How To Determine How Much House You Can Afford
Your housing budget will be determined partly by the terms of your mortgage, so in addition to doing an accurate calculation of your existing expenses, its important to get an accurate picture of your loan terms and shop around to different lenders to find the best offer.
are at all-time lows right now, which has made homeownership more attainable for many buyers. Here are some of the factors that can affect your loan terms, which in turn will affect what youll be able to buy.
How Much Can I Afford To Spend On A House
The home affordability calculator will provide you with an appropriate price range based on your situation. Most importantly, it takes into account all of your monthly obligations to determine if a home is comfortably within financial reach.
However, when banks evaluate your affordability, they take into account only your present outstanding debts. They do not take into consideration if you want to set aside $250 every month for your retirement or if youre expecting a baby and want to save additional funds.
NerdWallets Home Affordability Calculator helps you easily understand how taking on a mortgage debt will affect your expenses and savings.
Factors In Your Florida Mortgage Payment
When youre calculating the costs of buying a home, youll need to think about property taxes in addition to your monthly mortgage payments. Luckily, Floridians dont have it bad, with tax rates near or below the national average. The effective property tax rate in Florida is 0.83%, which equals about $2,035 in annual tax payments for the typical homeowner.
Your property tax bill starts with an appraisal by a county official. Your actual tax rate is based on the assessed value, not just the appraised value of the home. This means that account exemptions are taken into consideration. Your assessed value can decrease if you claim the homestead exemption , or the Save Our Homes assessment increase limitation. Wondering what your property taxes pay for? In Florida, counties, municipalities, school districts and special districts can all levy taxes to pay for services, improvement projects and ongoing operating costs. Your total bill will depend on where your property is located and what taxes apply to that exact area.
Another cost youll need to consider is homeowners insurance. This is where youll be hit hardest with prices in Florida, as the state has some of the highest homeowners insurance costs in the nation. Insurance.com data shows that the average annual insurance premium in the Sunshine State is $3,643, good for the third-highest rate in the country.
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Start House Hunting In Florida
|Tips: house hunting during COVID-19
Viewing homes is the fun part of buying a house! But don’t forget, eventually you’ll have to make the big decision about which one is right for you.
Here are some of the most important factors to remember when looking at different homes:
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Home Affordability And The Covid
The coronavirus pandemic and the resulting economic downturn have shaken up the real estate market. As of June 2021, mortgage rates remain at historic lows, but there is no way to know whether they will fall even lower or start to move back up.
The fact remains that interest rates are lower right now than they have ever been. If you are in a good financial position to purchase a home at the moment meaning you have enough cash for a down payment, a good or great credit score, stable employment, and a low debt-to-income ratio it may make sense for you to take that step now rather than later.
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Try A 3%down Conventional Loan
Its possible to get a conventional loan one backed by Fannie Mae or Freddie Mac with a down payment as low as 3% of the purchase price. Whats more, that down payment can often be covered with a down payment assistance grant or gift funds from a family member.
Just note that to qualify for a 3%down conventional loan, most lenders require a credit score of at least 620 or 640. For those with lower credit, an FHA loan might be more appealing.
How Much Mortgage Do I Qualify For
The #1 question first time home buyers ask is: How much mortgage do I qualify for?
This is, by far, the wrong question to be asking. They shouldnt be basing their purchase price based on what mortgage they qualify for but instead, how much of a mortgage payment are they comfortable with paying every month.
For instance, they may qualify for a $2000.00 per month mortgage payment but that doesnt mean they should be buying a house with payments that high. Instead, they should be asking themselves what mortgage payment are they comfortable with paying every month so as not to be House Poor. I usually advise married borrowers to base their mortgage payment based on one borrowers income, in the event the other borrower becomes temporarily unemployed.
The current Fannie Mae mortgage underwriting guidelines allow a borrower to obtain a mortgage payment up to 50% of their gross income. Personally, I think that is crazy and here is why:
Assume you make $48,0000.00 annually. That means the current guidelines will allow you to have a $2000.00 per month mortgage payment. So lets run the numbers and see why a $2000 mortgage payment would not work. If you make $48,000 annually, that breaks down to $4000 per month and after a minimum of 20% income tax, you will take home $3200. So, use $3200 as your monthly bills starting point.
