In the real estate business, it’s a question we hear quite often: How much mortgage can I afford? A lender will provide you with a maximum amount, but that doesn’t mean you should spend to the limit. In fact, a recent article on Forbes.com tackled this issue, and following is a brief recap of the story.
- Calculate your monthly cost. A good place to start is with Trulia’s mortgage calculator (click on the “advanced” feature). This will ask for important information such as insurance costs, property taxes, private mortgage insurance, etc., and will provide you with a true monthly cost estimate.
- Know your legal limits. By law, lenders can’t approve mortgages that would require more than 35 percent of your monthly income. Most lenders, however, enforce stricter requirements, limiting a mortgage payment to 28 percent of a borrower’s monthly income.
- Use 28 percent of your monthly income as your rule of thumb when preparing your budget for buying a home. Quick math: Multiply your monthly income by 28, then divide that by 100. The answer is 28 percent of your monthly income. According to the article, the median income in the U.S. is $55,775. If this were your income, you’d make about $4,648 per month, and 28 percent of that monthly income comes out to about $1,300. That means you could spend $1,300 on a mortgage, maximum. But, paying less means a smaller strain on your budget.
Some people don’t mind working for their home, while others like to keep a little more cash in their pocket for things like entertainment and travel. The decision is yours. Choose wisely!