Whether you’re a first time home buyer or you're moving on to a new home, figuring out how much house you can afford can be a challenge for any home buyer.
One of the most common ways to determine how much you can afford to pay for your new house is known as the 28/36 rule.
Using this calculation, you begin with your monthly housing cost. Determine your mortgage payment, insurance and taxes along with any condo or homeowners association fees. When you add these up, the total should not be more than 28% of your monthly gross income.
Next, look at what you owe each month. Add up what you pay in credit card bills, student loans, car payments and all other monthly expenses. The total should not be more than 36% of your monthly gross income.
You’ll also need to have some idea of how much you’ll be paying as a down payment either from your own reserves or the sale of your home.
You can use online real estate listings for the type of house you hope to buy, to get an estimate of taxes and insurance to help determine how much house you can really afford. An online mortgage calculator is also a great tool for determining monthly payments based on various down payment scenarios.