Are you curious as to whether or not buying a home is within reach? It’s important that you feel confident about how much house you can afford before you hit the ground running and start home shopping. The first step in househunting is getting pre-approved, but in case you’re not quite ready to commit, I’ve outlined a few guidelines that can provide a starting point for answering the question: how much home can I afford?
Most financial experts say housing expenses should be no more than 25% of your total pre-tax (gross) income. This includes your monthly principal and interest mortgage payment, homeowners insurance, property taxes, PMI payments (if applicable), and any HOA/Condo fees.
For example, if your salary is $65,000 per year, your gross monthly income is $5,416 ($65,000 / 12). Therefore, your total housing costs (principal, interest, taxes, and insurance) shouldn’t exceed $1,354 per month (25% of $5,416).
It’s important to also keep in mind that your total debt should be under 36% of your total pre-tax income. This includes housing costs mentioned above as well as any credit card payments, car loans, personal loans, and student loans. This means your total new monthly payment AND all of your monthly debt should not exceed $1,949 a month (36% of $5,416).
If you have a lot of debt, it may be best to try and pay off some credit cards or other loans first before purchasing a home. It’s also important to remember that lenders are qualifying you based on your GROSS, pre-taxable income, which is typically not your take-home pay, so you should put together a budget to ensure that you are going to be comfortable with your new mortgage payment, and not end up “house poor”. Don’t forget to factor in other expenses such as utilities, ongoing home maintenance, and homeowner’s insurance.
If you think it may be time to take the leap and start your home-buying journey, send me a message. I would love to put you in touch with one of my trusted lenders!