How many mortgages Can I Afford: If you’re looking to buy a home, one of the first questions you’ll ask yourself is how much mortgage can I afford? If you’re aiming to buy an average-priced home in the U.S., your mortgage payment shouldn’t exceed 25% of your gross monthly income, according to conventional wisdom. Of course, this varies based on factors like whether you have other debts or savings obligations and whether you need to support dependents financially.
Qualifying for a mortgage
If you’re ready to purchase a home, you’ll need to qualify for a mortgage. Qualifying is different from getting approved; qualifying is all about your financial stability and income level. To figure out how much mortgage you can afford, there are three main things you need to know: your monthly income, your debt load, and how much money you want to spend on a house. Then use that information to calculate your house payment and compare it with what you can afford each month (in addition to rent or bills).
How much down payment do you need?
Your down payment percentage will affect how much you’ll be able to borrow, and how much your monthly mortgage payment will be. For example, a 20% down payment means you’ll need a $400,000 mortgage to purchase a home that costs $800,000. But if you have only 10% of that down payment saved up, your mortgage company will only loan you $200,000—and now your home is only worth $600,000. As you can see from that simple example above; even small differences in your down-payment percentage can make a big difference in both how much you can borrow and how much your monthly payments are going to be.
The front-end ratio
When you’re buying a home, two types of ratios are important: front-end and back-end. The front-end ratio looks at your mortgage payment and monthly bills and divides them by your monthly income. For most people, lenders say that it should be no more than 28%. If you’re planning to put down less than 20%, some lenders may want to see it as low as 24%. That means if you make $4,000 per month (before taxes), then you can afford a $1,600 mortgage payment. But what about other bills?
Applying these rules to real-world scenarios
When trying to determine how much mortgage you can afford, it’s important to think about your situation and take into account all of your financial obligations. While you might qualify for a mortgage with an 8% interest rate, that doesn’t mean you should use it; if you do, you could have trouble making your mortgage payments in a few years if your financial circumstances change. Instead, consider taking on a smaller loan with a lower interest rate. Then use whatever money is left over to pay down any other debts that carry high-interest rates (like credit cards). This will ensure that no matter what happens—you won’t get buried in debt because of irresponsible borrowing decisions.
