How Much Mortgage Can I Afford?

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    Percentage of Income

    • According to the Salary website, your mortgage payments should be 28 percent or less of your gross monthly income. Before you agree to a mortgage, you can determine what your estimated monthly payment will be. If it is higher than 28 percent, the mortgage is likely too much for you. One way to reduce the monthly payment is to come up with a larger down payment when you buy the house. MSN indicates that your housing payments should be between 25 and 35 percent of your monthly income, depending on your financial situation.

    Online Calculator

    • Several websites have calculators that help you determine how much house you can afford. To use them, enter a number of different financial factors, such as your income, expenses, down payment amount, home cost, interest rate and other details. The calculator will tell you how much the estimated payments are and the percentage of your income that will be spent if you agree to the mortgage.

    Credit Report

    • Your credit report is an important factor when applying for a mortgage. If you have a poor credit score, your interest rate might be higher, which raises your payments and you might not be able to qualify for some mortgages at all. According to the Moolanomy site, a good credit score is 660 or higher, as of 2011. You can still qualify for a mortgage with a score lower than 660, though you may have fewer options. In general, the higher your credit score, the lower your interest rate. A low interest rate reduces your payments, sometimes by tens of thousands of dollars or more over the life of the loan, and allows you to afford a larger mortgage.

    Other Considerations

    • Use the recommended percentage of income for housing as a baseline for determining how much mortgage you can afford, but examine your specific financial situation as well. For example, if you have a lot of debt, your debt payments likely take up a significant amount of your monthly income and 28 percent on housing costs may be too high for you to also pay your debt payments. Also, ask about homeowners' association fees and homeowner's insurance costs and factor that in along with your mortgage payment. Those expenses can add several hundred dollars into your monthly housing costs. Also, consider the type of loan you are getting. A fixed-interest rate loan locks in the interest rate so the payments are consistent, but an adjustable rate mortgage (ARM) has an interest rate that can change over the life of your mortgage, affecting your monthly payments.

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