$250 left over for livable expenses
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Home Affordability By Debttoincome Ratio
Your debttoincome ratio measures your total monthly debts including your mortgage payment against your monthly income. The higher your existing monthly debts, the less youll be able to spend on your mortgage to maintain a healthy DTI.
For example, say you make $50,000 a year and want to stay at a 36% DTI.
In that case, your total debts, including mortgage and any other debt payments cant exceed $1,500. Heres how that affects your home buying budget:
|Annual Income||How Much House You Can Afford|
The examples above assume a 3.75% fixed interest rate and 3% down on a 30-year mortgage. Your own rate and monthly payment will vary.
Make A List Of Priorities
Start by writing out a list of everything you want in a home. Rank each item based on how important it is to you. This will help you begin to separate your “must haves” from your “nice to haves.”
Then have a discussion with your agent about whether your list is realistic. They know what homes in your price range and target neighborhood are like and can point out where you might have to make concessions.
Trust your agent. As long as they stick to your price range, they can show you a variety of properties and might even surprise you with a house you wouldn’t have considered without them.
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How To Calculate Affordability
Zillow’s affordability calculator allows you to customize your payment details, while also providing helpful suggestions in each field to get you started. You can calculate affordability based on your annual income, monthly debts and down payment, or based on your estimated monthly payments and down payment amount.
Our calculator also includes advanced filters to help you get a more accurate estimate of your house affordability, including specific amounts of property taxes, homeowner’s insurance and HOA dues . Learn more about the line items in our calculator to determine your ideal housing budget.
Details Of Florida Housing Market
Florida is known to many as a vacation destination thanks to Disney World, miles of beaches and a plethora of resort towns catering to tourists. However, a large number of residents live year-round in the Sunshine State. Its total population, according to the Census Bureau, is an estimated 21.5 million, which places it as the third-largest state in the U.S.
The state has over 8,400 miles of shoreline, and almost all of its residents live in coastal counties. Florida cities have seen some of the fastest growth in the U.S. The Cape Coral-Fort Myers area, Orlando-Kissimmee, Jacksonville and Deltona-Daytona Beach areas in Florida regularly hit the top of lists for fastest growing U.S. cities.
If you take the Florida housing market as a whole, youll see that the state is recovering from the recession, which led to many foreclosed homes. The state also ranks in the bottom half of SmartAssets Healthiest Housing Markets study, which looks at stability, affordability, fluidity and risk of loss factors.
Floridas largest urban areas by population are Jacksonville, Miami, Tampa, Orlando and St. Petersburg, according to U.S. Census Bureau estimates. Each of this large states cities is diverse and distinct in its own way and has its own housing market dynamics. Take for example, Miami-Dade County, where the median home value is $268,200, according to Census data. Compare that with Duval County, home of the largest city, Jacksonville, at only $166,900.
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Home Affordability By Interest Rate
Regardless of your annual salary, your mortgage interest rate will affect how much house you can afford.
For those who with a low or moderate income, timing your home purchase for when interest rates are low is a great way to increase your home buying budget.
|Annual Income||How Much House You Can Afford|
The example above assumes a 3% down payment and $200 in monthly debts outside the mortgage. Rates shown for sample purposes only. Your own interest rate and payment will vary.
Remember, your interest rate depends on your credit score and down payment, among other factors.
So getting the lowest interest rate isnt just a matter of timing the market its also important to present a strong application and shop around for the best deal.
Overview Of Florida Housing Market
While some areas of Florida boast affordable housing markets, homeownership in Florida comes with some risk. The state has some of the highest foreclosure rates and homeowners insurance costs in the country. However, Florida’s 0.83% average effective property tax rate is less than the national mark.
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How To Use This Mortgage Calculator
This mortgage payment calculator will help you find the cost of homeownership at todays mortgage rates, accounting for principal, interest, taxes, homeowners insurance, and, where applicable, homeowners association fees.
You should adjust the default values of the mortgage calculator, including mortgage rate and length of loan, to reflect your current situation.
