To determine what house you can afford, you generally need to consider the following factors:
- Income : Your total household income helps estimate how much you can spend monthly on housing. A common rule is to spend no more than 25% to 28% of your monthly income on housing costs (including mortgage, taxes, and insurance).
- Credit Score : A good credit score improves your chances of getting a mortgage with better interest rates.
- Debt-to-Income Ratio (DTI) : Lenders look at your DTI to ensure you can manage your debt payments. A typical preferred DTI is around 36% for housing expenses and up to 43-44% including all debts.
- Down Payment : The amount you can put down upfront reduces your loan amount, affecting affordability and interest rate options.
- Other Costs : Property taxes, homeowner's insurance, and possibly HOA fees affect your monthly housing budget.
To roughly calculate, multiply your monthly income by 0.28 to estimate a maximum monthly housing payment. Then check your other debts to ensure the total DTI does not exceed about 43%. Many online mortgage affordability calculators (from Chase, NerdWallet, Zillow, Wells Fargo, etc.) can help you input your specific numbers (income, debts, down payment, credit score) to estimate a precise affordable home price and monthly payment. If you provide some of your financial details (monthly income, monthly debts, savings for down payment, credit score), I can help guide you through an estimate of what house price range you might be able to afford using these principles. Let me know if you want to proceed with that calculation or discuss any specific aspect further.
