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How do I find out how much house I can afford? |
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There are two sides to this question. First of all if you don’t know your average monthly expenses for funding everything else but accommodation you will have a hard time figuring out what the balance of your disposable income is. Your income minus all your average monthly expenses (excluding rent or current mortgage) equals your remaining disposable income. Theoretically you could use this remaining income to make your mortgage payment. To get the highest loan amount for an equal monthly payment you can choose to take out an interest only mortgage. Obviously it is not wise to commit this maximum amount solely to your financing charges. Plan for emergencies, build up a reserve fund and you will sleep much sounder.
Secondly lending institutions don’t like to see their customers spend more than 30 percent of their income on servicing their mortgages. So lets assume you have a net income of $216,000 per annum. That translates into a monthly disposable income of $18,000. Banks and other mortgage lenders tend to feel comfortable extending a real estate backed loan that can be serviced by 30 percent of your monthly income, so in this case by $5,400. Lets assume we are talking about a fixed rate product. If you were able to lock in a rate of 6% you would roughly be able to borrow just over a million Dollars (5400*12/0.06 = $1,080,000). Add to this your down payment and you will arrive at a ball park figure for what price house you can afford to buy. Not that there are lenders that will extend mortgages with less strict criteria, which translates into a higher loan amount for the same household income. |
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