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December 08, 2014

How Much House Can I Afford?

Top 5 Ways to Make Sure You Get Your Dream Home

“Can I afford a house?” This is the first question that most homebuyers ask, especially those who are thinking of buying a new home for the first time. The second most frequent question is a variation of it: “How much house can I afford?”

The answer to the question of whether you can afford a house or not rests not only on how much money you’re making - although it’s a major consideration - but also on other factors:

1. Debt-to-income ratios

Lenders would like to see how you’ll cope with your monthly mortgage payments on top of your living expenses and debt obligations. When it comes to debt payments, lenders would like to see if you can comfortably pay for your monthly obligations. That means, they're going to calculate how much income you’re left with after you've paid your debts. The rule of thumb is that your debts should be 36% of your monthly income. By monthly income here, we mean your income before taxes.

To calculate: Gross monthly income x 0.36 = Net monthly income

The reasoning behind the debt-to-income limit is simple: the more debt that you have to pay each month, the less money you have available for mortgage payments. The lower the DTI, the bigger the home you can afford.

Although you'd want to aim for a 36% DTI, most real estate agents like me would be very happy if you can do better and limit your debts to 20% of your income. If you’re going to get an FHA loan, however, you can afford a DTI as high as 41%.

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About the author:

Robert Greene is a DeLand, FL real estate agent who has been helping home buyers and property sellers in the West Volusia area since 1978. If you’re looking for homes in DeLand, Deltona, Debary, Lake Helen, Orange City, Barberville, and Pierson, FL, he is one of the top Realtors that comes highly recommended by his peers and clients. He has been recognized by the local board of Realtors as the Top Commercial Seller for 2010 and as a Top Ten Residential Producer for 2011.

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