Overview of How Much You Can Afford with Your Salary Guide
If you’re thinking about buying a home, you may be asking yourself, “How much house can I afford with my salary?” That’s the right question to ask.
Your income will be an important factor in determining if you qualify for low mortgage interest rates and will also determine how much you can afford to pay for a mortgage on a monthly basis.
But how do you calculate this while you’re wondering how much can you afford for a house?
Image Source: How much house can I afford based on income
This “How Much You Can Afford with Your Salary” guide will reveal some of the top answers to the question: “How much can I afford for a house?” You will also learn how to find a reliable “How Much House Can I Afford Calculator.”
Let’s explore some of the top answers to “How much can I afford for a house?”
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What People Want to Know
If you’re asking yourself, “How much can I afford to spend on a house?”, you’re not alone. There are a number of questions circulating online that answer the question: “How much house can I really afford?” Even couples are asking themselves, “How much house can we afford?” Here are a few concerns individuals have about how much home they can afford:
- Is there a “How Much House Can I Afford” calculator?
- How do I find a good “How Much House Can I Afford” calculator?
- How much of a house can I afford when I work for myself?
- How much house payment can I afford if the home I want to buy has homeowners association fees?
- How much can you afford for a house if you’ve been working at the same job for less than two years?
- How much house can I afford based on income if I have been working at the same job for three years?
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6 Top Answers to “How Much Can I Afford for a House?” Questions
1. Use a “How Much Can I Afford for a House” Calculator
Using a “How Much Can I Afford For a House” calculator is a quick way to get a general idea to answer your question: “How much of a house can I afford?” These types of calculators are available on countless websites to quickly give you a rough estimate on how much of a house you can afford.
It is important to remember that these calculators do not mean you will be approved for a home even if the numbers look affordable to you.
Image Source: How Much House Can I Afford Calculator
Most of the calculators offered on websites should ask for a variety of data to input to give you a good estimate of what your monthly payments will be and how much home you should be able to afford.
During this process, it is best practice to fill it in honestly and correctly with all your expenses and how much you can realistically afford to put down to help lower the monthly payment.
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2. Choose a Monthly Mortgage You Can Afford
A good “how much house can I afford” rule of thumb is to plan ahead for moments of income interruption. The housing bubble and recession that followed have taught many individuals that nothing is guaranteed, whether it’s your job or a passive income.
Therefore, it is a good rule of thumb to think ahead and plan for possible roadblocks to income so you can know how much can you afford for a house. Opt for a monthly mortgage you can afford to pay should your income stop for a lengthy period of time.
For example, if you can easily afford $1,000 per month for your mortgage, but your dream home will cost you $2,500 per month, you may be tempted to get the mortgage if you are offered a proposal that will cover that amount.
However, if taking on a $2,500 monthly mortgage means you have very little left over to pay your other expenses after you make your monthly mortgage payment, then you are going against the rule of thumb that can help you know how much can you afford for a house.
Although you may be living in your dream house and able to make the payment now, if you lose your job, it will become difficult and very stressful to afford paying $30,000 per year in mortgage payments alone.
However, if you follow this “how much house can I afford” rule of thumb and take the home with the $1,000 monthly mortgage payment, then you would only have to pay a manageable $12,000 a year in mortgage payments should you lose your job.
You have to make a mental note to yourself that buying a home may not only be the best event in your life, but it can be the worst financial decision you make that could haunt you for years to come if you make the wrong choices.
In other words, choose a mortgage payment that will best suit you in the worst-case scenario.
In the event you lose your primary source of income, you want the ability to have time on your hands to look for a new source of income and, in the worst-case scenario, give yourself enough time to sell the home to break even on the money you spent or make a profit if that has to be done.
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3. Borrow Only What You Can Handle
Another good “how much house can I afford” rule of thumb is to only borrow what you can handle. At the end of the day, you have to understand that this loan is only affecting you. If you borrow more than what your means can cover, the realtor and bank will not be there to aid you in helping you make your payments.
You will need to put to aside your emotions during the home-buying process. This is because your emotions can drive you to taking on a higher monthly mortgage that you don’t need.
4. Let Your Salary and Expenses Be Your Guide
According to Bankrate, lenders typically will not want their borrowers to take on mortgage payments more than 28 percent of their income before taxes. Some lenders will allow you to exceed that amount, but it is in your best interest to be below that number.
For example, if you currently make $40,000 per year before taxes, using the 28 percent rule of thumb to help you answer the question: “How much of a house can I afford?”, this means that you can only afford a home with a monthly payment of $933 or less.
