How to Calculate the Cost of House Affordable to your Budget

When looking forward to determining the home price affordable to your respective budget, your best bet would be the 36% rule. The guideline would help you acquire the right house without burning a significant hole in your pocket.

What is 36% rule?

The rule would entail addition of your total monthly debt payments along with your prospective mortgage, property taxes and homeowners insurance should not exceed 36% of your gross income. It would be pertinent to mention here that gross income referred to here would be your pre-tax income.

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When you look forward to purchasing a new home, you would be very excited. However, it should be pertinent to have some sense of stability along with your financial security. You do not want to finding yourself living from one month to another having hand to mouth condition. It would do you no good if you were unable to meet your monthly obligations inclusive of utilities, mortgage payments, debt payments and other daily incurring expenses.

To avoid the situation of purchasing a home that could be easily affordable, you would need to plan a housing budget making sense for you.

Cost of house that deems affordable to you

Going by the 36% rule, in practice it would imply that for every pre-tax dollar you have been earning every month, you would be required to pay not more than 36 cents for your mortgage, credit card debt, student loans and more. The percentage would also be known as DTI (debt to income) ratio. You would be able to find your DTI by dividing the monthly debt by your monthly pre-tax income.

Several banks may not like to offer loans to borrowers having more than 43% DTI ratios. Despite there would be several lenders willing to do so, they would be offering higher rate of interest.

In case, you had pre-tax income 40% or more on pre-existing obligations, you should be rest assured that slight alteration to your income or expenses ratio could be devastating on your overall budget.

For you home buying needs, you should consider Down Payment Assistance Programs in North Carolina. The program would help you make the most of your home buying needs without hurting your financial condition. The program has been specifically designed for people looking forward to owning a home. However, the borrower would be required to fulfill the income requisites for becoming eligible to acquire down payment amount from the program.

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