August 2021

“How Much House Can I Afford?”

“How Much House Can I Afford?”

With interest rates at historic lows and a red hot real estate market, you are probably wondering, “How much house can I afford? Well, the answer can be pretty simple if you use a tool like the Affordability Calculator. All it takes is inputting a few essential financial details and determining your lifestyle to figure out how much you can comfortably afford. 

How Much House Can I Afford Calculator

Several factors determine how much house you can afford. But it goes beyond just the financial basics a typical lender would review. To truly feel comfortable buying a home, it’s essential to consider how much you love the gym and streaming services. That’s why our Affordability Calculator is so valuable because you walk away with a house price that won’t impede on the lifestyle you love. Here’s how to do it.

Start With The Basics

Some foundational financial factors are required for anyone wondering, “how much house can I afford?” These include:

  • Yearly Gross Income: Enter your total annual household income before taxes and deductions.
  • Down Payment: How much you can put down will determine the loan amount and monthly mortgage payment. You could put down the traditional 20% of the purchase price or as little as 3% (which will require PMI insurance). 
  • Zip Code: Towns have different tax rates and loan limits that will determine affordability. That’s why you need to input where you are looking to buy a home. 
  • Credit Score: Your credit score plays a significant role in the interest rate you’ll get and, ultimately, your monthly mortgage payment. 
  • Property Taxes: Towns have different tax rates, which is why you need to input the average yearly taxes you expect to pay in your area of interest. That will play a huge role in answering how much house can I afford? If you don’t know the tax rate, simply leave it blank and Get A Rate will auto calculate them based on the zip code entered.
  • Loan Term: This is how many years you have to pay back the loan. The standard amount is 30 years, but you can choose 20, 15, or 10. Whichever you choose will affect your monthly mortgage payment and how much can you can afford.  
  • Annual Homeowners Insurance: Get A Rate automatically calculates this for you based on an average. But, if you have an exact insurance quote, enter that for even more accurate results.
  • Military/Veteran Status: Members of the military and veterans can get low-interest loans and qualify for 0% down payments, both of which will determine affordability.
  • Marital Status: Your marital status will help identify any tax write offs you might receive, which ultimately helps determine how much you’ll have leftover after accounting for all your taxes. Again, knowing the full picture of what goes in and out of your pocket in a year helps with understanding what you can afford.
  • Number of Dependents: Like marital status, the number of dependents you claim on your taxes will indicate any additional tax write-offs. 

Calculate Primary Monthly Expenses

Once you’ve determined all your basic expenses, the next step in the Affordability Calculator is totaling up your debts. This is key because a lender looks at your debt-to-income ratio (DTI) to gauge your ability to handle the monthly payments and repay the loan. A lower DTI means they’re more likely to lend you the money you want. So, that’s why it’s important to input all your debts.

The Affordability Calculator makes it easy by breaking it down into four typical debts:

  • Car Payments: How much do you pay for your car each month?
  • Credit Card Payments: If you aren’t paying your credit card bill in full each month, you should input how much you pay monthly towards that debt.
  • Student Loan: Input how much you put toward student loan debt each month. 
  • Other Monthly Payments: Here is where you’d input any other debts like monthly alimony or child support payments.

Lenders usually like a DTI smaller than 36%, with housing expenses not exceeding 28% of your monthly income. But, other factors like your credit score could qualify you for more. That’s why having a calculator is helpful to consider all variables when it comes to answering “how much house can I afford?” 

Consider Your Lifestyle

A major detail most lenders overlook when determining how much house you can afford is your lifestyle preferences. How much do you enjoying (and spend) dining out? Could you live without Netflix? These questions are essential when looking at affordability since you want to be happy in your new home and not house poor. That’s why our Affordability Calculator takes the extra step to ask for financial information regarding your lifestyle. 

Here you can input an overall number of your monthly lifestyle expenses. Or, click “In Details,” and you’ll be prompted with 12 boxes that cover typical lifestyle costs. This covers things like monthly utilities, donations, pet care, and more. 

Why an Affordability Calculator Helps You

When trying to answer the question “how much house can I afford,” many factors are considered. The Affordability Calculator does that for you with easy-to-answer prompts. After taking a few minutes to input all the information, you’ll receive a number that says how expensive a home you can afford. 

You can toggle between a conservative price and an aggressive one to see how the monthly payments would change and your DTI. The calculator further breaks down the total loan amount, interest rate, APR, and what you have leftover.

Now, you have a better understanding of how much house you can afford and start your home search. 

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