How much house will 1500 a month buy

This calculator will give you a better idea of how much you can afford to pay for a house and what the monthly payment will be by entering details about your income, down payment, and monthly debts.

You can afford a house worth:

AffordHouse

• $1,210

  Principal
  & Interest

• $272

  Property Tax

• $65

  Home Insurance

• $145

  HOA
  Fees

• $153

  Mortgage Insurance

Monthly Debts

Do NOT include: credit card balances you pay off in full each month, existing house payments (rent or mortgage) that will become obsolete as a result of the new mortgage you are seeking, or the new mortgage you are seeking.

Determining How Much You Can Afford

Front-End Ratio vs Back-End Ratio
Two criteria that mortgage lenders look at to understand how much you can afford are the housing expense ratio, known as the “front-end ratio,” and the total debt-to-income ratio, known as the “back-end ratio.”

Front-End Ratio
The housing expense, or front-end, ratio is determined by the amount of your gross income used to pay your monthly mortgage payment. Most lenders do not want your monthly mortgage payment to exceed 28 percent of your gross monthly income. The monthly mortgage payment includes principle, interest, property taxes, homeowner's insurance and any other fees that must be included.

To determine how much you can afford for your monthly mortgage payment, just multiply your annual salary by 0.28 and divide the total by 12. This will give you the monthly payment that you can afford.

Back-End Ratio
The debt-to-income, or back-end, ratio, analyzes how much of your gross income must go toward debt payments, including your mortgage, credit cards, car loans student loans, medical expenses, child support, alimony and other obligations. Most lenders do not want your total debts, including your mortgage, to be more than 36 percent of your gross monthly income.

Determining your monthly mortgage payment based on your other debts is a bit more completed. Multiply your annual salary by 0.36 percent, then divide the total by 12. This is the maximum amount you can pay toward debts each month. Subtract your other debts — including your car payment, your student loan payment and other debt payments — from this amount to determine the maximum amount you can spend on your monthly mortgage payment.

Once you have the two numbers and a sense of the interest rate you may qualify for, you can use a mortgage calculator to determine the cost of the home that you can afford.

We already began to touch on some of this, but let’s dive deeper into the specific factors that determine what house you can afford on your budget.

Income

This should be obvious, but the more income you make, the more you can afford. Duh, right? While this is certainly true, there’s just a little more that lenders are thinking about.

If you’re hourly or salaried, lenders are concerned with making sure that the income you receive is something that you get on a regular basis. Not only your base salary, but the commissions and bonuses you get have to be coming in fairly often in order to be counted on. If you’ve been 20 years at a company and you’ve gotten a holiday bonus every year, your lender can assume the income rather than a year’s subscription to the Jelly of the Month Club.

Seasonal income can also be assumed as long as you have a history of receiving it. For example, perhaps you work on a Christmas tree farm in late November and early December each year. The key is to always be able to show consistency.

Debt

Your current debt is compared to your income in order to figure out the monthly payment you can afford. For most types of debt, the process is straightforward. Monthly installment payments are added together along with minimum payments on credit card statements. This works for car loans and personal loans, for example. Student loans work a little bit differently.

Depending on the type of loan you get and your documentation, you either qualify with the monthly payment on your statement, the one showing up on your credit or an assumed percentage of the balance expected to be paid off every month. Talk to your lender about your situation.

Debt-To-Income Ratio

Your DTI ratio is a major determinant of what you can afford. We’ve touched on it briefly in other sections, but here’s the actual formula:

Installment debt + Revolving debt

_________________________________________ × 100  

Gross monthly income

This DTI formula is referred to as back-end DTI or overall DTI. When only your housing expense ratio is being considered, that’s called a front-end ratio. The formula for this is as follows:

Mortgage payment (including escrow for taxes and insurance + HOA dues)

_________________________________________________________________ × 100

Gross monthly income

For reference, the housing expense ratio is the 28 in the 28/36 rule. Back-end DTI is the 36 figure.

