How Much House Can You Afford… Now?

house-calculatorRemember the good ol' home-buying days, circa 2006?
You took out a $450,000 adjustable rate mortgage, at 4.25% (set to re-adjust after five years, but who cared) and bought a $440,000 home—with just $10,000 down.

You can't get away with that today—and thank heaven.

Being a smart home-buyer now means returning to the tried-and-true laws of lending: Keep your debt-to-income ratio low and only buy as much home as you can afford.

Livin' large. Not.
That means, keeping your total debt-to-income ratio at about 36%, and your housing payment at about 25% of your gross income.

Even these days, some lenders may allow you to borrow more—but in this climate, owing less and paying less is a good recipe for sleeping soundly—and being able to save.

We tried a few different affordable home calculators and liked these two: one offers a range of loans and home prices, based on your income and other variables; the other offers a target amount for each.

Bottom line
In case you don't have time to click, consider this: Let's say you earn $65,000 a year, make a $25,000 down payment, and have $350 in monthly debt payments (car, credit card). Ideally you would borrow a 30-year fixed loan of about $208,000 at 5.5% and purchase a home of about $233,000.

Total monthly payment (including taxes and insurance of $331/month): about $1,500.

With interest. Tell us: What's your debt-to-income ratio? Would you sell or downsize to get that monthly payment down to a range where you can sleep better and save more?

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