How Much Loan Payment Can You Carry?

Down payment aside, brokers say you should only spend between 25 and 33% of your monthly gross (before taxes) pay on housing. Here´s a chart to help you figure out how much loan payment your income can carry:

    Gross monthly income from all sources:

     

    ______

    Divide by four or three:

    		  
    ______

    Subtract present monthly debt service:

    		    

    Credit cards
    ______
    		  

    Car loans
    ______
    		  

    Other debt
    ______
    		  

    Total debt

    		 
    ______

    Equals maximum monthly payment

    		 
    ______
 

Let´s say your monthly gross income is $5,000 ($60,000 annually). Divide by four ($1250) or three ($1667). Let´s say you have a car loan ($150/month) and you´re paying off a credit card balance ($100/month).

$1250-$250= $1000 or $1667-$250= $1417

In this example, you´d be able to spend between $1000 and $1417 a month on your principal and interest payments, real estate taxes, and insurance. If real estate taxes are $100/month and insurance is another $50/month, that will leave you between $850 and $1267 to spend on a mortgage.

Here´s how to calculate the amount of the mortgage you can afford to carry: Multiply the net amount you can spend ($850 to $1267) by twelve (for an annual mortgage amount), then divide that number by the current prevailing interest rate (say, 8 percent for a 30-year fixed-rate loan).

25% of gross income: $850 x 12 = $10,200 ÷.08 = $127,500
33% of gross income: $1267 x 12 = $15,204 ÷ .08 = $190,050

So how much house can you afford? Assume you add a 20% down payment to each of these mortgage amounts (divide $127,500 or $190,050 by 5 and add that number to the total).

$127,500 ÷ $25,500 = $153,000
$190,050 ÷ 38,010 = $228,060

According to these calculations, on a $60,000/year income, assuming you have 20% to put down in cash, you´d be able to afford a home that costs between $153,00 and $228,060.

 

 

Please fill out this quick and easy form to let me know exactly what you're looking for...
1
Please provide the following contact information:
Name:
Home Phone:
E-mail:
 
2
Please be specific about what you're interested in:
 

By submitting this form with your telephone number you are consenting for this website's authorized representatives to contact you even if your name is on the Federal "Do not call List"

Thank you for submitting your information. We will be in contact with you by phone or email.