A crucial step in finding the right home is to first
determine how much you can afford to spend on your new home. First, let's
calculate an affordable monthly payment. To calculate this value, we will
use a housing-expense ratio of 33%. This means that 33% of your monthly
income can be spent on mortgage payments, including property taxes and
insurances. Take your gross (before taxes) income each year and divide by 12
to determine a monthly income. Multiply the monthly income by 33% (.33) to
calculate an estimated monthly mortgage payment.
(gross income)/(12) = (monthly income) x (.33) = Estimated Monthly Mortgage
Payment
Example: Bob makes $60,000 a year. Therefore his monthly income is about
$5000. If he has a housing-expense ratio of 33%, his monthly mortgage
payment will be $1650 (5000 x 0.33).
Now, to determine the price of a house you can afford,
choose an interest rate between 5.25% to 10% and use this mortgage
calculator.
After you have determined the affordable cost for your
new home, it is important to get pre-approved for your loan. A
pre-approval letter will give you purchasing power with your real estate
agent. You will know exactly how much house you can afford and how
much of a down payment will be required.
Take your pre-approval letter to your real
estate agent who can provide you with listings for
houses available
in your price range and which suit your personal needs.
