Helpful Tips! How Much Can You Afford To Invest In A House

Here are the steps to figuring out how much you can afford to pay each month:

  1. Multiply your monthly gross income, before taxes and other expenses, by thirty-six percent (or 0.36).
  2. Add up all of your family’s fixed monthly debt expenses.  These include car payments, student loans, minimum credit card payments, or child support.  Do not include any payments that fluctuate from month to month, like groceries or utilities.
  3. Subtract your fixed expenses (step 2) from your total monthly debt (step 1).
  4. This number is your maximum mortgage payment allowance.

Keep in mind that your monthly payments will also include insurance and property taxes, so take that into consideration.  Interest is also a huge part of your monthly payment.  If you have not already locked in an interest rate, check the current rates online to calculate what your monthly interest payment would be.  When interest rates are low, it is a great time to move forward; just a few percentage points can make a huge difference in your loan.  Online there are many web sites with mortgage calculators that can help you calculate this figure.

  • Of course, the monthly payment you can afford and the monthly payment you are comfortable with are two different things.  It is also important to consider family circumstances and other spending habits when deciding how much you can afford.  For many families, it is worth it to buy a less expensive house, in order to afford vacations and other luxuries.  Also keep in mind that variable expenses, like groceries and gas, are likely to go up over time, and larger homes will generally cost more in utilities.
  • It is also important to consider that circumstances can change.  If you are thinking about having children, or bringing elderly parents in to live with you, you will need to think about the necessary space and the expenses that go with these lifestyle changes.  A home is a long-term commitment. We’d all like to think that our income will go up through the years, but unfortunately this is not always the case.  Keep all these factors in mind when considering how much you are comfortable with in monthly payments.

Once you have this figure in mind, you can focus on seeing homes that meet your needs and are comfortably within your price range. Doing the math ahead of time is not the most enjoyable part of house hunting, but it will leave you with the peace of mind knowing that you are looking at homes that you truly can afford

About the Author: Paula Henry sells Fishers Indiana Real Estate, condos and investment properties.

Gilbert Salinas ~ Owner of Homeowners Servicing Company

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