HOW MUCH CAN YOU AFFORD?

Wondering how much you can *actually* afford? Online mortgage calculators are a great starting point for a rough estimate, but they’re just that—a start.

The first step in buying a home is getting pre-approved… but if you’re not quite ready to talk to a lender, I’ve outlined a few simple guidelines to help you figure out if buying a home is within reach right now:

1.An easy way to figure it out is to calculate your debt-to-income ratio. 

Start by adding up all your monthly debt payments, including credit cards, student loan payments, car loans, and any other ongoing recurring debts.

Next, divide this total by your gross monthly income (your income before taxes and deductions). Multiply the result by 100 to get your debt-to-income (DTI) percentage.

2. Now, let’s review the 28/36 “rule”

The 28/36 rule is a simple guideline to help you understand how much money you can spend on a home without stretching your budget too thin. Here’s how it works:

HOUSING EXPENSE RATIO (28) 

Your total monthly housing expenses (mortgage, property taxes, homeowner’s insurance, HOA fee, etc.) should not exceed 28% of your gross monthly income.

DEBT-TO-INCOME RATIO (36) 

Your TOTAL debt payments, including your housing expenses (credit cards, car loans, student loans, etc. + your total mortgage payment), should not exceed 36% of your gross monthly income.

3. Wondering how that equates to price?

This is when it’s smart to chat with a lender (yes, even If you’re still 6 months out from buying).

They can provide you with a detailed analysis of your finances and a realistic budget that reflects your true buying power based on other factors such as what interest rate you qualify for, your downpayment, and taxes.

QUICK TIP: Lenders qualify you based on your GROSS income (pre-tax), not your take-home pay. So, make sure to create a budget that includes all your expenses to avoid becoming “house poor.” A clear budget will give you a more realistic idea of what you can comfortably afford.

Still feeling a bit unsure? I’m here to help! Send me a message, and let’s discuss your homeownership goals!