When it’s time to buy a home you may wonder how much house you can afford with all of you other financial obligations. Among other things, you probably have a car payment, some credit card debt, and maybe a hefty student loan installment to pay each month. Keep in mind that there will be more than the monthly cost of the mortgage to budget for, also allowing for closing costs, home insurance, and possibly private mortgage insurance.
Here is a quick way to figure out how much debt you may want to carry. Keep in mind, however, this a general formula and doesn’t apply to everyone’s situation. In most cases, you should be able to afford a home that costs about 2½ times your annual gross income. Many lending institutions suggest that your monthly mortgage payments, including costs for interest and insurance, equal about 30 percent of your total monthly income. So, for a couple earning a combined $100,000 per year, that amount would be a monthly mortgage of about $2,500. Your total debt load, which includes what you pay monthly for your mortgage, credit card bills, car and student loans, etc., should equal about 38 percent of your monthly gross income.
Melissa DelGaudio specializes in Real Estate in Anne Arundel County and the Chesapeake Bay Region of Maryland.
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