How much can I afford?
Well, how much do you make? How much unsecured debt are you under? How good is your credit? Do you have any car payments? All these things and more can influence how much you can afford.
But isn’t there an easy time saving way to figure out how much home I can afford?
Well, yes, but it isn’t going to save you any time in the long run. You might as well go in and sit down with a mortgage broker. This way you can discuss your finances and walk out with a pre-approval in your hand. Now this will save you time!
But for those of you who have fun guessing, here is how you do it. Take your monthly income and divide it in half. If you have some debt, you may want to subtract the monthly bills from your monthly income first. After you have your income after debt divided in half, then multiply by 100. This is the home you can afford. Let me demonstrate below.
Say someone makes $3,478 net income each month.
They have $550 in monthly car and credit card payments. Your loans are what they are interested in.
After you subract the $550 from your net income you end up with $2,928.
Multiplied by 100 = $292,800 Here is the price of your home!
This method is fairly simple. A rule of thumb is every ten dollars of your monthly payment will equal one thousand dollars in the cost of your home. I know this is going to be fun to go out and dream of homes that fit this price range, but I promise you will benefit so much more from actually speaking with a mortgage broker. They can give you a closer amount and really go over the break down of how they come up with your specific number.
Remember you will also need this pre-approval letter for making an offer on any home. The seller will want proof that you can afford the home you want to buy before they spend their time, taking their home off the market and losing other potential buyers. You also need to remember that sometimes certain loans have additional costs that they end up needing to tack on top of the sale price of a home. This ends up making your loan a bit higher and lowers the amount you can offer on a home. When you speak with a mortgage broker they can explain.
I hope you have fun searching for your home. Don’t forget to also save money by getting a home inspection.
