How Much Mortgage Can I Afford Based on My Budget?
We often hear people ask “How much mortgage can I afford?” when they are thinking of buying a new home. The mortgage is a loan taken on the value of the home which makes individuals able to afford a house with little down payment. The amount of mortgage you should apply for depends on the annual income, target monthly payment and the percentage paid as down payment.
Calculating How Much Mortgage Can I Afford?
Find out how much mortgage I can afford by using a calculator available online. The affordability calculator helps you determine the monthly payments you can comfortable make without feeling a burden on your current financial circumstances. A percentage of the monthly income should be spent on the existing debts and the mortgage payment should come out of the remaining balance. The living expenses and savings percentage should then be set aside to determine the final number that can be spent on a mortgage.
Definitions of Financial Terms Involved in Calculations
When you ask yourself “how much mortgage can I afford?”, you should consider all the following factors and for that you must have a clear cut idea of what they are so there are no confusions or mistakes in the calculation.
Annual Income
This includes the combined family income and is considered before the income tax. It includes the base salary, bonuses, commissions, overtime and any other alimony received from previous partners.
Down Payment
The answer to “how much mortgage can I afford?” depends on the down payment as well. You pay this amount upfront when closing the deal on a house. Once you have paid this amount, you should have enough money left over to cover any financial emergencies.
Monthly Debt
This term factors in all the previous loans you have taken such as those for credit card debt consolidation, college fees, car financing and etc. The monthly payments other than mortgage interest are also to be paid per month and they should be subtracted from the net usable income to calculate how much mortgage can I afford?
Interest Rates
The interest rate received on the mortgage loan should also be included in the calculations because these payments have to be made over the entire mortgage period. You can use this interest rate and the down payment to calculate how many monthly payments would be required to completely pay off the mortgage.
