May 18, 2017 by Space Coast Credit Union
"How much house can I afford?" It's a question we get asked frequently—and what it really translates into is, “How much can I afford for a mortgage loan?” There are many factors that go into answering that question, but the first part of the process works like this:
Add together all of your sources of gross monthly income (your income before taxes are taken out).
Multiply that by the factor being used by lending institutions, typically 36 percent.
Your total monthly debt payments should not exceed that amount.
“Total monthly debt payments” includes mortgage payments on any other properties, your car payments, credit card payments, student loan payments and the like.
Subtract all of these monthly payments from the amount calculated in step two.
What’s left is the largest mortgage payment you can afford.
Mortgage Payment Calculations
Now that you know how much you can afford for a mortgage loan, it’s important to determine how much of a down payment you can afford (remembering that you will also have closing costs) so you can figure out a payment for a home mortgage. Let’s say you can put down $25,000 and are looking at a home with a price of $200,000.
This means you want to borrow $175,000. If the 30-year fixed loan rate is at 4 percent, your monthly principal and interest payment (not including taxes or insurances) would be $835.47. Is this doable, given what you’ve learned about how much you can afford?
If so, then it might make sense to explore additional options. Let’s say that the 15-year fixed rate is 3.50 percent. That would cause your monthly principal and interest mortgage payment to be $1,251.05. Is that also affordable? If so, then the 15-year loan is something to at least consider, given that the payback on the loan will be $225,188.00 versus $300,771.64 on a 30-year mortgage.
Want to work out more scenarios? Here are mortgage calculators for your convenience
Additional Factors to Consider
At the beginning of this post, we walked you through how to calculate the maximum mortgage payment that you could afford. But you’ll also need to look at other expenses involved. If, for example, your house is in move-in ready condition, you may be more willing to have a higher mortgage payment than if the home you’re purchasing needs remodeling to suit your needs. If you’ve got significant savings to pay for that remodeling, then you may be more willing to have a higher mortgage than if you don’t have as much in savings. The same is true if you already have home furnishings, or need to buy them.
What about your lifestyle? Do you hope to do plenty of traveling or are you a real homebody? Are you someone who is comfortable with a higher payment or do you want to have more of a cushion for emergencies? Will you be entertaining for your career in your home? Do you hope to have several children or have you already raised yours? Each of these factors makes a significant difference in your home buying planning.
Still Wondering, “How Much House Can I Afford?”
Contact us at Space Coast Credit Union! We offer a variety of mortgage options
, whether you are a first-time buyer or someone who is buying their next home.
Take advantage of our fast pre-approval process with no application fees, and an exclusive interest-rate guarantee.1
So, if rates drop between the time you apply and when you’re ready to close, we automatically provide you with the lower rate! We offer conventional fixed rate mortgages, adjustable rate mortgages, condo loans and jumbo loans, at up to 95 percent financing.2 We also offer free online and mobile banking, along with free account alerts!
Apply for your home mortgage online today
1Mortgage Interest Rate Guarantee: If the comparable SCCU interest rate is lower than your original interest rate five (5) business days before the closing and the interest rate lock-in has not expired, SCCU will reduce the interest rate on your loan 5 business days prior to closing. This is limited to a reduction of .25 percent. A one-time fee of $75 will be assessed at time of closing if this Price Guarantee is exercised and your rate is reduced. Other conditions may apply, contact SCCU for details.
2Mortgage Down Payment: Conditions apply. Program applies to primary residence, single family detached homes in good condition and condos meeting program conditions. 5% down payment must come from member's own funds. Contact SCCU for complete details.