The typical homebuyer has been browsing through properties online, eagerly looking for yard signs, and attending open houses. However, before you even go house hunting, you should know how much you are able to spend on a mortgage. You don’t want to spend months looking at homes you think you can afford, when in realty you are out of your price range.

Follow these steps to get a basic idea of what monthly mortgage payment will work for you:

1. Allowable Monthly Debt Payments
As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income. Although the percentage does vary between lenders. Even if your debts are higher than 28% of your income, that doesn’t mean you can’t get a mortgage, there are financing programs that help make homeownership a reality for people from various financial backgrounds.

To calculate your housing expense ratio, multiply your annual salary by 0.28, then divide by 12 months.

$66,000   (salary before taxes and other expenses)
 X   0.28    (debt-to-income ratio)
= $18,480
$18,480 / 12 = $1,540
$1,540 Allowable Monthly Debt Payment

2. Total Monthly Debt Expenses

Add together your regular monthly debt payments: car payments, student loans, required minimum credit card payment, and any other expenses. 

$300 (Monthly Car payment)
+ $150 (Monthly Tuition Payment)
+  $90  (Car Insurance)
  $540  Total Monthly Debt Expenses

3. Maximum Mortgage Payment 

Subtract your monthly debt expenses from you allowable monthly debt payment in order to find your maximum mortgage payment.

$1,540  (Allowable Monthly Debt Payment)
 – $540  (Total Monthly Debt Expenses)
=  $1,000  Maximum Mortgage Payment 

Keep in mind that your maximum mortgage payment should include mortgage insurance, homeowner’s insurance, and property tax.

If you have questions or need more information, please don’t hesitate to contact one of our loan officers at Homesale Mortgage (PA) or Mortgage Master (MD).