So you’ve found a good location and are looking for your next dream home, but how much can you afford?

You need to know the following:

1. Your monthly gross income  and

2. The monthly debt listed on your credit report – this includes any/all mortgage payments (including monthly taxes, homeowners insurance, private mortgage insurance, and homeowners association dues), monthly auto loans/leases, monthly student/business loans, and any/all (minimum) monthly credit card payments.

This information will allow you to calculate your Debt-to-Income (or DTI) ratio.

Take your monthly gross income (#1 above) and multiply by 36% or .36 – This will be your mortgage debt ratio (“front-end” debt-to-income or DTI ratio).  Now take the total monthly debt (#2 above) and multiply by 45% or .45 – This will be your total debt ratio (“back-end” debt-to-income or DTI ratio)

You now know how much of a monthly payment you can afford, but depending on your down payment and interest rate you qualify for will help to determine the actual purchase price you can afford.  Feel free to create and save your calculations below.

Keep in mind that interest rates fluctuate multiple times a day and the interest rates available at the time you actually purchase your home will affect how much house you can afford. The lower the interest rate, the more expensive the house you can afford, and the higher the interest rate, the less expensive the house you can afford. Here’s a chart showing how this works:

Purchase Price Interest Rate Loan Term Monthly Payment
(Principal and Interest)
$250,000.00 7% 30 Years $1,663.26
$277,500.00 6% 30 Years $1,663.75
$250,000.00 6% 30 Years $1,498.88
$225,000.00 7% 30 Years $1,496.93
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