how to calculate how much you can afford on a house?
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To calculate 'how much house can I afford,' a good rule of thumb is using the 28%/36% rule, which states that you shouldn't spend more than 28% of your gross monthly income on home-related costs and 36% on total debts, including your mortgage, credit cards and other loans like auto and student loans.
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Why it's smart to follow the 28/36% rule The 28/36 percent rule is the tried-and-true home affordability rule that establishes a baseline for what you can afford to pay every month. Example: To calculate how much 28 percent of your income is simply multiply 28 by your monthly income.
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In the past, mortgage lenders based the amount you could borrow mainly on a multiple of your income. This is known as the loan-to-income ratio. For example, if your annual income was £50,000, you might have been able to borrow three to five times this amount, giving you a mortgage of up to £250,000.
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['Borrowing capacity formula. Gross income – tax – existing commitments – new commitments – living expenses – buffer = monthly surplus. ... ', 'Calculating your gross income. ... ', 'Tax / Medicare. ... ', 'Negative gearing benefits. ... ', 'Your new mortgage. ... ', 'Your existing commitments. ... ', 'Your living expenses. ... ', 'The buffer.']
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['Add up your total monthly income. ... ', 'Multiply it by 25% to get your maximum mortgage payment. ... ', 'Use our mortgage calculator to determine your budget. ... ', 'Factor in homeownership costs. ... ', 'Get Preapproved for a Mortgage.']
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They determine this amount by dividing the appraised value of the house by the amount remaining on your mortgage, and the amount you'd like extended. For example, if your home is worth $300,000 and you owe $90,000 on it, divide the balance by the appraised value: 90,000/300,000= . 3, or a 30% LTV ratio.
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To afford a $400,000 house, for example, you need about $55,600 in cash if you put 10% down. With a 4.25% 30-year mortgage, your monthly income should be at least $8178 and (if your income is $8178) your monthly payments on existing debt should not exceed $981.
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['Determine If You Are Ready to Buy a Home.', 'Start Shopping for a Loan.', 'Find the Best Payment Options and Loan Types.', 'Have a Down Payment Ready.', 'Be Honest About What You Can Afford.', 'Find a Good Real Estate Agent.', 'Request a Home Inspection.']
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To calculate how much interest you'll pay on a mortgage each month, you can use the monthly interest rate. Generally, you'll find this by dividing your annual interest rate by 12. Then, multiply this by the amount of principal outstanding on the loan.
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It's calculated as a percentage of the mortgage and is based on the size of your down payment. Your lender will likely pass this cost on to you. You can pay it in a lump sum or add it to your mortgage and include it in your payments.
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['Calculate your monthly income and debt.', 'Check your FICO Score.', 'Figure Out What You Can Afford as a Down Payment and for a Mortgage (Price Range).', 'Get Pre-approved for a mortgage, preferably a 15, 20 or 30 year fixed. ... ', 'Determine What You Need.']
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That said, a good place to start for figuring out what you can afford is to use the 50/30/20 rule. This is a budgeting plan where you: Set aside 50% of your after-tax salary for 'needs', such as rent, food, bills and other unavoidable spending. 30% for fun spending - such as clothes, nights out or hobbies.
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['Step 1: Check your credit report and score. ... ', 'Step 2: Figure out how much you can afford. ... ', 'Step 3: Find a real estate agent. ... ', 'Step 4: Get pre-approved by a lender. ... ', 'Step 5: Start looking at homes. ... ', 'Step 6: Make an offer. ... ', 'Step 7: Home inspection day. ... ', 'Step 8: Get insurance and establish utilities.']
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When looking at how much rent you can afford, follow this rule of thumb: Rent shouldn't be more than 30% of your annual income. To find out how much you can afford, multiply your monthly take-home pay by 0.3. ... That would mean the most you should pay in rent is $570/month.
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['See how much you can afford. The fastest way to get a sense of how much you can afford is with an online mortgage calculator. ... ', 'Get pre-approved. ... ', 'Attend open houses. ... ', 'Search homes for sale. ... ', 'Find a real estate agent. ... ', 'Make an offer. ... ', 'Inspect the home. ... ', 'Get the keys.']
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Do the math Once you've gathered your home's assessed value and your mill levy (as a percentage), assessing your property tax is actually pretty easy. To calculate yours, simply multiply the assessed value of your home by the mill levy. That will give you an estimated amount of taxes you can expect to pay every year.
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['Step 1: Should I buy or rent? ... ', 'Step 2: What can I afford? ... ', 'Step 3: Saving for a deposit. ... ', 'Step 4: Finding the perfect home. ... ', 'Step 5: Getting a mortgage - agreement in principle. ... ', 'Step 6: The viewing. ... ', "Step 7: Make them an offer they can't refuse. ... ", 'Step 8: Surveys and conveyancing.']