$1250-$250= $1000 or $1667-$250= $1417
In this example, you’d be able to spend between $1000 and
$1417 a month on your principal and interest payments, real estate
taxes, and insurance. If real estate taxes are $100/month and
insurance is another $50/month, that will leave you between $850
and $1267 to spend on a mortgage.
Here’s how to calculate the amount of the mortgage you
can afford to carry: Multiply the net amount you can spend ($850
to $1267) by twelve (for an annual mortgage amount), then divide
that number by the current prevailing interest rate (say, 8 percent
for a 30-year fixed-rate loan).
25% of gross income: $850 x 12 = $10,200 ÷.08 = $127,500
33% of gross income: $1267 x 12 = $15,204 ÷ .08 = $190,050
So how much house can you afford? Assume you add a 20% down payment
to each of these mortgage amounts (divide $127,500 or $190,050
by 5 and add that number to the total).
$127,500 ÷ $25,500 = $153,000
$190,050 ÷ 38,010 = $228,060
According to these calculations, on a $60,000/year income, assuming
you have 20% to put down in cash, you’d be able to afford
a home that costs between $153,00 and $228,060.
The 8% interest rate allows you to
purchase a home between two and a half and nearly four times your
income!
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Mortgages
