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How Much House Can I Afford Based on My Income?


If you’re in the market for a new home, the first question you have to ask is, “How much house can I afford based on my income?”

Assessing your financial situation is important. Two numbers are most important to lenders: the front end debt-to-income ratio (total housing expenses, which includes your mortgage principal and interest, taxes and insurance); and back end debt-to-income ratio (your total housing expenses plus any other debt you have – car loans, credit cards, etc.).

The experts at Horizon Bank have provided a few general guidelines:

  • Your total monthly housing costs should equal only about 28 percent of your gross income (the amount you earn before taxes). This includes your mortgage payment, homeowner's insurance and other related costs.
  • Your total debt, including mortgage, should not exceed 36 percent of your income. If your total debt exceeds this percentage, you should take steps to lower it before approaching a lender. Experts will tell you the best way to do this is simply to stop spending beyond anything that is necessary.
  • To establish a budget and determine what you can afford, take a close look at your current monthly expenses as compared to your income. Remember that utilities and maintenance costs may increase with home ownership (as compared with an apartment), so it's important that you have extra left over each month in your monthly budget.

If you have savings to use for a down payment, lenders prefer that you not completely empty your savings account to meet a specific down payment percentage. Again, the importance of having additional money left helps float your budget.

No stress, and no worries. We'll help you do the math and determine what you can afford. Visit our online Mortgage Center, or stop by your local Horizon Bank branch today for a consultation and free prequalifiion so you begin the search for a home in your price range.




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