How much can you afford?
When determining how much of a mortgage you qualify for, most lending institutions calculate roughly 28% of your gross monthly income to housing expenses. Principal, interest, taxes and insurance (PITI) make up your housing expenses. Your other outstanding debt, such as vehicle loans, student loans, credit cards should not exceed 36% of your gross monthly income.
To determine how much of a mortgage payment you can safely afford multiple your gross monthly income by 28%. For an example, if your paystubs show your gross monthly income is $5,000.00, you would then qualify for a mortgage payment of roughly $1,400.00. The payment of $1,400.00 would be the housing expenses (PITI).
The amount of the total home purchase price is not as easy to calculate as the factors involved there include the fluctuating interest rate(s), various bank fees, and your down payment. To find out the maximum home price you can afford you need to speak with a lending institution and obtain your pre-qualification letter.
Currently items such as mortgage interest, property taxes and loan fees may be tax deductible. You should consult a tax professional for the current tax guidelines.