One of the first steps on the path to purchasing your dream home is knowing how much home you can actually afford. You need to take into account your combined household income, debt, monthly living costs, and also leave some wiggle room in your budget for unexpected expenses and emergencies. Although this may seem like an overwhelming and confusing task, it doesn’t have to be. We’ve broken it down for you. Here’s how to calculate how much mortgage you can afford in just six easy steps.
1. Add up your combined income before taxes
First, grab your calculator and add up your combined yearly household income before taxes. This includes your salary as well as any other investments or streams of income.
2. Check your savings account
Take a peek at your savings account and see how much you can afford to put towards a down payment. Be sure to also leave some in there for closing costs and any other unexpected expenses that might pop up during the home buying process. It’s always nice to have a little cushion.
3. Find out your credit score
Your credit score also plays a role in factoring how much mortgage you can afford. Luckily, many banks now make it really easy to check your FICO credit score by just logging into your online banking account. There are many other ways you can access your credit score as well. Just do a little bit of Googling. Your credit score can fluctuate a bit so be sure you have your most recent one.
4. Tally up your monthly debt
Next, whip out your calculator again to tally up your monthly recurring debt payments. This includes credit cards, student loans, car payments, etc.
5. Use our mortgage affordability calculator
This next step is about bringing it all together and crunching the numbers, but no worries! It’s actually way easier than you’d think. Our mortgage affordability calculator does all the heavy lifting for you. All you have to do is input your household income before taxes, your down payment, your monthly debt, and your credit score. The calculator will then figure out exactly how much home you can afford as well as the estimated monthly mortgage payment. The calculation already factors in taxes and homeowners insurance so there’s no need to worry about that. You can also type in different down payment amounts to find your perfect combination.
6. Check with a buyer’s agent
Although our mortgage affordability calculator can help give you a good estimate of how much mortgage you can swing, it’s just that—an estimate. The best thing to do is to talk to a buyer’s agent. They have a much better understanding of the local real estate market and will be able to provide you with a more accurate number. Plus, buyer’s agents will quickly become your trusted partners and friends and support you through the entire process.