Determining how much you can afford to spend on a home depends on various factors, such as your income, debt-to-income ratio, credit score, down payment, and other financial obligations.
Here are some general guidelines to help you estimate a reasonable home price range.
Determine your monthly income.
Start by calculating your monthly income, including all sources of income such as salary, bonuses, and investments.
Calculate your monthly expenses.
Next, calculate your monthly expenses such as car loans, student loans and credit card payments.
Determine your debt-to-income ratio.
Your debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income. A lower DTI generally means you can afford a higher home price. To calculate your DTI, add up all of your monthly debt payments (such as car loans, student loans, and credit card payments) and divide that number by your monthly income. The resulting percentage is your DTI.
Your DTI should not exceed 50% after your mortgage payment is included in your calculations.
Consider your down payment.
A larger down payment will lower your monthly mortgage payments and allow you to afford a more expensive home. Most lenders require a down payment of at least 3% of the home’s purchase price, but there are programs available with 0% down. Ask your Loan Officer which program if best for your unique needs!
Use an affordability calculator.
You can use an online affordability calculator to estimate how much home you can afford based on your income, expenses, and down payment. Our mobile app, Pro Snap, allows you to calculate your potential mortgage payment in the palm of your hand.
Remember that buying a home involves additional costs beyond the purchase price, such as closing costs, property taxes, and homeowner’s insurance. It’s important to consider all of these expenses when determining how much you can afford to spend on a home.