Learn how to calculate how much house you can get per your dollar before you hit the open house or start applying for mortgages.
Purchasing your first home is one of the most important and exciting financial milestones of anyone’s life; a true step towards adulthood. But before you hit the streets with a realtor, you need to have a realistic sense of a realistic budget. Exactly just how much house can you afford? It’s important to know this budget because you don’t want to waste your time on houses you ultimately won’t be able to afford. You can determine if you are financially ready for homeownership by following three simple rules based on different percentages of your monthly income.
The Three Simple Rules
Rule of 28: Maximum Mortgage Payment
The golden rule in determining how much home you will be able to purchase is that your monthly mortgage payment should not exceed 28 percent of your gross monthly income. For example, if you and your wife have a combined annual income of $100,000, your mortgage payment should not exceed $2,333.33.
Rule of 32: Maximum Housing Payment
The next rule posits that your total housing payment should not exceed 32 percent of your gross monthly income. These housing payments include things like mortgage, homeowners insurance, association fees, property taxes, etc. That same couple from before should limit themselves to $2,666.66 per month.
Rule of 40: Maximum Overall Debt Payments
Your total debt payments should not exceed 40 percent. These debt payments include, housing payment, auto and student loans, and any credit card you may have should not exceed 40 percent! If we still want to use that same couple again, all their payments should not exceed $3,333.33.
Homeownership is a very important step in anyone’s life, but you should not dive in head-first without doing research. For all of your home loan needs throughout Solana Beach and San Diego County, as well as all of California, contact Elvin Wesley at Ranch & Coast Mortgage Group Inc. We have the experience needed to make sure you get the right mortgage.
