How Much Mortgage Can You Actually Afford?

David E McKamie & Katy Hubener
David E McKamie & Katy Hubener
Published on February 2, 2021

Buying a home is a big decision.  As home prices escalate, many buyers are spending more than they should on their home purchase.  This is especially true in North Texas where prices are being driven by demand and a shortage of supply. 

Unless you want to work to pay your mortgage, the rule of thumb is that mortgage payments, including property taxes and insurance, should be no more than 28 percent of your gross income.  Conservative money managers recommend spending no more than 25 percent.  

In real world numbers, here’s how this works.  A buyer who makes $60,000 annually would be able to afford $1,400 a month in monthly mortgage payments.  The monthly payment is figured by calculating $60,000 times 28 percent and then dividing that number by 12.

For borrowers with additional debts like student loans, credit cards, and car notes, lenders generally want the total debts not to exceed 36 percent of gross income.

If that same buyer had $20,000 in other debts like a car note or student loans, then the total outgo should be no more than $1,800 in monthly payments.  So, if car and student loan payments are $400 and $200, respectively, then the total amount of the mortgage payment shouldn’t exceed $1,200 a month.

Homeownership builds wealth, so if you’re wondering whether to buy the new car or buy the new house, smart money managers and your favorite Realtor would tell you to buy the new home.

Buying a home shouldn’t add stress to your life. Buy smart, use a Realtor.

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