How Much House Can I Afford?
The following steps will give you an idea of housing affordability:
Step 1: Gross monthly income
Add together the total pretax amount of all verifiable monthly household income (including salary, overtime, bonuses, interest, pension and/or social security benefits).
Step 2: Monthly debt
Add together the current monthly payment amount for all debt (including credit cards, car loans, installment loans, student loans, alimony and/or child support).
Step 3: Expense limit
Multiply the gross monthly income by .38
Step 4: Funds available for housing payment
Subtract the monthly debt amount from the expense limit. The funds remaining are what is available to be spent on the housing payment (including mortgage principle and interest, taxes, insurance, as well as homeowner’s association fees and mortgage insurance (if applicable).