When calculating the amount of housing you can afford, we take into account some key things such as your household income, monthly debts (for example, car loans and student loan payments), and the amount of savings available for a deposit. As a home buyer, you want some convenience in understanding your monthly mortgage payments.
While your household income and regular monthly debts can be relatively stable, unexpected, and unexpected expenses can affect your savings.
A good general rule of accessibility is to have three months of payments in reserve, including payment for your home and other monthly debts. This way you can cover your mortgage payment in the event of an unexpected event.
How Does Your Debt-to-Income Ratio Affect Affordability?
An important measure your bank uses to calculate the amount of money you can borrow is the DTI ratio, which compares your total monthly debt (for example, your mortgage payments, including insurance payments and property taxes) with your monthly income before tax.
Depending on your creditworthiness, you may qualify in a higher proportion, but overall, your housing costs should not exceed 28% of your monthly income.
You can also reverse the process to find out what your living budget should be by multiplying your income by 0.28. In the example above, this would allow a mortgage payment of $1,260 to reach a DTI of 28%. (4500 x 0.28 = 1.260)
How much house can I pay with an FHA loan?
In order to calculate the amount of the house you can afford, we have assumed that with a deposit of at least 20%, you could get a traditional loan. However, if you are considering a deposit of at least 3.5% lower, you can apply for an FHA loan.
FHA guaranteed loans also have more flexible rating standards, which you should keep in mind if you have a lower credit rating. If you want to study an FHA loan in more detail, use our FHA mortgage calculator for more details.
Conventional loans can only result in down payments of 3%, although the qualification is a little more difficult than with FHA loans.
How many homes Can I Pay With a VA Loan?
With a military connection, you can benefit from a VA loan. This is a big problem because mortgages funded by the Department of Veterans Affairs do not usually require a down payment. The NerdWallet Home Accessibility Calculator takes this huge advantage into account when calculating your custom accessibility factors.