So you want to buy a home but don’t know what price range you can afford. That’s ok! We’re going to break it down for you here. We’ve enlisted the help of Dave Ramsey, a personal finance expert! According to Dave you should:
1. Add up any income you bring in each month.
Let’s say you bring home $2,400 a month and your spouse makes $2,600 a month. Your total monthly take-home pay would be $5,000.
2. Multiply your monthly take-home pay by 25% to get your maximum mortgage payment.
If you earn $5,000 a month, that means your monthly house payment should be no more than $1,250. The calculator below will show you a ballpark figure for how much house you can afford based on your down payment amount and maximum house payment.
3. Use a Mortgage Calculator to determine how much you can afford.
Sticking with our example of an income of $5,000 a month, you could afford these options on a 15-year fixed-rate mortgage:
$187,767 home with a 10% down payment ($18,777)
$211,238 home with a 20% down payment ($42,248)
$241,415 home with a 30% down payment ($72,424)
$281,650 home with a 40% down payment ($112,660)
Remember though that this is an estimate. Don’t forget that property taxes and homeowner’s insurance will affect your monthly payment. Our mortgage calculator is an easy way to see how those costs will impact your home-buying budget.
For example, if you plug in a mortgage amount of $211,238 with a 20% down payment, you’ll find that your maximum monthly payment of $1,250 increases to $1,515 when you add in $194 for taxes and $71 for insurance. To get that number back down to a monthly housing budget of $1,250, you’ll need to lower the price of the house you can afford to $172,600.
Use Dave’s calculator to try out other combinations to find the right mortgage amount, interest rate and down payment combo that will work for your budget. You can find it HERE.