Calculate How Much Home You Can Afford

After you determine that buying a home is right for you, the next biggest step is deciding how much home you can afford. The best way to find out how much you can spend on a home is to visit a mortgage broker or lender. Home affordability has so many different layers and factors, including constantly changing interest rates, varying down payment amounts, taxes and insurance, and can be difficult to determine without professional help.

The lender can look at your financial records, including checking and savings accounts, assets, income, debts and credit score and come up with a concrete amount per month you can afford. This monthly amount will also include taxes, insurance and other fees and from this amount, the lender can come up with a price range of homes to look in.

As a general rule of thumb, your monthly mortgage payments should be 26 to 31 percent of your monthly income. For example, if your monthly income is $4,000, then you can afford between $1,040 and $1,240 a month in mortgage payments. Using that range of monthly payments and factoring in the current interest rate and your potential down payment, the lender can find an overall price range of homes to look in.

If you would like to have an idea of how much home you can afford before you see a mortgage lender, there are several online calculators and formulas you can use to get a ballpark figure of home much you can afford to spend in monthly mortgage payments and a price range where you should be looking.