How Much Home Can You Afford?
Posted by ICON Realty Team on Monday, September 20th, 2010 at 9:28am.To arrive at an "affordable" home price, the guidelines for most lenders follow a pretty typical standard. There is allowed a total debt-to-income ratio of no more than 36 percent. Your debt ratio is the sum of your Princial+Interest+Taxes+Insurance and any other credit card or loan payments, divided by monthly gross income. Debt ratio will obviously be a higher percentage, since most people have other loans or credit card debt. Generally, your debt ratio should not be more than 36%. In this example, with monthly gross income of $5,000, your total loan payments (including the proposed mortgage loan payment) should not be more than $1,800.
Here’s a pretty safe rule of thumb: Most people can afford a home that costs up to three times their annual household income. In other words, if they can make a 20% down payment and have only a moderate amount of other debt. If you have little to no debt and you are able to put 20% down as a deposit, then you can probably buy a house worth up to four times your annual income.
You can assume a housing payment-to-income ratio of 28% for our conservative estimate, and 33 percent for the aggressive one. Before buying, however, you should also factor in other savings needs, including retirement and college.
Typically, you can assume a 30-year mortgage term, annual property tax of $3,500 and homeowners insurance of $481 -- the national average. If your downpayment is less than 20 percent of the purchase price, you’ll need to factor in private mortgage insurance, which you'll owe and averages from $50 to $80 per month.
Feel free to utilize our mortgage calculator located here.
Hello and welcome to the Indianapolis Real Estate blog for ICON Realty Partners, LLC. We hope you enjoy our thoughts on relevant local and national real estate stories. We welcome anyone; buyers, sellers, journalists, or real estate professionals to share your thoughts by commenting below each entry.
The ICON Team
ICON Realty Partners, LLC
Indianapolis Real Estate
Phone: 317-572-7728
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