To answer How Much Home Can You Afford, you should first complete a budget of your finances. Start with your income and subtract your expenses. The remaining amount is the most you should spend on your mortgage payment. But it is likely, the lender will have other ideas about how much you can afford.
Easy Way to Calculate How Much to Spend On Housing
The best way to get close to how much a bank will want to lend to you, follow the general rule of thumb. The rule is not to spend more than 28% of your gross income on housing (mortgage or rent) and no more than 36% of your gross income on all debt (do not include utility bills or other living expenses). So if you know your gross income (income before taxes), you can just multiply .28 by your gross income and .36 by your gross income. There are other factors that go into how much you can qualify to borrow, like your credit score or debt-to-income ratio, but this will give you an idea what home prices you should begin your search.
If you earn $48,000 per year, that is $4,000 per month before taxes. Now do the math: $4,000 x .28 = $1,120. This amount is the most you should be spending on housing according to a lender.
Enter your amount into the Max Monthly Payment field in the calculator below and use a current interest rate which can be found on the right side of the website or scroll down if you are using your phone. The result will provide the max loan amount based on your specific inputs.
The next step is to Calculate My Mortgage Payment where you will input your loan amount total that you figured out here.