“How much home can I afford?” as a Utah Mortgage Broker, this is one of the most often asked questions I get.
And it makes sense! Ya gotta know what you can buy before you even start shopping for that new house. In fact, most real estate agents in Utah won’t even start looking for homes for you until they know you’ve been pre-qualified.
When anyone is going to purchase something as large as a home, the sellers really need to know how the buyers are going to pay for it. You want to know that too.
A home is typically the largest purchase and monthly payment of most of us in Utah, so we want to get this right.
Warning: GET PRE-APPROVED FROM A QUALIFIED UTAH MORTGAGE BROKER.
Super IMPORTANT: use these tips to get your ballpark numbers, BUT getting pre-qualified by a qualified mortgage broker is the only way to really know. So many variables.
Ready to pencil some numbers?
Step 1: Find the Income
Take your GROSS monthly income.
- If salary, divide annual salary by 12.
- If hourly, use this little formula: Hourly Rate x Hours Worked Per Week x 52 (number of weeks in a year). Then divide that number by 12. Example for someone who makes 20/hr working 40 hrs a week: 20×40=800. 800×52=41,600. 41,600 divided by 12 = 3,466.
- If self-employed, commissioned or part-time, call us. Seriously.
Now that you have a rough idea of how much you make per month take that amount and multiply it times .45. That is 45% of your gross monthly income. All of your debt payments including your house payment need to fit inside of that 45% as a general rule of thumb. There are exceptions to that but this is a good place to start.
Step 2. Calculate the Debt Ratios
In our example above, the client would take that 3,466 number and multiply it by .45, which is 1,560. That means all of the debt payments for this borrower, INCLUDING THE HOUSE PAYMENT, need to fit inside $1,560. So if they have a car payment of 200 and a credit card payment of 40, then the house payment would need to be less than $1,320 for this individual to qualify. Again I can’t stress enough that there are lots of options and variations to this but this is a very good place to start.
One thing that is often overlooked is adding taxes, insurance, mortgage insurance (if required), and HOA fees (if applicable). All of those are added together into the final payment and must fit inside of that qualification window.
Step 3. Plug numbers into a calculator (be careful)
I realize the irony of having both an online mortgage calculator and a video of Eric explaining why you need to be wary, but reverse-engineer your numbers to see how you fare, then let’s get started with the prequalification process so you can be sure.
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