If you are ready to buy a home, or just thinking about getting in the market, the first thing you want to do is think through the finances. House hunting is a lot more fun when you know that you can afford the houses you are viewing. How can you find out how much house you can afford?
According to experts, “a good rule of thumb is using the 28%/36% rule, which states that you shouldn’t spend more than 28% of your gross monthly income on home-related costs and 36% on total debts, including your mortgage, credit cards and other loans like auto and student loans.”
Use a mortgage calculator (see below), plug in various home loan amounts, and be sure to look at the estimated monthly payment. If you already keep a monthly budget, you’ll have a sense of whether you can handle that monthly payment. If you don’t already keep a budget, take the time to do it now. Go through your past few months of bank statements and tally up your monthly averages for various categories. Having an idea of that is the best way to know what kind of mortgage payment you can afford.