Home affordability calculator: How much house can I afford?
How much house can I afford calculator helps to determine the amount that you can afford to spend on a house. To check out your affordability just enter the desired loan details and find out the monthly income required to continue repaying the mortgage.
2 Important ratios for calculating home affordability
For this, you need to calculate below given 2 ratios.
Housing ratio denotes the amount you spend on housing expenses (including any existing mortgage payment). In general, this ratio shouldn't exceed 28% of your gross monthly income.
Debt to income ratio includes your housing expenses as well as payments on installment and revolving debt. To be able to afford a mortgage, your debt-to-income ratio should not exceed 36%.
A real life scenario - How much can I afford to spend on a house?
For example, your family's gross monthly income is $20,000. Since you need to keep your housing ratio to 28%, the maximum monthly mortgage payment that you can afford = [(28/100)*20,000] = $5600.Now, to maintain the debt-to-income ratio of 36%, you can manage to pay [(36/100)*20,000] = $7200 as the total monthly debt payment which will help you determine your affordability.Thus, in order to evaluate your affordability, work out your monthly housing expenses and debt payments. The figures will help you analyze if you can manage a mortgage.