you’ll require to purchase your home is $96,000.

Step 4: Consider the Cost of Homeownership

It is recommended to build a room in your monthly budget to avoid the nasty surprises of increment in expenses. Your emergency fund will cover major home disasters.

Step 5: Saving a bigger Down Payment

To make your home affordable there is a big role of the down payment amount. It's a trick, The more cash you put down, the less finance money you’ll need.

Example:

Bob has a monthly income of $40,000 and has savings of $185,000. Consider that there are no monthly debt payments. There is a 2,100-square-foot home in Michigan. It’s listed for $820,000, but could probably be bought for $815,000. Find out, can Bob afford this house?

Solution:

Bob's monthly housing budget is around $14,000. 

The mortgage, property tax, and insurance on this property will be somewhere around $4,100. 

For a house like this, there is a requirement of a larger down payment of approximately 20% of the home value. 

Bob is limited to a house worth five times his savings so he could actually afford to pay more on a monthly basis.

Do visit arithmeticcalculator.com to use several other calculators and make your calculations more accurate. 

FAQs on How Much House Can I Afford Calculator With Steps

1. How much house can I afford based on my salary?

There is a rule which states that your total mortgage of yours should not be more than 28% of your pre-tax monthly income.

2. How much do I have to make in a year to afford a $400000 house?

On an estimate, to afford a $400,000 house and to put 10 percent down borrowers need $55,600 in cash.

3. How much house can I afford if I make $75,000 a year?

You can afford a $255,000 house (on an estimate).

4. How much income do I need for a 1.5 million house?

For a 1.5 million house you would need to be making about $375K a year gross income along with good credit and savings or assets of $300K.