Ready to buy a house but not sure how much you can afford in today's high-interest rate environment?
Don't let the banks dictate your budget!
Here's a simple formula to help you determine a realistic spending range:
Take your Gross Household Income (pre-tax) X 28%.
That's your maximum Principal-Interest-Taxes-Insurance (PITI) annual payment. Divide by 12 to get your monthly amount.
But don't forget to also factor in OTHER debt payments - like cars, student loans, and credit cards.
Take your Gross Household Income (pre-tax) X 36%.
That's your maximum total for ALL debt payments. Divide by 12 to get your monthly amount.
If your total debt payments exceed 36%, you need to spend less than 28% on your house. And even if you're under 36%, it's still wise NOT to go over 28% on your house.
Ex. Household Income = 275K
- 28% = $77,000 / 12 = $6,416. This includes principal, interest, taxes, and insurance. REMEMBER, when buying a house your taxes will always increase so go lower than you can afford.
- 36% = $99,000 / 12 = $8,250. This includes your house, student loans, cars, childcare, educational funding, life insurance, etc. Any reoccurring monthly debt (or commitments) that cannot be canceled. You can cancel Netflix but not your cell phone.