How Much Mortgage Can I Afford Nerdwallet

What Monthly Expenses Do You Have

! Please enter an amount less than }.

Estimate your monthly expenses such as groceries, transportation, child care, insurance, shopping, media and regular contributions to savings.

Please do not include rent or housing expenses.

If you’re buying a home with a spouse, partner, friend or family member, include their monthly expenses as well.

If this amount is higher than your monthly income before taxes, please contact us to discuss your options.

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How To Calculate Your Required Income

To use the Mortgage Income Calculator, fill in these fields:

• Homes price

• Loan term

• Mortgage interest rate

• Recurring debt payments. Heres where you list all your monthly payments on loans and credit cards. If you dont know your total monthly debts, click No and the calculator will ask you to enter monthly bill amounts for:

• Car loan or lease

• Minimum credit card payment

• Personal loan, child support and other regular payments

What Are The Most Common Types Of Mortgages And Which Mortgage Should I Get

The most common types of home mortgage loans include conventional loans, FHA loans, and VA loans. Heres a simple breakdown of each:

• Conventional Loan: Not backed by the government, lenders may offer borrowers home mortgage loans with more flexible terms, features, and benefits.
• FHA Loan: Designed to make home ownership more affordable, these Federal Housing Administration insured mortgages allow buyers who are unable to qualify for a conventional loan to receive home financing.
• VA Loan: Guaranteed by the U.S. Department of Veteran Affairs, these loans help active duty military, veterans, and qualifying military spouses receive lower interest rates and better terms than available through a conventional mortgage loan.

Browse our mortgage loan options page for more information on these loans and more to explore your options.

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Breakdown Of Estimated Monthly Mortgage Payment

Your monthly mortgage payment has more to it than just paying back the principal and interest. You also have to pay

• Property taxes. They vary a ton from place to place.
• Homeowners insurance. This is how your lender makes sure you have insurance on the place. It would be bad for the lender if the place burned down and you didnt have insurance.
• Mortgage Insurance. Its expensive. If you put less than 20% down as a down payment, your lender makes YOU pay for mortgage insurance every month. It doesnt protect you. It protects your lender. Homeowners insurance protects you which also protects your lender. Mortgage insurance, on the other hand, just protects your lender. But your lender wont lend you money with less than 20% down unless you pay it each money.

You can avoid paying mortgage insurance entirely if you put 20% down as your down payment.

This monthly mortgage payment is known as the PITI Principal, Interest, Taxes & Insurance.

What Is A Down Payment

A down payment is the cash you pay upfront to make a large purchase, such as a car or a home, and is expressed as a percentage of the price. A 10% down payment on a $350,000 home would be $35,000.

When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The lender provides the rest of the money to buy the property.

Lenders require a down payment for most mortgages. However, there are exceptions, such as with VA loans and USDA loans, which are backed by the federal government, and usually do not require down payments.

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Rent Trends In The Us

Now that you have a better idea of how much you should be spending on rent based on your gross income and the 30% rule, it can help to understand rent trends across the country.

Median rental list prices stood at $1,477 in April 2019 up 2.6% from that time last year, according to the Zillow Rent Index. In fact, Zillows data shows that rent prices in the U.S. have generally been on the rise since 2012 for studio, one-bedroom and two-bedroom apartments.

How Much Nerdwallet Can I Afford

To calculate how much house can I afford, a good rule of thumb is using the 28%/36% rule, which states that you shouldnt spend more than 28% of your gross monthly income on home-related costs and 36% on total debts, including your mortgage, credit cards and other loans like auto and student loans.

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The Rest Of The Story

Knowing the Maximum PI Payment is the key. You can adjust the term and rate in the financing section . From that we calculate the loan amount, then the down payment and closing costs, and finally the Maximum Home Price. The results are then displayed in a nice graph. There is also a Depreciation section for those who want to use it, but it can also be ignored.

I personally think the coolest feature in this spreadsheet is the use of arrows to point to the limiting factors. Because the analysis is based on the minimum of 4 different maximums, it may not be obvious which of the steps is causing the limitation. Is it income? Is it down payment? Is it the taxes and insurance?

