Determining How Much You Can Afford

I know that there are programs that determine your mortgage into monthly payments. I still find it very difficult to figure out what we can afford. Is it safe to get something that is a bit of a stretch but requires no work (move right in) assuming that over time your salary should increase? Have others bought something that felt like a stretch but in the end was the right decision?

Re: Determining How Much You Can Afford

You should meet with a mortgage broker and they will go over your income versus your bills and what you pay out every month - and then you should get a better idea of what type of payments you can afford.

Re: Determining How Much You Can Afford

I think DH and you should go over your expenses for a typical month and see what you are spending now. If you are not sure what you are spending, you can keep track of it, or look at your withrdrawals and work with that number.

You also have to figure that your utility costs will be higher if you are now in an apt., plus you will need to pay for insurance, taxes, water, possibly oil, etc. There have been posts on this board listing these expenses if you are not sure what they are.

Then, DH and you should take your net pay, subtract your expenses now, and subtract average additional expenses, plus your mortgage. You also want to make sure you leave room to save money.

I wouldn't count on income increasing at this point. It may over time, but you don't know that, and you want to make sure you can afford this home with the money you are earning now.

Re: Determining How Much You Can Afford

Re: Determining How Much You Can Afford

It used to be 2.5 times your annual salary, but that is unrealistic now.

Another formula is 28% of your gross monthly salary should be all housing expenses.

But most important - is figuring in other finances. If you have student loans, car loans and credit cards - I would be more cautious with the mortgage - or work on paying off the loans before looking.

Re: Determining How Much You Can Afford

Yes, it's usually 28% towards housing expenses.

It's 39% of your income for total debts. So, if you don't have any other debts your housing expenses can be higher than 28%.

It is very hard on LI not to go over 50% of your income towards housing expenses.

Re: Determining How Much You Can Afford

Thank you for all of the advice! DH and I need to sit down and do some simple math!