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How Much House Can I Afford?

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How Much House Can I Afford?
Houses
Gross Annual Income Monthly Debt Payments
(Car payments, credit cards,
student loan payments, etc.)
Funds Available for a
Down Payment
$ $ $
Annual
Property Taxes
% Annual Property
Insurance
%
Interest Rate % Loan Term (In Years)
Front End Ratio % Back End Ratio %
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How to use the Home Affordability Calculator

Use this home affordability calculator to get an estimate of the property price you can afford based upon your income and debt profile.

Prequalifying for a mortgage is simple, and is intended to give you a working idea of how much mortgage you can borrow. Combined this amount with your down payment, and you'll answer your question of “how much house can I afford?” This is not the same as being preapproved for a loan, which involves placing an application and providing documentation to a lender.  

Remember -- this is just a guide. Your final amount will vary depending on a number of factors, especially interest rate, which will be based on your credit score. When you're ready, a lender can give you a more exacting figure.

To produce estimates, both Annual Property Taxes and Insurance are expressed here as percentages. Generally speaking, and depending upon your location, they will generally range from about 0.5% to about 2.5% for Taxes, and 0.5% to 1% or so for Insurance.

Front End and Back End debt ratios are to determine how much of your monthly gross income can be used for your mortgage debt (front end) and how much can be used to satisfy all your regular obligations (back end). The 28% and 36% ratios are standard in the mortgage world, but lenders may have other combinations available, such as 33%/38%.

For an example calculation, lets use a $60,000 annual income, $250 in monthly debt payments, $20,000 to use as a down payment, property taxes of 1.25% of the property price you can qualify for and annual homeowner's insurance premiums of about 0.5% of the value of the home.

With a 4% interest rate and a 30-year term, and using a 28% housing ratio, this means you can utilize $1,400 per month for Principal, Interest, Taxes and Insurance; with your down payment of just 8.89% of the purchase amount, Private Mortgage Insurance costs will also be  included in that $1,400 figure.

$1,400 per month qualifies to borrow a mortgage of $204,913; add your $20,000 down payment to this, and you can purchase a home of $224,913.

Your debt load as a percentage of your income is low enough so that the back-end "cap" of 36% of your monthly gross income doesn't come into play. In fact, the 36% cap means you can carry as much as $400 per month in debts and still qualify for the amount above.

If your debts are above 36%, don't worry. Fannie Mae and Freddie Mac are now backing loans with back-end debt ratios of as much as 50%. While less debt is better, more doesn't necessarily mean you can't qualify for a mortgage large enough to buy a great home.

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