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How Much Home Can I Afford on My Salary?


July 21, 2022

There will come a time where you're ready to start looking for a house to purchase. But before you hit the road looking for those "for sale" signs or hoping on your favorite real estate site to check listings, you need to determine how much your salary will allow you to pay for your mortgage. You don't want to end up out-budgeting yourself and struggling to make ends meet.

In this article, we'll explore what goes into determining a monthly mortgage payment, some other factors you should take into consideration, and give you some tips and tools to help you figure out how much house you can afford with your salary.

 

What are All the Parts of Monthly Mortgage Payment?

A mortgage payment is a loan you get from a lender like the government or a bank to help you pay for your house. However, the mortgage comes with some extra costs behind it that you need to keep in mind when seeking the loan so you can accurately determine what you'd be able to pay every month.

First, there's the principal which goes directly to the loan. There's also interest that is the lender's profit for giving the money in the first place. If you don't make a down payment for the purchase price of the house, then you will need to purchase mortgage insurance as well. You will also be required to have homeowner's insurance. Finally, there are homeowner's association & property taxes you need to keep in mind as well.

Beyond the monthly mortgage payments and all that it entails, there are other monthly costs to think about too. This includes utilities, repairs that may come up, and general upkeep such as mowing the lawn.

 

What Factors Can Affect How Much Home I Can Afford?

The main factor that affects how much you can borrow will be your income. Do you have a stable and reliable salary? Something else to keep in mind is that having a down payment of around 20% or more will make it easier as well.

There's also how much debt you already have under your belt. Your credit score also plays a large part in determining how much risk a lender will take on. If you have poor credit history, then it will be difficult for you to get a mortgage to buy a home.

Location is also important. For instance, if you're living in a rural area and meet income qualifications, you can apply for a USDA home mortgage which offers low interest loans from the government.

 

How to Find Out How Much Home I Can Afford on My Salary?

As a rule of thumb, most experts say you can afford a house that's around 2x to 2.5x your gross annual income. However, there are other factors that can affect what a lender will give you. If you need help figuring out how much you can afford with your salary, then it's a good idea to use a affordability calculator where you can plug in your info and get the best estimates.

 


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