How Much Can I Afford

Figure How Much of a Monthly Payment I Can Afford

When buying a home, it is helpful to determine the type of home you’ll like and how much you can afford before beginning your search. Most lenders allocate approximately 28% of your GROSS MONTHLY INCOME to housing expense. Housing expense includes principal, interest, taxes and insurance (PITI). To get an idea of how much you can afford to pay each month for a home, multiply your gross monthly income by 28%.

When coupled with current outstanding loans, the total for your debt service should not exceed 36% of your gross monthly income. Some lenders may have slightly more liberal requirements or loan interest rates which may increase your purchasing power.

Mortgage interest, property taxes, loan fees or “points” are currently tax deductible (up to allowable limits). Points are generally deductible in the year paid. A point equals 1% of the mortgage amount. If you are in the 28% tax bracket, this is equivalent to receiving a 28% discount on your mortgage interest and property taxes. During the first years of the mortgage your tax savings are especially high because most of your monthly payment goes toward loan interest.

Getting Pre-Qualified

Its very important to contact a lender and obtain a prequalification letter before you begin looking at property.  When it comes time to write an offer it will be necessary to have a prequalification letter to include with the offer.  You never know when you will walk into YOUR home!  Having a prequalifiaction letter gives credibility to your offer.  It lets the seller know that you are serious and able to perform.  It also takes most of the fear out of buying because you know exactly how much you can afford and which properties to consider.

If you need any advice on getting pre-qualified please contact me.

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