How Much Can You Afford? Buying a home can be an intimidating and overwhelming process. One of the most pressing concerns for most first-time buyers is determining how much they can afford. In this section, CRN takes the mystery and guesswork out of determining your home affordability. The Mortgage and The Home Most first-time homebuyers place 10% to 20% as a down payment on a home purchase. This is cash that is readily available to the buyer. It usually comes from savings accounts or from gifts and bequests from parents and family members.

QUICK NOTES Most first-time homebuyers place 10% to 20% as a down payment on a home. Most of your early mortgage payments will be comprised of interest, not the principle loan amount. Expect your monthly mortgage payment to be between 29% to 40% of your gross income.

The remaining 80% to 90% of the purchase price is obtained through a mortgage. The amount of this loan is subject to a specified interest rate, and the repayment period can vary, but is usually 30 years (hence the term “30-year mortgage”). Your monthly payment, then, is a combination of the interest on the loan and the actual principal on the loan. As we discussed earlier, your monthly payment for the first half of your repayment period is typically comprised mostly of interest. Mortgages are offered by banks, savings and loans, government agencies, and a wide assortment of different providers.

Your Existing Debt

First, it is important to assess your existing debt. If you have outstanding car loans, credit card debt, student loans, or other debt obligations, you’ll have to take those elements into consideration when applying for a mortgage.

When you have less outstanding debt, you can claim better financial health and can qualify for a mortgage that is bigger with better interest rates and terms. Ultimately, this can save you a great deal of money.

So How Much Can I Afford to Pay Each Month?

In general, first-time buyers can afford to allocate about 29% of their gross monthly income toward housing costs. For example, if your household earns $5,000 per month gross income (i.e.,before taxes), you can afford about $1,450 in a monthly mortgage payment. If you have very little other outstanding debt – no car loans or credit card debt – you could afford to spend up to 40% of your gross monthly income on housing costs.

YOUR MONTHLY MORTGAGE PAYMENT Gross Income ($) ANNUAL MONTHLY 29% of 40% of 25,000 2,083 604 833 30,000 2,500 725 1,000 35,000 2,917 846 1,167 40,000 3,333 967 1,333 45,000 3,750 1,088 1,500 50,000 4,167 1,208 1,667

How Big of a Home Can I Buy With This?

It’s important to realize that these salary and expense calculations refer to the size of the mortgage you can afford. The size and quality of the home, however, is a different matter. You can apply the same mortgage to a small home in an upscale neighborhood as well as a large home in a more modest area. Whatever the scenario, with CRN’s listings, you can find bigger, better homes at discounted values, so you can get the most out of your mortgage. To explore CRN’s listings, please visit http://www.crnhome.com/ or call our friendly customer support representatives at 800-511-4236.