You can use the mortgage payment calculator in three ways:
Local Economic Factors In Florida
One of the biggest draws of this Southeastern state is its tax friendliness. Residents dont have to worry about income taxes at the state or local level, which means hefty savings for those moving from states with heavy tax burdens, such as New York, Minnesota or California.
Retirees favor Florida for more than just warm weather. The low tax burden is one of the main factors that helps this states reputation as a favored retirement location. There also isnt an estate tax, which means inherited property like cash, investments, real estate, trusts and more arent taxed. Additionally, Floridas sales tax is relatively low at 6% to 8.5%.
Tourism is the states biggest industry by a large margin. With over $67 billion of impact on Floridas economy, tourism is also one of the states largest employment categories. The state is host to Disney World, Universal, over 8,400 miles of shoreline, Daytona Beach and more. According to VisitFlorida.com, over 66.35 million tourists visited the Sunshine State in 2020.
Tourism isnt the only business in Florida, however. Agriculture, international trade and the space industry are the other top-grossing industries in the state. Florida is also home to several companies on the Fortune 500 list, including Publix Super Markets, World Fuel Services, Office Depot and Hertz.
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What Factors Help Determine ‘how Much House Can I Afford’
Key factors in calculating affordability are 1) your monthly income 2) cash reserves to cover your down payment and closing costs 3) your monthly expenses 4) your credit profile.
- Income Money that you receive on a regular basis, such as your salary or income from investments. Your income helps establish a baseline for what you can afford to pay every month.
- Cash reserves This is the amount of money you have available to make a down payment and coverclosing costs. You can use your savings, investments or other sources.
- Debt and expenses Monthly obligations you may have, such as credit cards, car payments, student loans, groceries, utilities, insurance, etc.
- Your credit score and the amount of debt you owe influence a lenders view of you as a borrower. Those factors will help determine how much money you can borrow and themortgage interest rateyoull earn.
For more information about home affordability, read about thetotal costs to consider when buying a home.
What Is The 28/36 Rule
Lenders may determine your ability to afford a new home by using the 28/36 rule. Breaking it down, the rule establishes that:
- Housing expenses should be no more than 28% of your total pre-tax income. This includes your monthly principal and mortgage interest rate, annual property taxes, and private mortgage insurance payments .
- Total debt should not exceed 36% of your total pre-tax income. This includes the housing expenses mentioned above credit cards, car loans, personal loans, and student loans so long as these monthly debt payments are expected to continue for 10 months or more.
In concrete numbers, the 28/36 rule means that a borrower who makes $5,000 a month should not spend more than $1,400 on housing costs every month. If youre a renter, thats the most you should spend on your lease to maintain good financial health.
However, for a homeowner, $1,400 should cover your monthly mortgage payment, as well as homeowners insurance premiums and property taxes.
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The Final Result On How Much Home Can I Afford
When applying for a home loan, you should aim for a DTI less than 43 percent. That said, it is because most loans types will not accept a borrower who has a 44%< debt-to-income ratio.
The key is to get your DTI to an attractive number for mortgage lenders, but also for yourself to remain comfortable and assure yourself of continuous future payments.
Currently, there are low mortgage rates being offered, reducing the cost of home ownership. With these rates remaining low, it helps homebuyers receive approvals, even if their first application was not accepted a few months prior.
Will Mortgage Rates Go Down
Mortgage rates go up and down based on factors like the prime rate. However, current interest rates are at or near record lows, so they are more likely to go up over time than they are to drop further.
If you plan to purchase a home, your best bet is getting pre-qualified with one of the top mortgage lenders now so you can lock in todays low rates.
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Take Account Of Your Financial Status
The first step in determining how much house you can afford is to list out your current sources of income, your debt, your savings, and your monthly financial obligations. These include:
- Your debts, including credit card debts, college loans, and car loans
- Other monthly obligations like your car and health insurance, cable and cell phone bills and grocery bills
- Discretionary spending for recreational activities, eating out at restaurants, any vacation budget
- Your savings, including any savings accounts and investments
- Your total monthly income
In addition to carefully writing out your current budget, you should think about how your income and obligations might change in the future. Of course, you cant fully predict what will happen, but you can plan for some expenses. If you have a child who is going to college in the next few years, for example, youll need to think of that expense. If you have an older family member who may need to live in assisted living, youll need to consider that as well.