How Much House Can I Afford?
Thinking about purchasing a home? The mortgage calculator provided below will assist you in estimating your potential monthly payment.
- As of July 2024, the average interest rate stands around 7%, depending on your credit score.
- Your annual property tax can vary between 0.03% and 1.25%, depending on your residential state. Verify your state’s rate here.
- The majority of mortgage loans are set with a 30-year term.
- Typically, the annual cost of home insurance is about 0.05% of your home’s value, although this can vary significantly based on factors like location and the condition of your home.
- If you’re unable to put down 20%, you will be required to pay Private Mortgage Insurance (PMI) until your equity reaches this threshold.
Monthly Mortgage Calculator
General Loan Qualifiers
To figure out how much of a loan you’ll qualify for a mortgage, lenders typically consider several factors:
Credit Score: A higher credit score often means a lower interest rate, and vice versa. If your credit score is lower than 620, you may have trouble getting approved for a mortgage.
Debt-to-Income Ratio (DTI): Lenders typically prefer a DTI ratio of 36% or less. This ratio is your total monthly debt payments as a percentage of your gross monthly income.
Loan-to-Value Ratio (LTV): This is the ratio between the loan amount and the value of the property. A lower LTV often leads to more favorable loan terms.
Employment History: Lenders typically want to see two years of consistent employment, preferably within the same industry.
Income: Your income will help determine how much you can afford to borrow. The higher your income, the larger the mortgage loan you may qualify for.
Down Payment: The amount of money you put down can affect how much you can borrow. Generally, a larger down payment will allow you to qualify for a larger loan.
Remember, each lender might have their own specific criteria and these factors can vary based on the type of loan (conventional, FHA, VA, etc.). It’s best to speak with a mortgage professional to get the most accurate information.
Let's Look at an Example:
Mike and Christina have a credit score of 720. Combined, they make 100k per year. They’ve both been employed at their perspective job for over 2 years. They’re able to put 20% down in cash. They have 20k in debt from their cars.
- Lenders prefer the debt to income ratio be 36% or less. so 36% of 100k is 36k per year. This is 3k per month.
- So assuming their debt payment each month is around $400, that just brought down the available debt to 2,600/month. This means that they will most likely qualify for a mortgage of around 2,600 per month.
Outcome: A couple who makes 100k/year with 20k in debt with a credit score of 720, can afford to take out a loan of approximately 388k at a 7% interest rate on a 30 year-term. They’re monthly payments excluding property tax and home insurance would be around $2,576/month. Property tax and home insurance would be approximately an additional $500 per month.
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