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How big of a mortgage

how big of a mortgage

General rule of thumb is 2x to 3x your annual salary for a mortgage. For you that's between $170,000 and $255,000 which is what the other folks are saying.

Peel the onion back one layer and there is a more detailed formula. The 28/36 rule. Spend no more than 28% of your gross income on a mortgage payment and no more than 36% of your income on your total debt service. These used to be the ratios that banks would use, but in the real estate run up the rules became looser and I would suspect they are tightening back up again.

The 28% of your income comes out to be $1985. The 36% ratio for you is $2550 and every debt payment has to fit in under that, mortgage, car payments, student loans, credit card minimums, everything. When figuring your prospective mortgage payment don't forget homeowners insurance and property taxes. Both of those can vary wildly by area. Live near a coast and the insurance can be very expensive. Live in a rust belt state and your taxes could be brutal.

Personally I paid anywhere from $500 per year to $2000 per year on insurance and anywhere from 0.6% of the homes value to 4.0% (you aren't reading that wrong, a FULL 4%) of the home's value on real estate taxes.

Using a $240,000 mortgage and assuming awesome credit (giving you a 6% fixed rate for 30 years), the principal and interest are $1440 per month. Add in $100 per month for insurance and $300 per month in taxes (guessed at 1.5% per year) and you are up to $1840 per month. If you put down less than 20% you are going to pay PMI also which can also vary wildly. That fits in pretty well with your salary, so you might be able to go a touch higher, depending.

You could pretend you had that payment and start saving the difference between your rent and this payment to see how easily you can afford it.

good luck!

PS - 0 down loans are very rare now and will be for quite some time. You'll probably need 3% at least.

Category: Credit

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