How Do You Know If You Can Afford a Mortgage Loan? :
Knowing whether or not you can afford a mortgage loan is an important part of being financially intelligent. While there are no hard and fast rules that will allow you to say for sure that you can afford a mortgage loan, there are some useful benchmarks which you might consider. These rules of thumb can serve as guides before you make your decision.
Most lenders will make estimates of a family’s ability to repay a mortgage loan by taking into account several factors. These factors include the monthly payment itself, the amortization of the mortgage, utilities, insurance and taxes. As a general rule of thumb, all of the aforementioned expenses added up should not exceed more than 33% of a household’s monthly income. For example, a family that enjoys a take-home income of $3000 dollars should not be paying more than $1000 dollars in household expenses.
Another rule that is applied in judging the ability to repay is if the purchase price of the home does not exceed two and half times a family’s annual gross income. For example, if your income is $36,000 a year, your limit when buying a home should not be greater than $90,000. (To compute the figure, multiply $36,000 by 2.5)
Note, however that these are general rules, and your particular situation may include factors that these formulas do not take into account. In the end, the decision is up to you, and you will have to arrive at a subjective decision concerning your ability to repay a mortgage loan.
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