Low interest rates have made it a lot easier to buy more expensive homes because most of us out
there only care about the monthly mortgage payment but the problem is just because you
think you can afford the monthly payment doesn't actually mean you can afford the house because
you've always got to understand that you're going to have the monthly mortgage payment
plus the other associated fees with owning the home like property taxes insurance hoa
fees and maybe even pmi which is private mortgage insurance if you don't have 20 down on your home
now normally it's recommended that your mortgage alone shouldn't exceed 28 to 31 percent of your
gross monthly income so for instance if you make a hundred and twenty thousand dollars a year gross
then you're going to be pulling in ten thousand dollars a month and if you go off thirty percent
then that's obviously going to be a three thousand dollar mortgage that's recommended for the home
that you can afford but i don't think this is a very good way to measure how much home you can
afford because for starters i think that you should at least be basing it off of your net
income meaning how much you're bringing home after taxes because that's really how much money you're
really seeing every single month and then on top of that you also need to account for like i said
the associated costs that are also going to come with the home that you own now the way i figure
out home affordability is pretty simple but it is my opinion so take whatever advice you want
from this and you can do the math yourself or you can search online and you can find other ways to
figure out how much home you can afford but this is just my simple way of doing it the first thing
i need to mention is how long your mortgage needs to be and honestly i don't have a problem with
30-year mortgages especially right now because interest rates are so low and i understand that
home prices keep going up now obviously if you can afford to get into a 15 or a 20-year mortgage
go ahead and do that but i'm okay with 30 years and that's what i'm going to base the math off of
and i also recommend that you try and put 20 percent down on your home because if you do
you're going to have a lower payment you're going to pay less an interest over time and you're not
going to be paying pmi which is private mortgage insurance if you're putting at least 20 down or
more on the home but i also understand that that's a lot of cash especially if you don't have equity
rolling over from another home like for instance if you're a first-time home buyer
and you're just saving up cash from the beginning it is hard to come up with 20
especially with the really high home prices so i'm okay here i'm gonna say that you can go between
10 and 20 down but don't go below 10 i want you putting at least 10 percent down and try for
20 if you can so in my opinion if you take on a 30-year mortgage and you put 10 to 20
down on the home then what i'm going to say here is that your mortgage and all the other associated
costs with owning the home should not exceed 30 to 35 percent of your net take-home pay so if
you happen to bring in 8 000 every single month after taxes then technically your mortgage and
the associated costs should be about twenty four hundred to twenty eight hundred dollars and that's
including everything and i would also factor in your existing debt as well because if you've got a
lot of monthly debt payments that you have to make then i don't want those exceeding 10 of your net
income so if you've got a car credit cards all sorts of debt don't exceed 10 of your net monthly
take-home pay so as an easy example here if you do bring in eight thousand dollars a month net then
all of your debt payments combined shouldn't be more than eight hundred dollars a month otherwise
you probably shouldn't be taking on a mortgage or you should be getting those debts chiseled down
before you take on a home because the big problem here is if you're already stretching out your
mortgage to 35 percent of your income and let's say you have 20 in debt payments then now you're
looking at 55 in total income being gone every single month for your house and those debts
and that's just too much money considering you have the rest of life that you have to pay for
so you really don't want to be house poor you want to be safe and you want to have money for
everything that's coming at you emergencies life groceries everything has to happen and you just
don't want to be stretched too far so if you want to figure out how much home you can afford
just take on a 30-year mortgage put 10 to 20 percent down on the home and then make sure
that your mortgage and the other fees don't exceed 35 of your net monthly take-home pay and then also
don't let your debt payments exceed another 10 of your monthly net so as long as you're at 45
or less including all of the debts then you're probably okay to go ahead and take on the mortgage