- How is mortgage affordability calculated?
- Mortgage affordability is calculated using your annual income, monthly expenses, down payment, interest rate, and debt-to-income ratio. Lenders typically use the 28/36 rule: housing costs shouldn't exceed 28% of gross monthly income, and total debt payments shouldn't exceed 36%.
- What factors affect how much house I can afford?
- Key factors include your annual income, monthly debt payments, credit score, down payment amount, interest rates, property taxes, insurance costs, and other monthly obligations. Your location and local property taxes also play a significant role.
- What is the debt-to-income (DTI) ratio?
- DTI ratio is the percentage of your monthly income that goes toward paying debts. There are two types: front-end ratio (housing costs divided by income) and back-end ratio (all monthly debt payments divided by income). Most lenders prefer a back-end DTI ratio of 36% or less.
- How much down payment do I need?
- Traditional mortgages typically require 20% down payment, but there are options for less. FHA loans may require as little as 3.5%, while VA loans might need no down payment. However, lower down payments usually mean higher monthly payments and mortgage insurance.
- What is PMI and how does it affect affordability?
- Private Mortgage Insurance (PMI) is required when your down payment is less than 20%. It typically costs 0.5% to 1% of the loan amount annually, which increases your monthly payments and reduces how much house you can afford.
- How do property taxes and insurance affect my mortgage payment?
- Property taxes and homeowners insurance are typically included in your monthly mortgage payment (PITI - Principal, Interest, Taxes, Insurance). These costs vary by location and property value, usually adding several hundred dollars to your monthly payment.
- What credit score do I need to get a mortgage?
- Most conventional loans require a minimum credit score of 620, while FHA loans may accept scores as low as 580. Higher credit scores typically qualify you for better interest rates, which increases your affordability.
- Should I include HOA fees in my affordability calculation?
- Yes, if you're buying a property with Homeowners Association (HOA) fees, these should be included in your monthly housing costs. HOA fees can range from $100 to several hundred dollars monthly, which affects your total affordability.
- How do interest rates affect my home buying power?
- Interest rates significantly impact affordability. A 1% increase in interest rate can reduce your maximum affordable home price by 10% or more. Our calculator helps you see how different rates affect your buying power.
- What other costs should I consider when buying a home?
- Beyond the mortgage payment, consider closing costs (2-5% of loan amount), maintenance (1-2% of home value annually), utilities, possible HOA fees, and emergency repairs. These additional costs affect your overall affordability.