How Much House Can You Afford to Buy?

If this is your first time buying a home, or if this isn’t–how much house can you afford to buy? There are many factors that go into the home buying process, all of which can be comprised into two categories: 1) What do you have? 2) What do you owe? If these two questions are answered and ran through a home affordability calculator, you will find how much house you can afford to buy in Redding, CA.

What Do You Have?

How much money does your house bring in? This will be the money you made all of last year (average household income is $56,516). Be sure to include in the “what do you have” section, the amount of funds you have available for down payment and closing costs.  These two numbers will then be worked into a rule lenders use called the 28/36% rule. This rule will determine how much house you can afford in Redding, CA

What Is The 28/36% Rule?

The 28/36% rule is the most basic debt to income ratio that lenders use. It determines how much house the potential homeowner can afford. It works like this:

The mortgage world has concluded that, as a rule of thumb, a household should not spend more than 28% of its income on total housing expenses. This is without a mortgage. Once a mortgage is taken on, lenders say the new homeowner should not spend more than 36% of its income on total housing expenses.

Basically, the lender in the lending world will not, as a rule of thumb, let you borrow for a mortgage that puts you over this rule (this is after all other debts are included too). The only thing left is to find out what you owe.

What Do You Owe?

We make money, we leak money. By now, you have already found out how much money you make. The last step in finding out how much house you can afford is to find out what you owe. This will be a painful part of the process for some, but a necessary part nonetheless.

Make a list of monthly expenses, everything from groceries to garbage bags to Netflix. Next, make a list of bigger monthly debts you are paying on, like cars and college––to conclude the total list of debts. What you owe can now be categorized into two compartments, what you owe each month (expenses), and what you owe in total (debt, credit profile). Your monthly expenses that come out of checking, as well as your complete credit profile, will determine what will be loaned and the rate of interest attached to it.

The reason it is important to know these numbers is that by the time you find out how much home you can afford, you will want to start saving three months’ worth of housing payments, both current and proposed. This number will be the inclusion of all housing payments and expenses, as well as the proposed mortgage worked into the number. It is likely that a lender will only lend to you if you are at least close to three months of financial security.

Calculate

Take the amount of money you make and the amount that you owe to a home affordability calculator. It will ask you what you make, and for your credit score. The calculator will then show you the monthly mortgage payment you would pay based on the price of the home you want.

If you make $60,000 a year, then based on ideal debt to income circumstances, you will not want to spend more than $1,800 dollars a month on a mortgage. The calculator will show you what are affordable, stretching, and aggressive listing prices to be looking at as you shop for a home. The calculator will give an accurate answer for how much home you can afford in Redding, CA.