Home Buyer Affordability

What is your "affordable" home price?

The guidelines of most lenders is that your total monthly debt payments should be no more than 36% of your gross monthly income.

Your monthly debt is comprised of credit cards, student loans, car payments, etc.

With this you can now determine what the maximum monthly home payment you could handle while staying under the 36 percent threshold.

Gross Monthly Income  x  36 Percent (.36)  =  Max Debt

Max Debt  -  Monthly Debt  =  Affordable Monthly Home Mortgage Payment.

Why do lenders use this guideline? It’s been shown to be a level of debt that most borrowers can comfortably afford to repay.

This basic formula for a home payment assumes a 30-year mortgage at current interest rate’s, and includes 1% for property tax and 0.4% for homeowners insurance.

However, it does not include any private mortgage insurance, which will be required if your down payment is less than 20% of the purchase price.