What Size Mortgage Can I Afford?
When shopping for a house, it can be easy to fall in love with the home of your dreams. Be careful, however, that you are aware of how much house you can afford so your dream home isnt crushed at the lenders office.
Lenders often talk about qualifying ratios or debt ratios. These numbers can seem a bit mysterious, but a few simple formulas will give you an idea of what size loan you may be able to afford. Although this is helpful to determine a house budget, never rely on these numbers alone when planning a purchase. Consider visiting a lender to get pre-approved for a loan so you know the exact amount you have to work with.
Grab a piece of paper and follow these steps to determine how much you can afford:
1) Determine your monthly gross income (before taxes).
2) Multiply this amount by 0.28. This is your maximum monthly housing expense. (Lenders allow 28% of monthly gross income for housing expenses. This is also known as the front end ratio.)
3) Now multiply your monthly gross income by 0.36. This is the allowance for your long-term monthly expenses. (Many lenders allow 36% of monthly income to go...
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