With interest rates at an all-time low, buying your first home or refinancing your current mortgage is more enticing than ever. But don’t bring blind faith as your only ally to the negotiating table. Your first line of defense is a solid understanding of what you can afford.You can typically afford a home priced two to three times your gross income. If you earn $100,000, you can typically afford a home priced between $200,000 and $300,000. The higher your down payment, the lower your monthly payments. Put down at least 20% of the home’s cost, and you may not have to get private mortgage insurance, which can cost hundreds each month.
Follow the 28/41 rule. Your mortgage payment shouldn’t total more than 28% of your gross annual income. Payments for your mortgage, plus all your other bills, car loans, utilities, and credit cards, shouldn’texceed 41% of your gross annual income.
Use your current rent as a mortgage guide. The tax benefits of homeownership generally allow you to afford a mortgage payment of about one-third more than your current rent. So you can multiply your current rent by 1.33 to arrive at a rough estimate of your mortgage payment.
Remember, what is most important is that you are comfortable with the mortgage payment. Your Realtor can help you come up with that number. For more information, click here.