Are you in the market to buy a home in Kansas? If so, you'll want…
Are you thinking of buying a home? It’s an exciting time, but it can also be daunting, especially when figuring out how much house you can afford. There are a lot of factors to consider, but don’t worry; we’re here to help!
In this post, we’ll give you tips on calculating your budget and finding the right home for you. So read on for all the information you need to know about how much mortgage you can afford.
Calculator: Start by crunching the numbers
Enter these numbers into our Home Affordability Calculator to get a clear idea of your homebuying budget.
Annual income – Employees can use the gross monthly income received from a salary, hourly wage, commissions, or overtime and bonuse income for qualifying purposes. You will need to provide your lender with your most recent paycheck stubs, W-2s, and tax returns from the previous two years.
Monthly debt payments – The following debts that should be considered are monthly mortgage payments (including taxes and insurance) for retained and investment property, car payments, student loans, personal loans, child support payments, spousal alimony, and credit cards.
Estimated annual property taxes – Enter the yearly property taxes of the property you are interested in. If you do not have a property, use 1.25% of the sales price for a general estimate.
Estimated annual homeowners insurance – If you have received a quote from your insurance agent, enter it here. Otherwise, take the home’s purchase price of the time and multiply it by .65% as a general estimate.
Down payment – Enter the amount of your desired down payment. Make sure you consider closing costs into the total amount of money needed for closing.
Interest rate – Enter today’s interest rate here for the desired loan program.
Loan Term – Select the desired loan term.
How much house can I afford based on my salary?
For example, a home buyer’s annual income is $80,000. Using the 28/36 rule, your mortgage payments should be no more than $22,400 per year or $1,867 per month. You can afford a home price of $438,000 at a 5.0 percent interest rate over 30 years, assuming you make a down payment of 20 percent and do not have any debt.
Why it’s essential to follow the 28/36% rule.
Most financial planners agree that a homebuyer should spend no more than 28 percent of their pre-tax monthly income on housing expenses and no more than 36 percent on their total debts. The 28/36 percent rule is a general rule that establishes a baseline for what you can afford to pay.
For example, a borrower earns $5,000 each month. That means your maximum mortgage payment should be $1,400 ($5,000 multiplied by .28). Your maximum debts should add up to no more than $1,800 each month ($5,000 multiplied by .36).
How much mortgage payment can I afford?
As you think about your monthly payments, it’s essential to know the difference between what you can spend versus what you can comfortably spend. For example, let’s say you could technically afford to pay $5,000 monthly for your house payment. You’ll likely struggle if you only have $500 left over after your other expenses. Just because the mortgage lender offers you pre-approval for a significant amount doesn’t mean you should spend that much on a house.
How to determine how much house you can afford
Our Home Affordability Calculator will provide a general estimate of how much home you can afford. However, applying for a mortgage pre-approval will determine the exact amount you can qualify for.
How does your credit score impact affordability?
Your credit score is the cornerstone of your finances and significantly impacts the interest rate on your mortgage. For example, a credit score of 740 qualifies you for a rate of 4.375 percent on a $400,000 property, with a 20% down payment. Your rate could be greater than 6% if your credit score is lower—640, for instance. A higher credit score might result in a $300 monthly savings for the principal and interest payment.
You can check your credit scores directly with each of the three credit agencies: Equifax, TransUnion, and Experian.
How does your debt-to-income ratio impact affordability?
A low debt-to-income (DTI) ratio reflects a good balance between your monthly debt and income. In general, the lower the DTI, the better the chance you will be able to get the loan you want.
However, a high debt-to-income ratio shows you have too much debt, and lenders view this as risky.
Here’s how to figure out your debt-to-income ratio:
Add up your monthly debts and divide them by your monthly income (before taxes). Here’s an example:
- Total your monthly debts: $1,500 (new house payment) + $400 (car) + $200 (student loans) + $150 (credit card payments) = $2,250.
- Take your total debts of $2,250 and divide it by your pre-tax monthly income ($6,000): $2,250 ÷ 6,000 = .375. Round up and your DTI is 37.5 percent.
How much house can I afford with a Conventional loan?
A Conventional loan offers a low down payment with as little as 3% of the sales price for qualified buyers. If you put less than 20% down, these loans have private mortgage insurance that can be canceled once there is sufficient equity in the home. Borrowers need a credit score of at least 640 to qualify for Conventional financing. These loans are the most common mortgage in the united states.
How much house can I afford with an FHA loan?
FHA (Federal Housing Agency) loans are available to home buyers with credit scores of 640 or higher, can put down as little as 3.5 percent of the purchase price. There are loan limits on FHA loans in Kansas. In most counties in 2022, an FHA loan cannot exceed $420,680 for a single-family home. FHA loans require upfront mortgage insurance in additionaddition to monthly premiums.
How much house can I afford with a VA loan?
VA Loans (United States Department of Veterans Affairs) offers no down payment to qualified current duty or retired service members and their spouses. Even if you put less than 20% down, these loans have low mortgage rates and don’t require PMI. Additionally, if you are a first-time home buyer with full entitlement, there is no cap on the amount you can borrow. Further, you should consider how the VA funding charge may affect the price of your loan.
How much house can I afford with a USDA loan?
No down payment is necessary for USDA loans, and there is no cap on the purchase price. However, because these loans are intended for buyers who fall into the low- or moderate-income range, you must underline that you are aware of how mortgage payments will affect your monthly spending.
Metropolitan Mortgage can help you find out how much house you can afford
At Metropolitan Mortgage, we can help you find out how much house you can afford. We can quickly compare options side by side and determine which option saves you the most money for your situation.
If you need help, we have experienced loan officers who can guide you through each scenario and help you pick the home loan that offers the most significant benefit.
We’re a local company that’s a family-owned mortgage firm that’s officed in Overland Park and Kansas City, and we serve the broader Midwest region, including Kansas and Missouri. Please feel free to contact us with any mortgage-related questions or to get a rate quote.