To calculate how much house you can afford, you need to consider your monthly income, expenses, debts, credit score, and down payment.
- Determine your monthly income: add up your income from all sources, including your salary, freelance income, or investment income.
- Calculate your monthly expenses: include all your regular monthly expenses, such as groceries, transportation, insurance, and entertainment.
- Evaluate your debts: add up all your debts, including credit card balances, car loans, and student loans.
- Check your credit score: a good credit score is necessary to secure a favorable mortgage rate.
- Calculate your down payment: you will need to save for a down payment, usually between 5% and 20% of the purchase price.
- Use an affordability calculator: an affordability calculator can help you estimate how much house you can afford based on your income, expenses, debts, and down payment.
Your affordability will depend on your financial situation, but generally, you should aim to spend no more than 28% of your gross monthly income on housing expenses, including mortgage, property taxes, and insurance. Additionally, your total debt-to-income ratio should be no more than 36%, including housing and non-housing debt. It’s essential to remember that buying a house is a significant financial commitment, and you should consider your long-term financial goals before making a purchase.
