This is the most important question to ask yourself before you head out on the market to find your dreamhouse. We've gathered information from a few sources that will help you calculate the size of the mortgage you can qualify for, and the size of the down payment you'll need. After you work out the rough figures, you'll need to see a lender, who can help you prequalify for a loan.
Sources:
Disclaimer: This information is provided as reference. It is not to be construed as, or intended to replace, financial advice from a bona fide lender or real estate consultant.
| 1. Total Income per Month | Includes gross salaries, commissions, alimony and child support, interest and dividends. |
| 2. Allowed Debt | Multiply income by .36, the maximum amount of monthly debt most lenders allow. |
| 3. Total Debt per Month | Includes car payments, credit card minimum payments, alimony, child support, and any other financial obligations. |
| 4. What You Can Afford | Subtract line 3 from line 2. This is the amount you can afford for the principal, interest, taxes and insurance (PITI). |
| 5. Escrow Holdings | Multiply line 4 by .14. This is the percent of the PITI payment which will be held in escrow for property taxes and insurance. |
| 6. Principal and Interest | Subtract line 5 from line 4. This is the monthly principal and interest portion of the monthly income payment. |
| 7. Your Mortgage | Go to the Mortgage Payment Calculator and locate the current interest rate. Find the closest figure to the one you figured on line 6. Follow across the row to see how big a mortgage you can afford. |
| 8. Down Payment | Most lenders require 5% for a down payment. Go to the Down Payment Calculator to determine the down payment you can comfortably afford. |
| 9. How Much House You Can Afford | Add the mortgage amount from line 7 to the down payment on line 8. This is what you can afford. |
Remember, buying a home is the largest and most important investment most people make in a lifetime. And there are many different ways to finance a home. Your lender or a real estate consultant can tell you about many different kinds of lending programs.
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