"How much house can I afford?" is a question we hear frequently from those looking to purchase a new home. The mortgage you can afford depends on many factors, including your target monthly payment, annual income, and down payment amount.
A mortgage affordability calculator helps you determine what you can comfortably afford to pay based on your personal circumstances. It evaluates the percentage of your monthly income that goes toward existing debts to help identify how much extra you have to spend on a mortgage payment. Your remaining income after debt and taxes should be enough to cover living expenses and savings goals, and it is wise to have some cash set aside to accommodate any unexpected repairs or financial emergencies.
Include all of you and your co-borrower's monthly debts, including: minimum monthly required credit card payments, car payments, student loans, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.
Do NOT include: credit card balances you pay off in full each month, existing house payments (rent or mortgage) that will become obsolete as a result of the new mortgage you are seeking, or the new mortgage you are seeking.
Whether you’re a first-time buyer looking for the perfect starter house or a seasoned pro trading up to your waterfront dream home, you are probably asking the same questions: Can I afford this? And is this the right move at the right time?
It’s very important to know not only how much you earn but how much you spend per month. Even with low mortgage rates, a mortgage payment and the additional monthly expenses that go along with owning a home could break your budget.
You should outline how much you currently spend on the following categories: auto and transportation, bills and utilities, education, entertainment, food and dining, gifts and donations, health and fitness, home, kids, personal care, pets, shopping, taxes, travel and other miscellaneous monthly expenses. How much do you have left over to put toward a mortgage?
A typical rule of thumb is you should not put more than 36 percent of your income toward debts (mortgage payments, car payments and credit card payments), 31 percent toward taxes and then have 33 percent for everything else (including savings or investments). Of course you will probably have to consider other factors such as the average cost of living in your area, median house prices and your immediate need for more or different housing space.
You will likely need a significan down payment in order to buy a new house (mostly likely 3.5 percent or more; 20 percent down is the most common). Do you think you will have enough money for the necessary down payment, closing costs, plus the new monthly mortgage payment? Will you have enough money either in your savings or your monthly budget to buy discretionary items? Do you have enough money in savings in case of an emergency such as an injury or a broken water heater?
It is important to not completely raid your savings when you buy a new house. It is always advised to expect the unexpected with homeownership. In general, you should budget 1 to 3 percent of your budget on house repairs and maintenance.
To easily determine how much house you can afford, use the Zillow home affordability calculator.