You'll also likely get a higher rate, which means you'll be able to afford less house because more of your monthly payment will need to go toward interest. If you have a lower credit score, mortgage lenders may try to mitigate their risk by approving you for a smaller loan. These are three major affordability factors that tell lenders how much you can put down and how much you can afford to spend on a mortgage each month (including how much you have left over after you've paid all your other debts and obligations). Factors that can impact how much house you can afford But it isn't universally applicable (particularly if you have an especially high or low income), and it isn't the only data point you should be paying attention to. The 28/36 rule is a general guideline that can help keep you from spending too much of your income on housing and other debt. With a $1,400 housing payment, this means you have $400 left to spend on other monthly bills, like auto loans or minimum credit card payments. With a $5,000 income, your maximum debt payments should be no more than $1,800. Then, multiply your income by 0.36 to see how much you should spend in total on debt. If you abide by this rule, you can afford to spend up to $1,400 per month on your house, including your mortgage, interest, property taxes, homeowners insurance, and homeowner's association dues. To calculate 28% of your monthly income, multiply your gross monthly income (that's your income before taxes) by 0.28. The 28/36 rule is a popular budgeting rule of thumb that states that when buying a house, you should spend no more than 28% of your gross monthly income on housing expenses, and no more than 36% of your income on all of your monthly debt payments. Determining how much you can afford - the 28/36 rule
The price range of houses you can afford will be limited both by what you can afford when it comes to upfront costs like a down payment and closing costs, as well as long-term costs, such as your mortgage payment and everything that's included in that, including interest, taxes, and insurance. When you buy a house, you'll need to plan for both upfront and long-term costs - the higher the price tag of the house you buy, the more you'll spend on both types of expenses. Paying an additional $500 each month would reduce the loan length by 146 months.Lowering the interest rate by 1% would save you $51,562.03.Paying a 25% higher down payment would save you $8,916.08 on interest charges.
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