To get a very rough estimate of what you can afford to spend, multiply your annual gross income by 2.5. For example, if your annual household income is $40,000, you might be able to qualify for a $100,000 home. This is a very rough estimate – the actual numbers will vary based on different factors like current interest rates and your debt and credit history. Other factors to keep in mind are your current bills and overall debt, your current lifestyle and future plans. The most important factor in determining how much you can afford is taking an honest look at what you can spend comfortably for your monthly housing costs.
Talk to a mortgage lender or Milwaukee Housing Counselor who can help you better understand the guidelines and requirements. Before you talk to one, organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspection costs, moving, and other related expenses - a housing counselor can help you determine these costs.
You should take into account any future plans such as a wedding, college education or birth of a child that will impact your budget and, therefore, how much you can spend on a home. It is important to be realistic – you don’t want to buy your dream home only to realize afterward that it is more than you can comfortably afford.
Remember that the mortgage is not the only expense of homeownership. Other expenses include:
When deciding what you can afford, be sure to look at the big picture and not just the price of the home.
If what you can afford is less than the average single-family home in your area, look at townhouses, condos, and cooperatives – they're often less expensive.
It's better to start small than to find yourself with a mortgage you cannot afford!
© 2010 Take Root Milwaukee. Take Root is a service mark of Freddie Mac.
The consumer information on TakeRootMilwaukee.org is used with permission from Freddie Mac. Freddie Mac offers extensive, regularly updated consumer information about buying and owning a home on its website, www.FreddieMac.com, in the “About Homeownership” section. Freddie Mac is not responsible for content errors or omissions on TakeRootMilwaukee.org.
The funding source of this activity is the Milwaukee Homeownership Consortium and Freddie Mac.