When asking, “How much house can I afford?” it is essential that you consider all of the factors that may affect the answer. Details to keep in mind include:
- Mortgage-specific qualifiers (credit score and history, the type of mortgage you acquire, etc.).
- Your income and debt to income ratio.
- Where you live.
- The age of the home.
- The home’s listing price.
While, “How much house can I afford with my salary?” is a great question, non-income factors are just as important as income-related ones. By learning more about each factor, you will have the opportunity to be better prepared when you’re ready to buy. Additionally, you will know the areas that you can improve upon if you are searching for a larger home that you may not yet be able to afford.
What is the average square footage of a house?
Homebuyers commonly ask, “What is included in square footage of a house listing?”
This is an important concept to understand before you begin house hunting. Understanding what is included in the square footage of a house will help you to determine the size of home that you are looking for.
Square footage refers to the amount of living space within a home. Therefore, depending on your state’s laws, it may not include areas such as:
- Garages or carports.
- Crawlspaces and other unpermitted spaces.
- Unfinished attics.
In 1973, the average square feet of new homes was 1,660. In 2018, newly built homes averaged 2,435 square feet. Therefore, the age of a home will strongly impact the size that you can expect.
The square footage of a home is also strongly influenced by where you live. For example, densely populated areas such as New York City have significantly less square footage compared to homes in the countryside.
When determining the size you want to have for a home, it is essential that you consider the number of bedrooms or bathrooms that you want or might need in the future as well as other living space essentials.
How much house can I afford with my salary?
To determine how much house you can afford, the general rule of thumb is to not exceed a purchase price that is 2 to 3 times your annual gross income. However, while salary is an important factor, it is not the only affordability factor that you should examine.
If you are like most people, you will need a mortgage to purchase a home. Therefore, the amount that you will be eligible to receive through a mortgage should also be considered.
Learn About Savings and Down Payments
Homes are an investment. In most cases, the purchase of a home will cost a large sum that must be paid up front. This is referred to as a down payment. Traditional mortgages will typically require homebuyers to provide a down payment of between 10 and 20 percent. A “How much can I afford” calculator for mortgages could illustrate how much you could save on accumulating interest over time by increasing your down –payment amount.
However, certain mortgage programs, including government-insured programs, can reduce or eliminate the requirement. You may also qualify for local, state or federal grant programs that can provide you with assistance on your down payment or closing costs when purchasing a home.
Learn About Debt-to-Income Ratio
When asking, “How much house can I afford with my salary?” it is essential that you review your current debt and monthly expenses just as closely as you would your income.
If your debt and monthly expenses are too high, you won’t be able to afford mortgage payments and other homeowner’s expenses comfortably. Additionally, you likely will not qualify for a mortgage, or you will not be able to receive the amount you need for the size of home you want.
Generally, you can still qualify for a mortgage with a debt-to-income ratio of 43 percent. However, it is strongly recommended that you ensure that your monthly expenses are less than 36 percent before applying for a mortgage.
Learn About Credit Scores and Credit History
If may not matter how much house you can afford based on income and savings if you are a risky applicant. Your credit score and history affect the amount of house that you can afford as these factors directly impact your mortgage. Your overall credit profile will determine:
- If you qualify for a mortgage.
- The amount you will qualify for on a mortgage.
- The interest rates that you can expect to pay over the life of your loan.
If you have bad credit, you may benefit from a government-insured mortgage program. These programs can significantly reduce your credit-related eligibility requirements for a mortgage through participating lenders. However, most of these programs will require you to pay a mortgage insurance premium (PMI).
Alternatively, you can work on improving your credit score to decrease the interest rates that a lender will offer you or improve your approval odds.
Is there a “how much house can I afford” calculator?
To help you answer, “How much house can I afford?” it is worth taking the time to review affordability calculators online. In fact, if you have a particular lender in mind, several lenders provide calculators on their websites for prospective homebuyers.
These calculators can help you determine whether or not you will qualify for a mortgage and the price limit that you are likely to be offered.
How much house can I afford with an FHA loan?
Now that you have answered, “How much house can I afford?” it is essential to explore your lending options, including government-insured loan programs.
FHA loans are a perfect option for many homebuyers as these government-insured loans reduce eligibility requirements, including down payment amounts. The program aids low and moderately incomed households to achieve homeownership. FHA loans offer competitive fixed interest rates, reduced down payment amounts and reduced credit score and income-related eligibility requirements.
On the downside, most government-insured loans require homebuyers to commit to mortgage insurance premium payments. These payments can increase the overall amount that you will pay over the life of your loan.
In addition to FHA-insured mortgages, homebuyers can take advantage of other programs that they qualify for, including USDA and VA loans. If interested in an FHA loan or any other type of government-insured mortgage, you will need to contact a participating lender within your area.