Calculate Maximum Mortgage I Can Afford
- 1). Check your pay stubs and your financial records to determine your pretax income and your monthly debt payments. Monthly debt payments would include debts like student loans or car loans, but not monthly expenses such as utilities or cell phone payments.
- 2). Multiply your monthly income by the percentage of your income you can spend on your mortgage expenses. This amount varies by lender. Bankrate suggests 28 percent as the maximum percentage, but CNN Money suggests this ratio can go as high as 33 percent for aggressive borrowers. For example, if you are conservative and have $3,450 in monthly income, you would multiply 0.28 by $3,450 to get $966.
- 3). Multiply your monthly income by the percentage of your income your lender will allow you to spend on all of your debt payments. Bankrate suggests this ratio falls between 33 percent and 36 percent. Continuing the example, if you used 36 percent, you would multiply $3,450 by 0.36 to get $1,242.
- 4). Subtract your debt payments from the result in step 3 to find the amount remaining for your mortgage. Furthering the example, if you had $400 in other debt payments, you would subtract $400 from $1,242 to get $842.
- 5). Use the smaller of the results from step 2 and step 4 to find the maximum you can spend on your mortgage each month. In this example, since $842 is smaller than $966, you would use $842 as your maximum monthly mortgage payment.
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