Home Affordability Calculator: How Much House Can I Afford?
One of the first questions any prospective homeowner must ask themselves is “How much house can I afford?” Answering this question is a crucial step that should be taken even before browsing for a home online. By knowing how much home you can afford, you’ll begin your house hunting process with realistic options, preventing yourself from falling in love with a home you can’t afford.
As important as this question is, it isn’t always easy to gauge. That’s where our home affordability calculator comes in. Between the down payment, the monthly payments, the mortgage term, and interest rate there’s a lot to consider, but our home affordability calculator makes it easy. Use this calculator to determine how much house you can afford and you’re one step closer to being a homeowner.
To use the home affordability calculator and determine how much home you can afford you’ll need to have a general idea of much of the following you can afford. Input the following information into the home affordability calculator above.
Desired Monthly Payment: Mortgages are typically paid off in monthly installments. Your total monthly payment should be how much you’re able to afford to pay towards that mortgage each month, all totaled – which includes the principal, interest, taxes, and insurance.
Down Payment: The down payment of your home is the amount of cash you’ll deposit initially in the purchase. The larger the down payment, the less you are required to borrow. In years past, this was traditionally around 20% but that number has gone down in recent years. Trends show that first-time home buyers traditionally pay 3%-10%. Knowing this, consider how much you’re able to pay now as a down payment, and it will help you determine the total amount your home can cost.
Interest Rate: Interest rate represents the amount charged by a lender to a borrower for the use of the money – expressed as a percentage amount of the principal. These can vary depending on the current housing market as well as your own credit score. In 2017, the average interest rate for a 30-year mortgage was 4.10%*. A 15-year mortgage’s interest rate is generally less.
Loan Term: The “term” of your mortgage is how many years you are given to pay the mortgage off – typically 15 or 30 years. Each comes with its own inherent set of advantages and disadvantages, and your own personal circumstances may dictate your preference too.
Property Taxes: This is a tax assessed by the local government on your real estate, based upon the value of the land and property you own.
Homeowners Insurance: Homeowners insurance protects your home in the event of damage or theft.
Review each factor and estimate how much you can afford or would reasonably expect to pay. Consider your own preferences and financial situation. Is it important that you are able to pay off your mortgage in 15 years? Is your credit score high enough to give you a more optimal interest rate on your mortgage? Knowing these answers can help you best use our home affordability calculator to discover how much home you can afford.
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* https://www.valuepenguin.com/mortgages/historical-mortgage-rates