When you’re buying a home, mortgage lenders don’t look just at your income, assets, and the down payment you have. They look at all of your liabilities and obligations as well, including auto loans, credit card debt, child support, potential property taxes and insurance, and your overall credit rating. Use our new house calculator to determine how much of a mortgage you may be able to obtain.
If you want to calculate how much house payment you can afford, you can use our calculator. However, this process does not just mean you calculate how much house you can afford based on a salary. It takes more than your take-home wage to determine what you can afford. How much you can afford will also depend on:
- Your down payment. If you have at least 20% of the home’s purchase price available as a down payment, you can save on private mortgage insurance, and you may be able to show the lender you’re serious about homeownership and are in a position to make this financial choice. How much you’re able to save for a down payment can determine how much house you can afford.
- Your savings. While savings are needed for a down payment, you also need money set aside for other costs, too. For example, you need to have money for homeowner’s association fees, repairs, maintenance, property taxes and the other costs of homeownership. Having some money set aside shows lenders you are ready for owning a home and ensures you have money to pay for the costs of owning a property, which includes costs above and beyond the mortgage. Having cash on hand can also make you more attractive to lenders and can help you qualify for a good rate.
- Your credit score. A credit score is a three-digit number that is compiled by organizations called credit bureaus. Each time you pay a bill, open a loan or utility account, are late paying a bill or run an overdraft, the credit bureaus are informed. They compile the information in your credit report, which is a snapshot of your money history. Credit scores are not based on your income, but rather on your ability to meet your obligations. It has a direct impact on the rates you are offered for loan products, including mortgages. If your credit score is not close to perfect, you can improve it before shopping for a home by paying bills on time, paying down your debt and by holding onto the credit cards you have had longest.
- Front-end ratio. This is tabulated by adding your mortgage interest and loan amount, mortgage insurance, property taxes and homeowners’ insurance and dividing that total by your monthly gross income. The total amount should not be higher than 25-30%, preferably on the lower end of that scale.
- Your debts. If you have high debts, a mortgage will add to your debt load and will reduce the amount of house you can afford. Paying off your credit cards and other debts before you start seeking a home can help you get a little closer to home ownership.
Use the free, unbiased calculators at Money Help Center to play with the numbers. Adjust your down payment and other factors to see how much home you could afford with just a few changes.