Use the Red Arrows to identify what is currently limiting the estimated home price. Yes, I’ve said multiple times that the goal isn’t to get the biggest house you can afford. But, if the calculator is showing that you can’t afford ANY house, then you can at least use it to help identify what may be the main limitation. Is it lack of down payment? Or not enough income? Or too much current debt?

You may be able to figure some of these things out for yourself, but at some point you’ll probably need to talk with a mortgage professional or lender to see what other factors may affect your ability to get a loan. Plus, you may find that you qualify for a special program that gives you a lower rate or a requires a lower down payment.

Good Luck!

Know Whats Standing In Your Way

Unfortunately, not everyone is financially ready to buy a home. This Mortgage Income Calculator will show some people that buying, at least at this point, is not within their grasp and offer an understanding of what financial obstacles stand in the way.

This calculator may show you that not enough down payment is your problem. Or maybe its too much debt. Perhaps you simply need to earn more to buy the home you want and need. Or, if you reassess your ambitions, can you afford a less-expensive home?

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How Much Money Do I Need For A Down Payment

The larger the down payment you are able to make, the less youll have to finance when you purchase a home. On a conventional mortgage, making a down payment of at least 20% will prevent you from having to pay for private mortgage insurance. The minimum down payment required varies based on the type of mortgage you obtain. In 2019, the median down payment for first-time buyers was 6%.

How Much House Can I Afford With A Va Loan

Veterans and active military may qualify for a VA loan, if certain criteria is met. While VA loans require a single upfront funding fee as part of the closing costs, the loan program offers attractive and flexibleloan benefits, such as noprivate mortgage insurance premiums and no down payment requirements. VA loan benefits are what make house affordability possible for those who might otherwise not be able to afford a mortgage.

With VA loans, your monthly mortgage payment and recurring monthly debt combined should not exceed 41%. So if you make $3,000 a month , you can afford a house with monthly payments around $1,230 .

Use ourVA home loan calculatorto estimate how expensive of a house you can afford.

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Other Things To Consider When Looking At Housing Affordability

While the above factors formally determine how much money you can borrow, they may not actually translate to what you can afford. Its essential to think about the following things before you make a purchase.

• Closing costs. Generally speaking, you should set aside 1.5% to 4% of the purchase price. Closing costs will cover things such as legal and land transfer fees.
• Moving costs. You might need to pay movers when you buy, and you may need to buy furniture.
• Personal goals. Affordability calculators dont consider your personal goals, such as retirement savings, vacations or the cost of raising kids.
• Budgeting. Lenders use pre-tax dollars as a simple way to calculate affordability, but it might be wise to use after-tax dollars for your own budgeting purposes since thats how much money youll have each month.

As you can see, other expenses will come up, so you may not want to borrow the maximum amount offered to you. In an ideal situation, youll find a home that fits that budget youve created based on your goals.

Aim To Put 20 Percent Down

The amount of mortgage you can afford also depends on the down payment you make when buying a home. In a perfect world, we recommend a 20 percent down payment to avoid paying mortgage insurance, Neeley says.

When your down payment is less than 20 percent, your costs rise. You typically have to pay private mortgage insurance, which can cost up to 1 percent of the entire loan amount each year until you build up 20 percent equity in your home. On a $240,000 mortgage, thats $200 per month.

Keep in mind that you will have other ongoing costs related to homeownership as well, including taxes, insurance, and utilities. All of these expenses need to be estimated before you settle on a monthly mortgage payment.

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Heres How To Calculate Your Mortgage Payment

While there are many costs associated with owning a home, lets start with what exactly makes up a large portion of the cost your mortgage payment.

A mortgage payment is made up of principal and interest . Note that on top of P& I, the monthly mortgage payment can include other expenses, including property taxes, homeowners insurance, and mortgage insurance.

To get an idea of what your mortgage payment could look like, click the icon the lower left-hand side of your screen to plug and play numbers specific to you into the mortgage payment calculator.

Calculate Your Max Budget For Rent

Once you know how much money you make and how much your fixed expenses are including how much you want to save you can figure out what your max budget for rent is.

Keep in mind that the 30% rule can vary according to your financial circumstances. Thats why its important to come up with a list of your expenses and understand how they fit into your budget. You also have to consider how expensive your area is. You might end up having to spend more than 30%, but even if you do, youll be prepared to adjust other parts of your budget.