However, you have to take other living expenses into consideration. If you also have a car payment, medical insurance, car insurance, and food expenses that cost you $600 per month, then the monthly mortgage payment that you can afford will be reduced to $765 per month or less.
That is why it’s important to ask yourself, “How much house can I afford with my salary?” or even, “How much house can I really afford?”
Image Source: How much house can I afford with my salary
You want to let your salary and expenses be your guide, and you have to factor in living expenses because you have to eat, you need to power the home, and you will need transportation to get to your job or go to the grocery store and other places.
You should include all of these costs in your assessment of how much can you afford for a house. That way, you can narrow down your choices for monthly mortgage payments and ensure you get the right loan amount.
5. Understand and Include All of Your Expenses
By not listing all of your expenses when initially trying to determine a mortgage amount, you are only lying to yourself when you ask yourself, “How much can I afford for a house?”
Excluding this information from your “how much house can I afford” calculator and not including this information when you calculate your expenses for your loan officer during the preliminary good-faith estimate puts you at a disadvantage.
In fact, you may even be putting yourself in a dangerous position financially for getting a loan you cannot afford.
For example, if you make $50,000 per year with current monthly expenses of $1,000, but only put down $200 as your monthly expenses, you run a high risk of obtaining a loan way above your means.
Therefore, it is a good idea to list all of your monthly expenses when you ask yourself, “How much can I afford on a house?”
6. Consider Whether You Have a Stable Job
When checking to see if your salary is good enough to get the home you want and to answer the question, “How much can I afford to spend on a house?”, it is also important to check if your job is stable with room to grow.
For example, if you are a new hire and have been working in the job less than one year, it may be best to hold off on looking to get a mortgage. This is the time to look around at other employees and see how long they have been in your position.
If they have been working there in that position for a year or less on average before they leave or get fired, then the answer to the question of “how much house can I really afford?” is that the job you have, more than likely, is not a stable job.
However, if a vast majority of your coworkers have been with the company for several years and have been promoted several times, you then are, more than likely, in a stable job.
Also, when you’re asking yourself, “How much can I afford to spend on a house?”, consider whether or not your job is giving yearly pay increases or any type of increase. You want to be in a position at a job that is paying you more in the long run as inflation goes up each year. For example, if your job starts you at $50,000 per year, and 10 years later, you’re still making that same amount, it will be hard for you to save money and afford a better home afterward.
When you’re asking yourself “how much house payment can I afford?” or “how much house can I really afford?”, it’s vital to consider whether you plan to stay in your position or with the company for the long haul.
Furthermore, if the company you’re working for is a publicly traded company, it is best to look up the company’s stock and check its performance when you’re asking yourself “how much can I really afford?” You would be amazed at how many people don’t find out that their company is about to close until it’s too late.
By looking at your company’s stock, you can easily see if the company is growing, or if it is in danger of closing its doors.
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Finding a Reliable “How Much House Can I Afford” Calculator
Image Source: How Much Can I Afford on a House
If you want to know how much can you afford for a house, you can get a quick estimate by using a “how much house can I afford” calculator.
Currently, Bankrate offers users free access to a calculator that helps you answer the question: “How much house can I afford with my salary?” Users will not be required to sign up on the site or even give an email address to use the “how much house can I afford” calculator.
The main reason for suggesting the Bankrate calculator as a primary option for a calculator that can answer the question of “how much house can I afford with my salary?” is due to the fact that there will be no advertisements to try and lure you into getting a loan you are not ready for.
Additionally, Bankrate’s version of the “how much house can I afford” calculator gives you the ability to plug in various data to better assist you at getting a clear picture of what your payments should be.
For example, not only can you input your own interest rate that you think the lender may approve you for, but you can also hit the Today’s Rates button to get a general idea of current interest rates lenders are actually offering to see if your estimate matches the current offers.
Bankrate’s version of the “how much house can I afford” calculator also offers you the option to plug in your debts and how much down payment you would like to put down on a home. You can tweak the numbers at any time to see if the estimate is manageable as well.
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Final Thoughts
Wondering how much can you afford for a house shouldn’t be a mystery. You can get a quick idea to answer your question, “How much house can I afford based on income?” by using a “how much house can I afford” calculator.
A good rule of thumb to help you answer “how much of a house can I afford?” is to only borrow what you can handle. Another good rule of thumb that can help you determine how much can you afford for a house is to plan ahead for moments of income interruption.
By following this guide, you can take the necessary steps you need to plan sufficiently for the monthly mortgage you can handle, so you can stop asking yourself “How much can I afford on a house?”
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