Instead of just taking out the biggest mortgage a lender qualifies you to borrow, consider how much you want to pay each month for housing based on your financial and personal goals.
1. The general rule of mortgage affordability
You can usually afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home between $200,000 and $300,000.
2. Factor in your down payment
How much money do you have for a downpayment? The higher your downpayment, the lower your monthly payments will be. If you put down at least 20% of the home’s cost, you may not have to get private mortgage insurance, which costs hundreds each month. Talk to your lender about this1
3. Consider your overall debt
Lenders generally follow the 28/41 rule. Your monthly mortgage payments covering your home loan principal, interest, taxes, and insurance shouldn’t total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, shouldn’t exceed 41% of your gross annual income.
4. Use your rent as a mortgage guide
The tax benefits of homeownership generally allow you to afford a mortgage payment—including taxes and insurance—of about one-third more than your current rent payment without changing your lifestyle. So you can multiply your current rent by 1.33 to arrive at a rough estimate of a mortgage payment.
If you’d like to get qualified for a mortgage, please call Debey Batman at (925) 824-4848. Debey has over 20 years of lending experience, and she is a preferred lender for The Hagley Group.
Ready to buy your home? Call The Hagley Group today at 925-824-4877.