Calculating mortgage affordability

May 10, 1992|By Glenn Burkins | Glenn Burkins,Knight-Ridder News Service

How much house can you afford? That's an important question for anyone planning such a purchase.

A rule of thumb says a person can afford a house that costs up to 2 1/2 times his annual gross income (the amount you make before taxes are deducted). Therefore, if you made $40,000 a year, you would be able to afford a house that costs up to $100,000.

But that rule doesn't always work. If you have a lot of other bills, you might be better off with a less expensive house.

Basically, lenders use two guidelines to determine what size mortgage you can afford:

* Your monthly housing costs (mortgage payments, property taxes and insurance) should not be more than 28 percent of your monthly gross income.

* Your long-term debt (housing costs, credit card bills, car loans and other debts) should not total more than 36 percent of your gross income.

Remember, these are just guidelines. Each mortgage application evaluated based on individual circumstances.

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