How Much House Can You Afford?
When you’re debating about making the jump from being a renter, a great idea is sitting down and crunching some numbers, and an obvious question to ask is, “how much house can you afford?
While there are a lot of factors depending on your personal situation, let’s run some numbers based on a gross household income of $80,000 annually, which breaks down to $6,666 per month.
1) 28% rule: your maximum monthly mortgage payment should not exceed 28% of your gross monthly income, or $1866 using our household income example.
2) 32% rule: your total housing payments (including the mortgage, homeowner’s insurance, and private mortgage insurance [PMI], association fees, and property taxes) should not exceed 32% of your gross monthly income. Our example would come out to $2133 per month.
3) And finally the 40% rule: your total debt payments, including your housing payment, auto or student loan payments, and minimum credit card payments should not exceed 40% of your gross monthly income. With our example, you would be looking at $2667 per month.
As interest rate change, remember to take that into account when figuring out the list price of house you can afford. Using a mortgage calculator is a great start before going to a lender when you can then get pre-approved. the average household in the united states spends 33% of their monthly income on housing, and in another video, I’ll look into some downpayment sources that will compliment this video.
If you’re looking to learn more about how to find the right house for your goals, don’t hesitate to get in touch by following me @joesteelerealestate across all platforms. Prefer a video version of this blog? Please watch below and subscribe for more content like this!