| Buying a home is an important decision to make. No | | | | monthly household income is needed to pay for your |
| matter where you live or what you are looking for, you | | | | mortgage, real estate taxes and insurance. Banks |
| are concerned of home prices and whether or not | | | | undertake a slightly more generous rate. In case that |
| you can really afford to buy a house. Although the | | | | your monthly costs are around 28 percent of income |
| housing prices are down, it is an important part of the | | | | gets favorable rates from banks. This formula use by |
| buying process to know how much you can afford | | | | most banks is called the "housing expense to income |
| and if now is now the time to buy. Here are some | | | | ratio." |
| ways to help determine how much house you can | | | | Another determiner is called the "long-term debt to |
| afford. | | | | income ratio." This is where banks take a second look |
| You could do some simple research to see what is | | | | by checking any other household debt, such as car |
| going on in the real estate market. This will also give | | | | loans, college loans, credit card debts, and the like. |
| you idea whether now is the right time to purchase a | | | | Then add them into their determination. When the debt |
| home. Though this information may be useful, it is not | | | | is counted up, they look for a debt-to-income ratio of |
| enough to help you if you have trouble in paying for | | | | not more than 36 percent. Then, the bank will decide |
| the opportunities open for you. To help you determine | | | | and see if the total goes over 36 percent. |
| how much house you can afford, you need to use the | | | | Aside from the spreadsheets and fancy calculators |
| same approach that banks do in determining how | | | | that you can use to determine how much you can |
| much they will lend you. | | | | afford, you may search the Internet and find a lot of |
| Most banks use the same formula when deciding on | | | | great free tools that you can use. You might like this |
| how much house a family can manage. Because of | | | | one as it is simple, direct, and allows you to easily |
| the current financial mess, banks are more | | | | control several important factors to find out how it |
| conservative now than in the recent past and are | | | | would affect your buying power. You can have fun |
| mainly concerned with your repaying capability. That's | | | | with the tools as you can play with the numbers. You |
| why before they let you buy something; they really | | | | can put down higher or lower numbers to see |
| make sure that you can afford it. | | | | different results. Simply enter your income, debt if any, |
| NAR's Housing Affordability Index, which measures the | | | | and your choice of down payment amount, and you |
| ability of a typical family to purchase a home, assumes | | | | will see the monthly mortgage, taxes, interest, as well |
| that with 20 percent down payment, 25 percent of | | | | as the overall amount of house you can manage. |