As a rule of thumb, a house buyer will typically spend about a third of his or hers income on financing a home.

The first thing you need to do, is to find out how much house you can afford on your income.

Mortgage lenders will look at your ability to repay the mortgage loan to estimate how big a mortgage, they can give you.

Usually they will look at:

-Your credit history.

-Your monthly gross income.

-How much cash you can come up with for a down payment,which is usually 10 percent to 20 percent of the house price.

-Your monthly expenses.

You should try to pay off as much debt as you can before shopping for a house, such as car loans and credit card bills. Then you should try to save a couple of hundred dollars a month for the down payment to bring down the loan amount.

So, how much house can I afford based on my income, you ask ? This question is answered by a few general mortgage rules of thumb:


The “28/36 rule” rule:

Generally speaking, a mortgage lender will say, that your monthly mortgage payment — including principal, interest, real estate taxes and homeowners insurance — should not be more than 28 percent of your gross monthly income (before taxes). This i also called the Front-End ratio. So, as an example, if your gross monthly income is $3,500, your house payment or rent should be less than $980.

Also, your total monthly debt (all debts) obligation should not be more than 36 percent of your gross income. Total debt includes the mortgage payment plus other obligations such as car loans, child support and alimony, credit card bills, student loans, condominium association fees. (Government lenders may be more lenient.). If your gross income is $3,500, your TOTAL debt obligations should be less than $1,260 a month. This is your debt-to-income ratio., or Back-End ratio.

There are a few other considerations to calculate, when deciding how much home you can afford:

Real estate taxes — Since taxes are part of your monthly mortgage payment, it is important to get an estimate of the property taxes in the area where you want to look for a home. The national US average for the annual property tax is $3,500.

Homeowner’s insurance — You must insure your property in order to obtain a mortgage. You can get an estimate of insurance costs from your insurance agent or a major insurance company in the area where you are house hunting. Inquire about special requirements for hazard insurance, such as mandatory coverage for floods, earthquakes, or windstorms in coastal areas. The Homeowners insurance average is $481.

If you put down less than 20 percent of your home’s value, you also will have to pay private mortgage insurance (PMI), which usually will cost you from 50 to 75$ per month.

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