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How Much Can I Afford? (Step 1)

1. A crucial step in finding the right home is to first determine how much you can afford to spend on your new home. First, let's calculate an affordable monthly payment. To calculate this value, we will use a housing-expense ratio of 33%. This means that 33% of your monthly income can be spent on mortgage payments, including property taxes and insurances. Take your gross (before taxes) income each year and divide by 12 to determine a monthly income. Multiply the monthly income by 33% (.33) to calculate an estimated monthly mortgage payment.
   (gross income)/(12)=(monthly income)X(.33)=Estimated Monthly Mortgage Payment

   Example: Bob makes $60,000 a year. Therefore his monthly income is about $5000. If he has a housing-expense ratio of 33%, his monthly mortgage payment will be $1650 (5000 X 0.33).
   
   

2. Now, to determine the price of a house you can afford, choose an interest rate between 7.500% to 10% and use this mortgage calculator.
   
   
3. After you have determined the affordable cost for your new home, it is important to contact real estate brokers in the area that you are planning to purchase a home. They can provide you with listings for houses available in your price range and which suit your personal needs.
   
   

Onto the 2nd step.