How Much House Can I Afford?
In addition to having the cash for the down payment, closing costs and good credit history, the mortgage lender will want your house payment and other debts to conform to accepted qualifying ratios. While 28%/36% are the traditional ratios, lenders will allow up to 40% / 50% based on a strong credit score and other strong factors. FHA and some other loans can go as high as 55% on the total DTI ratio.
The 1st number is for the housing expense, and the 2nd number includes your long term obligations to arrive at your Maximum total long-term monthly expense allowance which calculates your Debt to Income Ratio (DTI).
Mortgage qualification is based on the total monthly payment including Principal and Interest, Real estate taxes, homeowners insurance, HOA or Condo association fees, and PMI (or private mortgage insurance if a loan has less than 20% down payment).
If you are applying for a home and have only other credit card and installment accounts, generally lenders start at your 28 % / 36% ratios for house and total debts.
If you own other properties or will have country club fees, or have a lot of other long term obligations then they will look at your total debts of 50% as the maximum cap first and then your maximum housing expense you are applying for capped at 40%. If you have a lot of other long term obligations then the mortgage expense will be on the lower end – the maximum total of 36% – 50% rules. The calculators below use the 28 / 50% ratio,.
These are guidelines to help you get started with your planning, you definitely need to speak to a lender to give them your full details so they can give you an accurate answer and pre-qualification.
It you are buying in a country club where there are mandatory annual dues, these monthly dues and assessments are also included in your total monthly payment calculation.
Review the various Country Clubs in Boca Raton and Delray Beach for their annual dues and fees. I’m working on a Best Tips to Buy in a Country Club article and will post shortly, so check back. I have an article on Tips and Insights for buying a Vacation Home here if you would like to read it.
Below is a WORKSHEET that can be printed to help you calculate your monthly income and expenses. It walks you through the steps on how to calculate your Monthly Payment and Potential Mortgage. Use the calculators below the form to do various payment calculations. The form may seem a little confusing but I am working on some example scenarios and will post them with the blank worksheet.
There is also a mortgage calculator on each listing detail page that automatically calculates the payment for that property although it only includes principal and interest.
Hidden Costs of Home Ownership
It’s important for you to set up a Budget before you even decide on looking for a home. Many people don’t anticipate or underestimate the cost of home maintenance, fluctuating utility bills and major repairs. It costs about 3-5% each year based on your home’s value to do maintenance repairs and home improvements.
So on a $250,000 home that works out to about $7,500 -12,500 per year, how large this becomes depends on how much home improvement you want to make. Studies show many people only have about $500 for these emergencies. Owning is not the same as renting when it comes to repairs either – it will be your cost to hire electricians or plumbers or roofers to fix things.
If your home already has many updates this amount will be less, if it needs updating, it will be more. If you are a “Do-It-Your-selfer” you can save a lot of this, say for example for painting or minor repairs, but you need to anticipate what it may cost you. Major repairs and updating will require professionals and / or building permits.
Also budget in your personal living expenses – dining and entertainment, clothing and personal expenses, plus it’s good to budget for savings and retirement. So you may qualify for more house but it may not be a good idea to spend that much.
“What House Can I Afford to Buy” Worksheet
Print out this worksheet with your actual income and debt figures and use the Mortgage Calculator below this to determine potential loan amounts and monthly payments.
|Column A||Column B|
|Annual income before taxes (gross):||$________|
|Divide by number of months:||÷ 12|
|Monthly gross income:||=___________||=____________|
|Maximum monthly housing expense allowance:
Lender’s allowance for monthly gross income on housing expense (either 28% or 33%)
– Maximum monthly housing expense allowance
|DTI – Debt to Income Ratio – Maximum total long-term monthly expense allowance:
Lender’s allowance for long-term debt
(either 36% or 38%) FHA & some others allow 50% +
|Figure out your monthly long-term obligations below, and subtract if from the allowance: ACTUAL EXPENSES|
|– 1st auto loan
– 2nd auto /installment loan:
– Personal installment loans
– Min monthly credit card pay’s – Borrower #1
– Min monthly credit card pay’s – Borrower #2
– Secondary house expense (Vacation or Invest):
– Other: alimony, child support, student loans
– Other: Country Club Monthly Dues
– Total long-term obligations:
|Monthly actual housing expense allowance:||=___________|
|Maximum DTI or Total long-term monthly expense allowance (36 – 50%)||$___________|
|LESS: Estimate for taxes, insurance, HOA, and PMI – SEE THE MORTGAGE CALCULATOR BELOW THIS FORM||-$__________|
|Allowable monthly principal & interest expense:||=$____________|
|TO CALCULATE ESTIMATED MORTGAGE AMOUNT:|
|These tables and calculators do not calculate a maximum estimated mortgage amount from the estimated monthly payment. You can try several different loan scenarios – REMEMBER your total monthly payment must be at 28% max of your monthly income|
|Maximum total monthly payment amount||$____________|
|Estimated Qualifying Mortgage Amount||$____________|
* Review for Determining best mortgage, and Conventional and FHA loan limits
Mortgage Calculators to Determine Monthly Payments, Affordability and Qualification:
I have several mortgage / home buying calculators you can work with – the ones below are related to home purchases – you can view all the calculators on this page – Calculators and Tools – plus Should I Refinance, Should I Pay Off a Mortgage Early and Tax Savings When you Own a Home
- Choose your loan amount, down payment (by $ or %), interest rates.
- Almost all online calculators do not have a separate field for HOA (home owners association or condo association monthly fees), so if there is an HOA or any other monthly fee, include that monthly fee in with the Home Insurance field so you are sure to include all costs that will be considered to obtain loan approval.
- The calculators below have various fields included and they explain where to add missing items if you want to include them.
- If you are doing at least the 20% down payment then you don’t need to pay PMI insurance because it is only required for loans with less than 20 % down, so just mark that field as “0”.
- Real Estate Property Taxes that you see on a listing sheet are based on the current owners tax situation (homestead or not). Here is a page on how property taxes are calculated in Florida. As a general ball park rule, you should anticipate about 1.5% of the purchase price for your new taxes.
- The Closing Costs field should be completed as “0”, except if the Costs are to be included in the mortgage amount, which usually applies only to VA (Veterans) loans and only if a buyer wants to include them.
- After you Calculate your mortgage payments, you can also see an Amortization Schedule that shows you the breakdown of principal and interest and loan balances each year.
- The base rate for PMI is .55%, however it can go as high as 2.25% of the original loan amount, and is payable each year. The rate is determined by the percentage of down payment, the credit score range, and total DTI or Debt to Income ratio. Other variables affecting the rate are loan term, number of borrowers and if for a purchase or re-finance. This website has an excellent PMI calculator where you can plug in these variables and get an estimate of what the PMI could be. You need to verify actual figures with a lender as there are other variables that could affect your entire loan scenario.
- All website calculators are very basic and may be missing important information. They are provided to help give you a general idea, please verify with a lender to get the complete details,
Mortgage Payment Calculator
Basic Mortgage Payment Calculator – include HOA and Country Club Fields with Home Insurance field to get a more complete number.
How Much Income Do I Need in Order to Qualify for a Home Purchase?
Detailed Calculator including Taxes, Insurance and HOA – use the HOA field to include any other Country Club Membership dues
Simple Calculator that shows how much house you can afford to buy.
Rent VS Buy Calculator
Calculate the Comparison of Continuing to Rent or Purchasing a Home
TIP: I am always updating pages and posts and am working on adding more calculators and forms to this website. So check back for additional information.