How much house can you afford?
Searching for your first home purchase is probably very long on the list when it comes to making sure your deal closes. Number one financial factor: before you think about buying your first house, you have to know your house buying budget. If your budget doesn’t work, it doesn’t matter what house you may close on, should conditions change, that investment is at risk to defaulting, without the proper financial buffers in place.
So here is some of the terms that any first time buyer needs to be familiar with: 30-year fixed-rate mortgage, points, down payment, insurance, title insurance, utilities, budget, Reserve finances, DTI ratio which equals total monthly debt, insurance, property taxes versus pre-tax income. The DT irate should not exceed 28% of your monthly income.
Example: taxes and insurance are 1500 a month, monthly income is $5,000 a month, the DTI equals 1500 / 5,500 which equals 27.27%, so you are good.
What they suggest on nerd wallet is to multiply your income by 28%. So if your income is $7,500 a month multiply that by 28% and that is your DTI, which in this case is 21.
What is recommended is the 28% 36% rule which suggest that if you’re earning $6,000 a month and have $500 a month in existing debt payments your monthly mortgage payment can’t exceed $1,500.
But go here for the calculator.
