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The Definitive Guide to Determining How Much Home You Can Afford

As a Kansas City mortgage lender, one of the most common questions we hear from our customers is, “how much can I afford for a home?”

Fortunately, it’s fairly easy to determine the answer. While our team members will give you a much more accurate figure, the following will help with an estimate.

Advice from an Actual Kansas City Mortgage Lender

To understand what kind of mortgage you can afford, follow along with these four steps.

1. Calculate Your Total Monthly Income

This first step is as straightforward as it gets: What is your monthly take-home pay?

If you have a spouse, be sure to add their pay to that number, as well.

The result is your combined monthly income.

2. Multiply Your Monthly Income by 25%

Most financial planners recommend you keep your monthly mortgage payment to around 25% of your monthly household income. So, take that number from step 1 and multiply it by 0.25.

Of course, you may have other obligations on your monthly income (e.g. student loan payments, car payments, etc.). In that case, consider dropping it to a more comfortable percentage.

However for this example, let’s say your monthly income is $6,000, and you can afford a 25% down payment, which would be $1,500.

3. Consider Your Potential Down Payment

Now, let’s look at what kind of down payment you can afford without breaking that $1,500 limit. Keep in mind, too, that there will be other monthly expenses it will have to cover (more on that next), so we’ll leave a little room. Let’s make it about $350.

With a 15-year mortgage at 4% interest and spending about $11,50 a month, you could afford:

  • $225,320 house with a 10% down payment ($22,532)
  • $253,485 house with a 20% down payment ($50,697)
  • $289,697 house with a 30% down payment ($86,909)
  • $337,980 house with a 40% down payment ($135,192)

4. Add in Homeownership Costs

Finally, you also need to consider the other costs involved with owning a home. Property taxes, utilities, and homeowner’s insurance are just some examples of payments you’ll need to make every month.

Depending on where you’re looking, you might need to use some of your budget for renovations, as well. This is when working with an experienced Kansas City mortgage lender can be a huge help: they’ll know where your budget will be best spent.

Are You Ready to Speak to a Kansas City Mortgage Lender?

This guide should give you a good figure for your budget and help you understand what type of home you can afford.

If you have any questions or would like professional guidance, contact us today to speak with a Kansas City mortgage lender.

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