How Much House Can I Afford?

Deciding how much house you can afford:

     Your lender decides what you can borrow, but you decide what you can afford.

     Lenders are careful, but they make qualification decisions based on averages and formulas. They won't understand the nuances of your lifestyle and spending patterns quite as well as you do. So, leave a little room for the unexpected — those new expenses your home will need like furniture, landscaping, and repairs.

     Historically, banks use a ratio called 28/36 to decide how much a borrower can barrow. An approved housing payment can not be more than 28% of a buyer's gross monthly income, and his or her total debt load — including car payments, student loans, credit card payments, etc. — can not be more than 36%. As home prices have risen, some lenders have responded by stretching these ratios to as high as 50%. No matter how expensive your market, we urge you to think carefully before stretching your budget quite so much.

     Deciding how much you can afford should involve some careful attention to how your financial profile will change in the upcoming years. In the long run, your own peace of mind and security will matter most.