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How much HOME can you afford?

Before you start shopping for a home, you need to know what kind of home to shop for. To determine that , of course, you've got to figure out how much you can afford to pay each month.

Fortunately, there's a pretty simple formula for coming up with this number. It's the Federal Housing Administration (FHA) formula that many mortgage lenders use. The FHA has found that most people can afford to budget 31% of their gross monthly income to housing expenses, depending on total debt. Buyers with no debt can budget as much as 43% of monthly income to housing.

No need to reach for your calculator--we've done the math for you. The two charts below should tell you everything you need to know.

Chart No.1


The first chart tells you how much 31% of your monthly income is. Find your annual income, or a figure close to it, in the column above. Then read across to find out how much your monthly gross income is, and finally, what 31% of that figure amounts to. This is approximately how much you can spend on total housing costs each month.

The second chart tells you how much your monthly mortgage might be based on a home's selling price. Remember to keep in mind that the monthly figure from this second chart is based on a 30-year fixed mortgage and includes monthly principal and interest payments only. Taxes and insurance - which vary from community to community - are not included.

So if 31% of your gross income is, say, $604, that doesn't mean you can pay a $604-per-month mortgage. You need to look at a mortgage somewhat below that, to leave room for taxes and insurance. Be sure to ask your lender to help you estimate how much your total costs will be.

 

Chart No. 2

Mortgage payment calculator.

Monthly principal, interest payments for 30-year, fixed rate mortgage. Monthly taxes, insurance not included.

COST 6% 6.5% 7% 7.5% 8% 8.5% 9% 9.5% 10%
$ 25,000 $ 150 158 166 175 183 192 201 210 219
$ 30,000 $ 180 190 200 210 220 231 241 252 263
$ 40,000 $ 240 253 266 280 293 308 322 336 351
$ 50,000 $ 300 316 333 350 367 384 402 420 439
$ 60,000 $ 360 379 399 420 440 461 483 505 527
$ 70,000 $ 420 442 466 489 514 538 563 589 614
$ 80,000 $ 480 506 532 559 587 615 644 673 702
$ 90,000 $ 540 569 599 629 660 692 724 757 790
$100,000 $ 600 632 665 699 734 769 805 841 878
$110,000 $ 660 695 732 769 807 846 885 925 965
$120,000 $ 719 758 798 839 880 923 966 1,009 1,053
$130,000 $ 780 822 865 909 954 1,000 1,046 1,093 1,141
$140,000 $ 839 885 931 979 1,027 1,076 1,126 1,177 1,229
$150,000 $ 899 948 998 1,049 1,101 1,153 1,207 1,261 1,316
$160,000 $ 959 1,011 1,064 1,119 1,174 1,230 1,287 1,345 1,404
$170,000 $1,019 1,075 1,131 1,189 1,247 1,307 1,368 1,429 1,492