Not every loan product has a guideline for housing expense ratio. Some just go by the final DTI figure. Those that do include a housing expense ratio generally won’t approve you if it’s above 38%.

DTI can be dependent on the product you’re being approved for and even your credit score, among other factors. For example, you can be approved for an FHA or VA loan with a median FICO® Score of 580 or better at Rocket Mortgage®, but you’ll need to keep your DTI at 45% or lower and your housing expense ratio no higher than 38%. Above 620, your overall DTI can be as high as 57% for FHA and 60% for VA loans.

Down Payment

The amount that you have available for your down payment impacts how much you can afford. The first factor to consider is how the property is being used. The minimum down payment on primary properties is anywhere between 3% – 5% if you’re getting a one-unit property. Multiunit properties in which you live in one unit and rent out the others can have down payments of at least 20% for 4 units.

If it’s a vacation home, you’ll need to put at least 10% down. That one is the most straightforward.

Finally, if you’re looking to buy an investment property, you’ll need at least 15% down depending on the number of units. More units mean a higher down payment.

The other piece that has an impact is the size of your loan. If you want a jumbo loan beyond conforming loan limits, you’ll need at least 10.01% down, but the minimum increases to 25% if the loan amount is above $2 million. It can also be higher depending on the way the property is occupied.

In general, VA loans and USDA loans don’t have a down payment associated with them if you’re eligible. The exceptions to this are if it’s a jumbo VA loan above normal conforming loan limits or if you have impacted entitlement. Impacted entitlement involves having a previous VA loan that wasn’t fully paid off. You may have to make a down payment if your remaining entitlement doesn’t cover at least a quarter of the purchase price.

There are definite advantages to having a down payment that’s higher than the minimum. On a conventional loan, you can avoid mortgage insurance payments if you make a down payment of 20% or more. Even if your down payment is less than 20%, the amount you pay for mortgage insurance decreases the closer you get to that number.

For FHA loans, mortgage insurance is removable if you’ve made a 10% down payment after 11 years. Otherwise, it sticks around for the life of the loan. However, the amount of your down payment does impact how much you pay for mortgage insurance on an annual basis.

Beyond mortgage insurance considerations, the higher your down payment, the lower your rate will be if everything else is held equal. If you put down more money up front, the lender doesn’t have to give you as much and you’re a lower risk.

Closing Costs

In addition to your down payment, there are other closing costs associated with getting a mortgage. On a typical purchase, these are 3% – 6% of the loan amount. They include things like an origination fee, lender’s title policy, funding an escrow account and recording fees, among many others.

There are also costs that are specific to certain loan types. Although VA loans don’t have a required down payment, they have a VA funding fee that must be paid with a few exceptions. Ranging from 1.4% – 3.6% depending on the size of your down payment and whether you’re a first-time or subsequent user of a VA loan, you can pay it up front or build that into the cost of the loan. FHA loans have a similar upfront fee of 1.75% of the loan amount for mortgage insurance in addition to the annual premiums. This can also be built into the loan.

One way to reduce or eliminate closing costs altogether is to take lender credits. These work in the opposite way that mortgage discount points do. One mortgage discount point is equal to 1% of the loan amount, but they can be purchased in increments down to 0.125%. These are interest points prepaid at closing in exchange for a lower rate.

Lender credits mean reduced or eliminated closing costs. The trade-off is a higher rate.

Credit Score

Your credit score is a big determinant for which mortgage options you qualify for. As such, your credit score is one of the biggest factors, along with property type, in what your minimum required down payment is going to be.

Beyond that, along with your down payment and the way the property will be occupied, your credit score is a huge factor in what your interest rate is. This is perhaps the biggest advantage in the mortgage space to having a higher credit score. Assuming the same level of down payment and similar occupancy, a person with a higher credit score will have a lower rate than a person whose score is lower.

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