How much mortgage can I afford to borrow?
By Brandon Cornett | 7/15/10
© 2011, All rights reserved
Question: “I’m planning to buy a house early next year, and I’m trying to put together a budget. I want to know much mortgage I can afford to borrow, based on my income. My current income is $85,000 per year.”
First of all, I’d like to give you some kudos for being a smart home buyer. You’ve started the research and planning process well in advance of your purchase. That’s what I always tell people to do. So you’re off to a great start. Now, on to the question at hand.
Just to be clear, you are asking this: How much mortgage can I afford to borrow with my income? This is one of the most common questions among home buyers. But it’s not one that I can answer. Even if I knew your income, there’s still one important variable that’s missing — and that’s your monthly expenses.
How Much House Can I Afford?
To figure out how much mortgage you can afford, you must first create a housing budget for yourself. Start by comparing your monthly income (after taxes) to your monthly expenses. By “expenses,” I’m talking about everything you spend money on each month: Your car payment and insurance. Your grocery bills. Your credit card debt. The money you put toward savings. Entertainment and qualify-of-life items. Everything. You need to subtract these monthly expenses from your net income. If you’re currently paying rent, you can leave that off your list of expenses. You won’t be paying rent anymore, after buying a home.
I’m not advising you to use all of your extra income to cover your mortgage costs. That wouldn’t give you much breathing room. But the number you come up with after your calculations does give you a good starting point. You know that your mortgage payment must be equal to or less than this amount. If your monthly payments exceed the difference between your income and expenses, you’re going to have trouble keeping up with the payments. This is a recipe for home foreclosure. And you don’t want to go down that road.
Related article: How much house can I afford to buy?
This article answers the question: How much mortgage can I afford to borrow with my income? If you would like to learn more about the mortgage or home-buying process, use the menu at the top of this page. You can also use the search box to enter your question or keyword. Good luck.