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FAQ - How Much Mortgage Can I Afford?

Didier Malagies • Feb 15, 2022

How to determine how much house you can afford.

To calculate how much house you can afford, we take into account a few primary items, such as your household income, monthly debts (for example, car loan and student loan payments) and the amount of available savings for a down payment. As a home buyer, you’ll want to have a certain level of comfort in understanding your monthly mortgage payments.


While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can impact your savings.


A good affordability rule of thumb is to have three months of payments, including your housing payment and other monthly debts, in reserve. This will allow you to cover your mortgage payment in case of some unexpected event.


An important metric that your bank uses to calculate the amount of money you can borrow is the DTI ratio — comparing your total monthly debts (for example, your mortgage payments including insurance and property tax payments) to your monthly pre-tax income.


Depending on your credit score, you may be qualified at a higher ratio, but generally, housing expenses shouldn’t exceed 28% of your monthly income.


For example, if your monthly mortgage payment, with taxes and insurance, is $1,260 a month and you have a monthly income of $4,500 before taxes, your DTI is 28%. (1260 / 4500 = 0.28)


You can also reverse the process to find what your housing budget should be by multiplying your income by 0.28. In the above example, that would allow a mortgage payment of $1,260 to achieve a 28% DTI. (4500 X 0.28 = 1,260)

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By Didier Malagies 06 May, 2024
1. Regular FHA where you can put down 3.5% have lower credit scores, higher income debt ratios 2. FHA203k - Mortgage you can do with an added feature of having Home improvements where you buy a home and get things done like a new roof, air conditioning, etc ., and have it all in one. 3. I am going to catch you on this one, did you know that Reverse Mortgage is an FHA? So really 3 different types of vehicles that can get you into a home or get home improvements included in the financing or a Reverse Mortgage for the elderly that has no mortgage payment and help subsidize your retirement. The Government did an incredible job looking at the various ways to help buyers get into a home. tune in and learn https://www.ddamortgage.com/blog Didier Malagies nmls#212566 DDA Mortgage nmls#324329
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