I hear that question again and again. So many people want to have their own house, own place to come home to be with the family and children. In this short article I want to give you the basic calculation to know how much you can afford to pay for your new house once you decide to buy one.
To give you the shortest answer to that question: how much you can afford to pay for the new house really depends on a number of things, the most important of which is your gross household income - just how much you get for your job or all the income from your business, if you are a business owner. Then add to it your down payment to sign the papers for the new house and, of course, the mortgage interest rate.
This is the list of it:
- Gross household income
- Down payment for new house
- Mortgage interest rate
And since lenders are not stupid, they will also consider your assets - what you own and surely - your debts and other liabilities. So you better try to get rid of some of your debts before you get to ask for a mortgage and especially before negotiating the mortgage rates.
If you want to get to some real numbers, I suggest you use one of the free mortgage calculators to estimate the maximum mortgage you can afford to ask for in the banks. This calculations are based on two simple rules that most of the lenders tend to use to decide how much of a mortgage a person can afford to pay back.
The first rule is that your monthly costs for keeping a house should not exceed 32% of your gross monthly household income, meaning yourself and your wife.
Housing costs include:
- Monthly mortgage payments
- All the taxes you pay
- Heating expenses
- If applicable, the monthly condominium fees
Secondly, your entire monthly debt sum should not be any more than 40% of your gross monthly income. This includes housing costs, all other debts such as car payments, personal loans, and credit card payments your family pays every month.
So to summarize how to calculate how much a mortgage you can afford to take and pay back:
- Calculate your gross household income - mortgage payments can be no more that 30% of that.
- Calculate your monthly debts - these payments can be no more than 40% of your income.
I just know that feeling of really wanting to have your own house, but being afraid to jump into such a financial commitment. Since I was there, I would rather first search for a way to learn all the tricks there are to have my own house without getting into any danger of heavy debts.
Aren't you just tired of asking banks or other lenders if they would let you have you own house? With Mortgage Saving Handbook you can have your own house and know the real secrets of the landing game