Given an annual salary of $X and non-housing living expenses of $Y, how expensive of a house can I afford?

Question

And will my credit rating affect just the interest rate on the mortgage I can get, or also the amount of the loan I can get?

Answer 1

I've been telling people for so many years that high school algebra really IS of value after high school.

Here's your formula and a brief explanation:

[($X/12) x (Z)] - $Y = MMP

The Monthly Mortgage Payment you'll qualify for is MMP. Take your annual salary and divide by 12. This gives you a gross monthly income. Multiply that by Z. That number will depend on your credit, down payment, reserves, etc. (meaning how good of a risk you look like to the lender) The number Z could be anywhere from 30% to 55%. Now, take away all your other monthly debt ($Y). This will include things like car payments, credit card bills, revolving credit, student loans, child support, etc. It does not include utilities or food.

Lastly, the MMP you qualify combined with the interest rate you qualify for and the taxes and insurance (these vary drastically from one place to another) determine how much house you can buy.

Hope this helps, though without credit info, the value of Z is within a pretty wide range.

Answer 2

$X-$Y=cost of house

Your annual salary minus living expenses (credit card payments, loan payments, medical payments) will determine how much monthly income you have to put towards a monthly mortgage payment. This will determine the highest payment you can afford and price range you should be looking at.

Here is an example (not 100% accurate):
Income: $47,000/year
Debt: $750.00/month
Total payment you can afford: $1000.00 (includes taxes, insurance,etc.)
Total home purchase price: $115,000.00

YES...your credit rating will effect the interest rate and could make your total purchase price lower if the interest rate is higher.

Check with your local real estate agents website. There are usually a ton of calculators on there! Look for mortgage estimator, interest rate calculators, and more.

Try to get pre-approval before you shop for homes so you know exactly what your price range is and it allows sellers a more secure option when accepting an offer from someone who is pre-approved.

Happy Shopping!

Answer 3

Usually banks have a percentage that your total amount of debt compared to your total income must be under. (Debt to Income Ratio). I seem to remember 20% about 10 years ago.

Yes your credit score can work against you if it is poor. You will pay higher interest, more closing points, and it sucks I've been there. Keep your credit clean if at all possible, it's really worth it.

Answer 4

Xs ans Ys are not amounts, so you can't afford to buy a house on those numbers-next time ask a valid question not this for the sake of asking

Answer 5

Um, we speak English here....