This guide will take into account all the variables, from mortgage basics to those tricky extra costs like taxes, insurance, and maintenance. From here, you\u2019ll be able to create a budget based on smart money management and what professionals across the real estate and finance industries recommend.<\/p>\n
Ready to crunch the numbers now? HomeLight\u2019s created a Simple Home Affordability Calculator<\/a> to help you safely budget and to answer the critical question: How much house can I afford?<\/em> in a way that won\u2019t lead to a grocery cart full of ramen down the road.<\/p>\n\n\n\n\n\n We analyze over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs. It takes just two minutes to match you with the best real estate agents, who will contact you and guide you through the process.<\/p>\n \n But if the thought of juggling mortgage payments, HOA fees, and maintenance costs (on top of everything else you have to pay for) makes your head spin, you\u2019ll need a little more help. Pick up your pocketbook \u2014\u00a0 let\u2019s make a plan.<\/p>\n To calculate your home shopping budget, you\u2019ll need to start with your income. You should be familiar with two different numbers:<\/p>\n Your pre-tax income, also called your \u201cgross income,\u201d is the amount of money you make before deducting for state and federal taxes. People know their pre-tax salary off the top of their head. It\u2019s that high-level number you think of when you say, \u201cI make this much per year.\u201d<\/p>\n Your gross income is also what mortgage companies will use when they calculate how much money they\u2019re willing to lend you. Your pretax income tends to be more stable<\/a> and measurable, since not everyone knows what deductions and taxes they\u2019ll pay at year\u2019s end.<\/p>\n If you\u2019re buying a home with a partner, you should add your pre-tax incomes together to get your full buying power. Those who work multiple jobs will need to do some math to put together their various income streams.<\/p>\n Keep in mind that nontraditional sources of income, such as commissions and bonuses, may be treated differently depending on the lender and loan program. In most cases, for example, lenders will require a two-year commission history<\/a> before they factor that income into your loan qualification.<\/p>\n Lenders look at your gross income, but you should also know how much money is yours to spend every month since much of what you earn pre-tax is cash you\u2019ll never see. Check out your monthly pay stub to get this number.<\/p>\n Once you have an idea of your positive cash flow each month, you can figure out how much of it could comfortably go toward a mortgage.<\/p>\n Lenders will look at what\u2019s called your debt-to-income (DTI) ratio, a measure of all your monthly debt payments (think: housing, credit card, car, and student loan payments) as a slice of your gross monthly income, to determine what size loan you qualify for. Per the Qualified Mortgage rule adopted in 2014<\/a>, most lenders require that your DTI be no higher than 43%.<\/p>\n That means if you had no other debts, most lenders would let you borrow up to 43% of your income. However, many personal finance experts would consider that to be a budget stretch. That\u2019s why you need to have your own budget limits set first.<\/p>\n Depending on how much money you put toward debts each month, you\u2019ll have a little wiggle room to decide whether you\u2019d like to stay on the conservative side or increase your budget for the right home. It\u2019s a personal decision, but the more you spend on housing costs, the less money you\u2019ll have for other expenses, emergencies, and opportunities. Go too far in this direction and you\u2019ll end up \u201chouse poor<\/a>,\u201d aka the person in your friend group who can\u2019t afford to do anything fun.<\/p>\n With that in mind, here are three simple rules to consider for calculating your maximum mortgage payment:<\/p>\n HomeLight spoke with a variety of personal finance experts, and many of them brought up the rule of 30 as a measure of financial responsibility<\/a>.<\/p>\n![\"homelight](\"https:\/\/www.homelight.com\/blog\/wp-content\/themes\/ccprototypev5\/images\/logo-small-cta.png\"){kind=logo}
\n <\/div>\n \n Find a top real estate agent near you<\/h3>\n
Step 1: Tally up those paychecks: How much money comes into your house every month?<\/h2>\n
1. Your pre-tax income<\/h4>\n
2. Your take-home pay<\/h4>\n
Step 2: Figure out your maximum mortgage payment based on your income and current debts<\/h2>\n
The rule of 30<\/h3>\n