There are several methods banks and mortgage companies use to figure out how much of a monthly payment you can afford. There are debt ratios, down payment calculators, and disposable income, etc.
Disposable income is the best method to calculate how muh of a house payment you can afford. Basically figure you need $1000 per month for the first person in your home and $500 per month for each additional person. Then you need to apply the remaining money to current outstanding debts. What is left over is how much of a payment you can reasonably afford.
Down payment calculators also give a good indication as to how much of a house you can afford. If your disposable income allows you to afford a $200,000 mortgage but you only have $20,000 for a down payment you should not purchase more than a $90,000 house. The reason is you should put 20% down on a 15 year mortgage, I know 30 year mortgages are very popular, but the fifteen allows you to have greater financial freedom sooner. Also you will want to keep some of your savings to cover the cost of moving into your new home.
While many proffesionals in the mortgage and real estate industry will push you to purchase more expensive homes and reach your calculated limits, remember they are commision driven and the more you spend and finance the more money they make. While they are concerned about their personal finances more than yours, you should only concern yourself with yours and becoming financially stable and free as quickly as possible.
Here is an article I wrote a while back that further explains how to use disposable income to calculate how much house can you afford.
Disposable income is the best method to calculate how muh of a house payment you can afford. Basically figure you need $1000 per month for the first person in your home and $500 per month for each additional person. Then you need to apply the remaining money to current outstanding debts. What is left over is how much of a payment you can reasonably afford.
Down payment calculators also give a good indication as to how much of a house you can afford. If your disposable income allows you to afford a $200,000 mortgage but you only have $20,000 for a down payment you should not purchase more than a $90,000 house. The reason is you should put 20% down on a 15 year mortgage, I know 30 year mortgages are very popular, but the fifteen allows you to have greater financial freedom sooner. Also you will want to keep some of your savings to cover the cost of moving into your new home.
While many proffesionals in the mortgage and real estate industry will push you to purchase more expensive homes and reach your calculated limits, remember they are commision driven and the more you spend and finance the more money they make. While they are concerned about their personal finances more than yours, you should only concern yourself with yours and becoming financially stable and free as quickly as possible.
Here is an article I wrote a while back that further explains how to use disposable income to calculate how much house can you afford.
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