How Much House Can You Afford?
by Ellise Walsh

A home is the largest single purchase most people will ever make, and it is vital to know going in how much you can afford to borrow and what monthly payments you can afford. A home mortgage loan is a major commitment, and it is vital that you fully understand all the costs of home ownership. The last thing you want to do is find the home of your dreams and find you cannot afford it. By knowing up front how much house you can afford, you will save yourself a lot of wasted afford and frustration.

The amount of house you can afford will depend on a number of factors – things such as your annual income, the amount of cash you have for a down payment and other mortgage related costs, and the mortgage interest rate and terms available at the time you make the purchase. Obviously the lower interest rates are the more money you can borrow for the same monthly payment. It is important to know all these things in advance. Knowing about the interest rate, points, term of the loan and down payment are all very important.

In addition to these basic guidelines, the amount an individual home buyer can borrow may be affected by such things as other indebtedness and his or her overall credit rating. Borrowers with a lot of outstanding debt, whether in the forms of credit cad debt, a car loan, or other debt, may be able to borrow less than those borrowers for who the mortgage would be their only debt.

In addition, most home buyers should strive for at least a 20% down payment on their home. This can be a difficult goal to achieve, but the higher the down payment, the lower the monthly payments will be and vice versa. The potential mortgage borrower may want use one of the many mortgage payment calculators available on the internet to quickly calculate the monthly mortgage payment for a specific home price, down payment and interest rate.

In addition to mortgage calculators, there are a number of housing affordability calculators which potential borrowers can use. These calculators take the borrowers annual income into account, and they may also include such things as real estate taxes and normal home repairs to calculate the true cost of home ownership. The general rule of thumb in the mortgage banking industry is that total monthly housing costs, including mortgage payments, real estate taxes and homeowners insurance, should not exceed 28% of gross monthly income.

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