One of the first questions new home buyers ask is “How much house can I afford?” Determining a price range that fits your budget is crucial before starting your search. Follow this guide to calculate the ideal home price your finances can support.
Crunch the Numbers on a Monthly Payment(Mortgage Calculator)Â
A good benchmark is allocating no more than 28% of your gross monthly income towards your mortgage payment (principal, interest, taxes, insurance). List your gross monthly income and multiply by 0.28 to get the maximum monthly payment you can afford.
Factor in Interest Rates
Interest rates impact your monthly payment. Currently average 30-year fixed rates are around 7.85% APR. Use an online mortgage calculator to determine potential payments at current rates on loan amounts you are considering. This will help refine your price range.
Consider Down Payment Amounts
The more you can put as a down payment, the lower your monthly payment will be. Saving 20% for a down payment also avoids the need for private mortgage insurance. Play with mortgage calculators using different down payment percentages to see the payment impact.
Account for Other Debt Obligations
Include your minimum monthly payments for all existing debts like credit cards, auto loans, and student loans to get a full picture of expenses that impact affordability. Your debt payments plus potential new mortgage should not exceed 36% of gross income.
Factor in Homeownership Costs
Beyond just the mortgage, account for home insurance, property taxes, HOA fees (if applicable), and maintenance costs in your monthly budget. Budgeting about 1-3% of the home’s value annually for maintenance is recommended.
Work with a Mortgage Professional
There are some great online mortgage affordability calculators, but nothing beats working with an experienced loan officer. They can crunch the numbers for your unique financial situation and clarify pricing options you can comfortably afford.
Determining the suitable home price range for your budget will give you confidence as you start the home shopping process. With some upfront research and expert guidance, you can find a home that fits your income and lifestyle.