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Three Homebuyers’ Financial Situations

House #1 is a 1930s-era three-bedroom ranch in Ann Arbor, Michigan. This 831 square-foot home has a wonderful backyard and includes a two-car garage. The house is a deal at a listing price of just $135,000. So who can afford this house?

Analysis: All three of our homebuyers can afford this one. For Teresa and Martin, who can both afford a 20% down payment , the monthly payment will be around $800, well within their respective budgets. Paul and Grace can afford to make a down payment of $7,000, just over 5% of the home value, which means theyâll need a mortgage of about $128,000. In Ann Arbor, their mortgage, tax and insurance payments will be around $950 dollars a month. Combined with their debt payments, that adds up to $1,200 â or around 34% of their income.

House #2 is a 2,100-square-foot home in San Jose, California. Built in 1941, it sits on a 10,000-square-foot lot, and has three bedrooms and two bathrooms. Itâs listed for $820,000, but could probably be bought for $815,000. So who can afford this house?

House #3 is a two-story brick cottage in Houston, Texas. With four bedrooms and three baths, this 3,000-square-foot home costs $300,000. So who can afford this house?

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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A Resource For Home Buyers

We want to be a one-stop home buying resource for you, and one way were doing this, is by providing helpful tips and information about the mortgage industry, buying and selling your home and many other useful topics that youll likely encounter on your path to home ownership. Were confident that youll learn something new every time you visit this page.

What Home Can I Buy With My Income

A quick recap of the guidelines that we outlined to help you figure out how much house you can afford:

• The first is the 36% debt-to-income rule: Your total debt payments, including your housing payment, should never be more than 36% of your income.
• The second is your down payment and cash reserves: You should aim for a 20% down payment and always try to keep at least three monthsâ worth of payments in the bank in case of an emergency.

Let’s take a look at a few hypothetical homebuyers and houses to see who can afford what.

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Should I Choose A Short

The loan term you choose will depend on your circumstances, with both short- and long-term loans offering many different benefits.

• Short-term Loan: They usually offer lower interest rates but require higher monthly payments.
• Long-term Loan: Come with lower monthly payments, but higher interest rates and greater total interest costs.

When deciding what loan terms are right for you, factor in both monthly payments and the total cost of your loan.

So Should I Buy A Home

The answer to that question depends on your financial status and your goals. Just because a lender is willing to give you money for a home doesnât necessarily mean that you have to jump into homeownership. Itâs a big responsibility that ties up a large amount of money for years.

Itâs important to remember that the mortgage lender is only telling you that you can buy a house, not that you should. Only you can decide whether you should make that purchase.

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Find The Maximum Pi Payment Based On Expenses

When we talk about a “mortgage payment” we are often talking about the full PITI payment. PITI stands for Principal + Interest + Taxes + Insurance. The PI payment is just the Principal and Interest portion. In steps 3 and 4 we need to calculate the PI portion of the payment so that we can calculate the maximum loan amount.

Side note: The company that services your loan will hold the tax and insurance portion of your payment in escrow and pay those bills when they come due. If you pay off your loan, YOU will be responsible to continue paying the tax and insurance.

In this calculator, you need to enter your best guess at the monthly costs for property tax, home owners insurance, private mortgage insurance , homeowners’ association fees, and other expenses that you and/or your lender want to consider as part of your total “housing expense payment.”

These expenses are then subtracted from your Maximum Monthly Housing Payment found after step 2 to calculate your Maximum PI Payment Based on Expenses. This only involves subtraction, so I’m not going to list the formula.

Expense Amounts Based on Home Value

Property Taxes: If you are looking at specific houses, you can go online to Zillow.com to find out the exact property taxes for specific houses. Remember that the spreadsheet has you enter the MONTHLY cost. You can do that by entering a formula like =3000/12 if you don’t want to use some other calculator to divide the annual property tax by 12.

Find Out How Much Mortgage You Can Afford

Weâll help you figure out what home price you may be able to afford.

Ready to start looking for your dream home? Donât just dream about it â let the TD Mortgage Affordability Calculator help you begin your search. Enter a few key details and the calculator will guide you in determining, with confidence, what house price may be within reach.

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