How Much Home Can You Afford?

Nov 15, 2021 9:45:15 PM / by Michael Dailey

 

 

 

Are you trying to determine how much house you can afford? Or re-examining your current housing costs? Financial professionals follow two benchmarks to determine appropriate debt amounts.

 

First is “Housing Ratio 1”, which is the basic ratio used by mortgage lenders. The benchmark is for your housing costs to be 28% (or less) of your gross pay. Housing costs include principal payments on the mortgage, interest, homeowners insurance, property taxes, and association dues (if you have them). To determine the highest possible acceptable amount for your monthly housing cost, take your gross pay and multiply that by 28% (or .28). For example, $5,000/month gross pay would suggest no more than $1,400 in housing costs.

 

The second benchmark is “Housing Ratio 2”. This ratio equates to your housing costs plus other debt payments (credit cards, auto loans, etc.) divided by your gross pay. This benchmark needs to be 36% or less. It’s essential when reviewing this ratio that you take into consideration payments on credit cards. If you are only making minimum payments, your credit card debt will extend out over a longer period of time, hurting you in the long run.

 

If you are buying a home or thinking of refinancing, talk with your financial professional about getting your debt payment in line with these ratios.

 

 

 

 

 

Michael Dailey

Written by Michael Dailey

Michael Dailey is the Founder and CEO of InvestorKeep, a company passionate about help you save money and maximize your investments. The average investor loses well over $100K to the implications of investment fit, fees, and quality. InvestorKeep gives you an easy way to monitor investments helping you keep and earn more.