Knowing in advance how much you can afford makes shopping for a new home easier!
To determine how much you can afford to spend on a home, you’ll want to calculate your debt-to-income (DTI) ratio to see how much debt you may be able to take on. Generally, your DTI ratio on most loans should be no greater than 50%, meaning your debts are less than 50% of your gross monthly income.
Use this quick formula to figure your monthly housing budget:
Take your total monthly income before taxes, and subtract:
- Monthly car payment(s)
- Monthly student loan payment(s)
- Minimum monthly credit card payment(s)
- Other monthly payments, such as child support or alimony
The result is the money you could have available to budget for housing.
The amount you can borrow from a lender will depend on your credit history, employment history, savings and debts, and the amount of down payment. You may also be able to take advantage of special loan programs for first-time buyers and veterans in order to purchase a home with a higher value.
Contact one of our experienced mortgage specialists for help in determining how much you can afford. We’ll be happy to walk you through the process!