How much home can you afford?

Posted by Emily Ray-Porter Group on Friday, November 13th, 2009 at 9:18am.

How much home can you afford?

June 28, 2006
Dallas Morning News

Morris Communications

Whether you can afford the home you've always wanted will boil down to a simple factor: How much you make versus how much you owe.

Lenders are not eager to extend loans to borrowers who will become overloaded by taking on more debt, so there are some general guidelines to keep in mind when pursuing a home loan.

Determine your monthly gross income, which includes regular monies that can be documented. Remember that income that can't be documented can't be used to qualify for a loan. However, unearned sources, such as alimony and lottery payments, can be used as well as income-producing assets, such as stocks or real estate. If you have questions, ask a loan officer to help you with the rules.

After you've figured how much you make, calculate how much you owe. This is all monthly debt obligations such as credit cards, installment loans, personal debts or other monthly obligations such as alimony or child support. Debts that will be paid off in fewer than six months don't have to be considered.

Although each lender has his or her own formula, generally speaking, monthly housing expenses, including monthly payments for taxes and insurance, shouldn't be in excess of 28 percent of the gross monthly income. Additionally, the proposed monthly housing expense and total debt obligation can't exceed 36 percent of the gross monthly income. If it does, the loan may not be approved.

However, there are numerous types of loan programs available, and each one has different guidelines, so don't get discouraged by the process if your first choice doesn't work out. Keep shopping around.

Your down payment can have tremendous impact on your ability to qualify for a loan. The greater percentage of down payment that you can make, the smaller the monthly payment you will pay. Likewise, closing costs, which can vary from 2 to 5 percent of the asking price of the home, also are part of the financial obligation that comes with purchasing a home.

To determine how much you can afford:

  • Determine your gross monthly income.

  • Calculate your monthly debt obligations.

  • Generally, monthly housing cost should not exceed 28 percent of gross monthly income.

  • Proposed monthly housing cost and monthly debt obligations combined should not exceed 36 percent of gross monthly income.

  • Questions? Ask a qualified loan officer for help.

  • How much of a down payment can you afford? The more money down up front, the smaller the monthly mortgage payment.

  • Ask about closing costs.

Sources for these stories include:,, Federal Citizen Information Center Home Page,,,,, San Diego Association of Realtors,,, and


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