For homebuyers, one of the first steps in buying a home is determining how much they can afford to spend. How much house you can afford depends on your down payment, annual income, and monthly payments. In terms of annual income, divide your annual total by 12 to get your monthly amount. Make sure you include all tips, wages, commissions, and other earnings that you receive during the year, along with the total amount of income from your spouse or co-buyer.
After calculating this amount, assess your monthly expenses. This includes all the money you spend each month on debts, other necessities, or fun activities. You must know your monthly expenses so you can ensure your debt-income ratio remains at a good level when you purchase your home.
One these two amounts have been figured out, you can determine your ideal monthly mortgage payment. Adhere to the 28/36 rule, which states that no more than 28 percent of your monthly income should go toward housing expenses, and no more than 36 percent should be spent on your debts. If you make $5,000 a month, for example, you only have $1,400 for housing-related expenses and $1,800 on total debt, including a mortgage.
