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I want to buy a new house how much can I afford ?

Updated on May 7, 2011

I want to buy a new house how much can I afford ?

If you are asking yourself this question then you are not alone. Many potential new home buyers ask questions like:

  • “How Much Home can I afford?”
  • “What price house can I afford?”

It is very normal to be concerned about what you can afford for a new home.

These questions all boil down to the same issue which is how much you can afford to pay for a prospective new home. This is a very justified concerned for any body wanting to buy a new home as the amount of money you can to pay for a house will ultimately determine the kind of property you end up buying, the neighborhood you live in, etc

The amount of money you can afford for a new house is determined by your circumstances and each individual has unique circumstances.

However there are a number of key factors which are taken into consideration when determining how much you can afford for a new house, and these are:

  • Liabilities – what takes away money from you (can include things like Monthly child support payments, Monthly auto payments & Other monthly obligations)
  • Income – how much money you make (like current combined annual gross income)
  • What you can afford - how much have you got for a down payment
  • Debt – how much do already owe?

This is not all, you also have to make certain assumptions about the home mortgage or home loan you need to take out to pay out for you new house for example:

  • A mortgage term of say 30 years,
  • Your debt-to-income ratio (not more than 36% say)
  • A housing payment-to-income ratio of between 28 to 33% ( 28 percent for a conservative estimate, and 30 percent for a aggressive one)
  • Annual interest rate on new mortgage (say about 6%)
  • Estimated annual property taxes

Apart from these assumptions there are still some costs which might also have to take into consideration like:

  • A private mortgage insurance – You will a private mortgage insurance if your down-payment is less than 20 percent of the purchase price of the house. To give you an indication of what you might have to pay, the national average of a private mortgage insurance is between $50 to $80 per month.

Armed with this information, you need to use an affordability calculator to see exactly How Much Home can I afford.

For information visit official resources on the Internet about Government Auctions & Foreclosures.


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