REAL TipS: BUYING

How much home can you afford?

Before you buy a house, it’s important to know just how much home you can afford. Determining the mortgage is relatively easy, but it’s important to look at your overall monthly expenditures, including homeowner’s insurance, property taxes, utilities, and basic maintenance and upkeep.

Although requirements vary from lender to lender, many mortgage lenders use two ratios to assess the risk that you'll default on a mortgage. The first is the ratio of your total monthly housing costs to your total monthly gross income. Ideally, your expected housing costs – mortgage payment, taxes, and homeowner's insurance – shouldn't exceed 28% of your monthly gross income, although some lenders may allow that percentage to be higher. The second formula that a lender looks at is your debt-to-income ratio. Ideally, your total monthly debt – including your expected housing costs plus credit card bills and loan payments – shouldn't exceed 38% of your gross monthly income. Again, some lenders allow that ratio to go much higher, but that may not be in your best interest.

Your Texas REALTOR® can be a tremendous asset to you – helping you find a home that fits your budget. So before you commit to purchasing a new home, sit down with your Texas REALTOR® and determine how much home you can really afford.

Texas Association of Realtors®