WHAT YOU CAN AFFORD

and

WHAT YOU QUALIFY FOR

Deciding how much house you can afford is a personal decision. Many factors come into play.  How much can I borrow?  How much can I put toward my down payment?  What size monthly payment can I afford?  Often what you think you can afford for yourself and what you qualify for are two different amounts.

The industry standard is to look at the total gross monthly income, then multiply by 29% front ratio and 41% backend ratio.  In some cases your front ratio is no longer a factor.  The 41% backend ratio becomes the guideline.  The ratio has to do with your total percentage of gross income verses your fixed monthly expenses.   

For example, a couple making a combined income of $6000.00 per month:

We would then multiply this by 41%, which would be 6000 X 41% = $2460.00 per month in allowable expenses, including your housing expense.  If this couple has 2 car payments, credit card debt, student loans equaling $1300.00 per month, then their MAXIMUM allowable housing expense is (2460-1300=1160) $1160.00 a month.   This figure includes not only your Principal & Interest payment, but also taxes and insurance on a given property.  The dollar amount will equate to approximately $130,0000 for the loan amount, including taxes and insurance. 

You will need to discuss with your lender any other items that may affect your loan amount and purchase price, such as your potential down payment, gift funds and interest rates.   There also may be fixed expenses that do not show up on your credit report; i.e. child support, taxes, health insurance or auto insurance.  Be sure to take the time to do a budget sheet at home and consider all of your fixed and variable expenses.  You need to know for yourself where your comfort zone is in making this monthly housing payment.

Please keep in mind that all purchase price/loan amount charts and mortgage calculators are only designed to be a guide.  Contacting a reputable lender to help pinpoint the amount of a target purchase price and mortgage loan amount is the only way to know what you can afford and what you qualify for.