This is How Much Mortgage You Can Afford
Budgeting for a mortgage can be tricky, especially for first-time homebuyers. It can feel pretty abstract and complicated, but it’s so important to know how much mortgage you can afford before you start the homebuying process. Luckily, it’s pretty easy to get a rough estimate of how large of a monthly mortgage payment you can afford. Just follow these 3 simple steps to find out your mortgage payment ceiling.
Step 1: Calculate your gross monthly income. Sum up all of your (and your partner’s, if applicable) monthly income before taxes. Think about your day job, side hustle, and investment income for this. Since this is what your mortgage calculation will be based off of, make sure that what you’re including in your monthly income is at least what you expect to earn in the next few years. For example, let’s say that your family brings home $8,000 per month before taxes.
Step 2: Multiply your gross income by 0.43. Generally, lenders won’t give you a mortgage that is more than 43% of your gross income. By finding this number, you’ll get a feel for the ceiling of what your mortgage payment could be. From our example with an $8,000 monthly income, multiplying by 43% gets you $3,440.
Step 3: Subtract your monthly debt. If you have any car payments, student loan payments, credit cards, or any other debt that you’re paying off, subtract it from the number you got in step 2. This will make sure that you’re not overextending yourself on debt payments and your mortgage payment. For example, let’s say that you have $1,200 of monthly debt. Subtracting that from $3,440 gives you $2,200.
After you complete step 3, you have the final monthly mortgage payment that you can afford. Keep in mind that this number reflects the most you can afford for your mortgage, which should include the house payment, interest, taxes, HOA fees and anything else that will be wrapped into your payment. This estimate is handy to have to see how your budget stacks up against the homes that are available in your market so you can see if you need to adjust your budget or what you're looking for in a home.
If you’re ready to seriously dive into the real estate market and want more than a rough estimate of how much you can afford, you can talk with a lender about getting pre-approved to buy a home. Want to talk more about how you can buy a home in our market? Contact us!