How much home can you afford?
With the housing crash a lot of people realized they bought more home then they could handle. Here are a few things to consider when looking at the price range for your next home.
1. The General Rule Of Mortgage Affordability:
The rule of thumb is, you can typically afford a home priced three times your gross income. If you earn $200,000, you can typically afford a home around the $600,000 range. Of course, this can be effected by many things. If you have a lot of debt, 3 kids you’re putting through college, or like to buy very expensive cars, you may need to adjust down a little. Conversely, if you drive a 10 year old Toyota and only eat out once a year, you might be able to go a bit higher. Every situation is different, but 3x is a good rule of thumb.
2. Consider Your Total Debt To Income Ratio:
Lenders generally follow the 28/41 rule. Your monthly mortgage payments (covering your home loan principal, interest, taxes, and insurance) should not total more than 28% of your gross annual income. Your overall monthly payments for your mortgage plus all your other bills, like car loans, utilities, and credit cards, should not exceed 41% of your gross annual income.
3. Factor In Your Down Payment:
How much money you place down will greatly effect your bottom line payment. Not only is the principal less, but if you put 20% down you may not have to pay private mortgage insurance, which can be very costly.
4. Renting Vs Buying:
The tax benefits of home ownership generally allow you to afford a mortgage payment of about one-third more than your current rent payment without a noticeable change in your lifestyle. If you multiply your current rent by 1.33 you will arrive at a rough estimate of a mortgage payment. Then you can use a mortgage calculator to do the reverse math and come up with the price range you should be shopping within. One of the great aspects of home ownership in Hawaii are the extremely low property tax rates (the only state with lower taxes is Louisiana). This allows you to own more home for your money.
I hope these tips have been helpful. If I can be of any more assistance please don’t hesitate to ask. Let me show you why Cathy Pierce is A House-SOLD Name!