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Buying
7 min read
How much house can you afford? A plain-numbers guide
Lenders look at your income, your debts and your down payment. Here is how to work out a budget you can live with, not just one a lender will approve.
Elena Marsh
Senior mortgage advisor
Start with your monthly comfort zone
Most lenders want your total monthly debts, including the new mortgage, to stay under 43% to 45% of your gross income. That is the most you can borrow, not the amount you should. A budget you can live with usually keeps your housing costs nearer 28% to 30%.
Add the costs people forget
Property tax, homeowners insurance and mortgage insurance can add hundreds of dollars a month. Ask for the full monthly cost, not just the loan payment, before you make an offer.
Keep a cushion after closing
Closing costs run between 2% and 5% of the price. Plan to have three months of expenses left in savings after you close, so a surprise repair does not turn into credit card debt.
