How Much House Can You Afford?

It seems everyone knows the rule of thumb for putting a ring on someone’s finger. You’re supposed to spend about two months of your salary on an engagement ring, right? But what about buying a house?

While there are no hard and fast rules, there are some suggestions. A common guideline is that you shouldn’t spend more than 28% of your gross monthly income on mortgage payments, and the rest of your debt payments shouldn’t exceed 36%.

So, no matter how excited you are, it’s important to do a little math and some soul searching before you sign up for one of those house-hunting TV shows or start browsing online. It’s definitely more fun to start shopping in your price range than to fall in love with a dream house that’s outside of it. 

How large of a down payment can you make?

Many buyers look at their cash on hand as the only source for their down payment. However, one way to fund or partially fund a down payment is by using a gift. Parents, grandparents and other family members are often eager to help by making a cash gift toward the purchase of your home. There are also down payment assistance charities that can help. And, of course, if you’re selling a home, the equity you've built up can be applied to your down payment.

Keep in mind, if you plan on getting a 30-year mortgage, you can probably make a lower down payment (or perhaps no down payment at all) and still manage the monthly payments. If, on the other hand, you plan to get a 15-year mortgage, you'll probably want to make a larger down payment to keep your monthly payments in line with what you can afford.

What size monthly payment can you afford?

When determining a monthly payment you can afford, consider what other monthly expenses you have. Tangible expenses such as property taxes, student loans, car payments, day care, groceries and utility bills often play a big role in monthly expenses. There are also the intangible expenses like dining out, travel, new furniture and when you plan to buy your next car. These can all affect how much you can afford. Ask yourself: are you willing to skip or delay some of these expenses to afford a larger monthly payment?

Also, did you know that if you take out a 30-year mortgage and commit to making two extra payments a year directly to the principal, you can pay off your mortgage in less than 15 years and still get the lower interest rate? Sometimes, it can even help you get the house you really want. It’s a great way to get more house for your money.

How much can I borrow?

This is a question you'll definitely want to get answered before you begin your home search. Our mortgage calculators will give you a good idea how your down payment, monthly payment and the amount you borrow are all related. Of course, we’d be more than happy to talk to you in person and get you pre-approved. Stop by one of our branches or give us a call today.

All loans subject to credit approval.