If you are a first-time home buyer, before you even look at houses for sale, the most important thing you can do is figure out exactly how much you can afford on a mortgage payment per month. This will save you wasted time and the disappointment of looking at houses that you may later learn that you simply cannot afford. You first must figure out your debt-to-income ratio. Lenders prefer that you use 36% and under, but you might want to consider using 28% of your gross monthly income for housing expense. Following are the steps to figure out the math:
- Figure out all of your debt. Multiply your gross monthly income by .36 to find your total allowable monthly debt.
- Add up all of your fixed monthly expenses.
- Subtract your fixed monthly expenses from your total allowable monthly debt.
This number is the amount that you have for your mortgage payment, your home owner’s insurance and your property taxes.