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How Much House Can I Afford? (150K Salary)

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The smart way to shop for your new home! Learn how to calculate how much house you can afford before hitting that open house or applying for a mortgage.

If you’re ready to buy a new home, especially if it’s your first home, you are probably asking yourself- “How much house can I afford?” This probably the question at the top of your list.

I always suggest new buyers think of this question from two different perspectives.

The 1st is simple, “How high of a mortgage will you qualify?” The answer to this question depends on a lot of factors. Some of these factors include your income, existing debts, interest rates, credit history, and your credit score.

The 2nd perspective is a bit more subjective. “How much home do you really need?” Keep in mind that just because you qualify for a certain mortgage amount, doesn’t mean that you should max your home purchase at that amount.

Now, let’s start figuring out some numbers…

The 28% Front-End Ratio

When you submit your home loan application, the lender will look at one very important calculation in particular. This is known as your housing-expense-to-income ratio.

Also called the front-end ratio, your lender will take your projected housing expenses for the home you want to buy and divide by your total monthly income. Generally, mortgage companies are looking for a ratio of 28% or less.

As a basic guide– Let’s say that your income is $10,000 each month. Subject to other factors, you would qualify for a home loan as long as your monthly housing expenses doesn’t exceed $2,800 each month.

Your $2,800 monthly expenses would include your mortgage payment (principal and interest), property taxes, PMI* (if required), and homeowners insurance.

*More on PMI later.

On to the next hurdle…

The 36% Rule

Ok, even if your housing-expense-to-income ratio is 28% or less, you have one more hurdle to clear: the debt-to-income ratio.

This is referred to as the back-end ratio. The back-end ratio takes into account your total monthly minimum debt payments and then divides them by your gross income.

This ratio is used in conjunction with the front-end ratio above, to give lenders an entire view of your financial situation. With these two concepts in mind, they’ll be able to make a clearer determination as to whether or not you’ll be approved for your requested mortgage loan.

Lenders typically are looking for a back-end ratio of no more than 36%, although some will go a bit higher than this.

To relate both the 28% front-end and 36% back-end numbers, here is a chart showing the calculations for three different incomes:

Gross Income28% of Monthly Gross Income36% of Monthly Gross Income

Here’s some examples…

Let’s consider someone with a 150K annual income.

Here are a few condo examples using $400/month in HOA dues and a 3.875% interest rate conventional loan.

450K Condo

Principal and Interest$2,052.58
Mortgage Insurance$189.15
Homeowners Insurance$40.00
Estimated Property Taxes$318.75
Condo HOA Dues$400.00
Total Monthly Payment $3,000.48

500K Condo

Principal and Interest$2,280.65
Mortgage Insurance$210.17
Homeowners Insurance$45.00
Estimated Property Taxes$354.17
Condo HOA Dues$400.00
Total Monthly Payment $3,289.98

525K Condo

Principal and Interest$2,394.68
Mortgage Insurance$220.68
Homeowners Insurance$50.00
Estimated Property Taxes$371.88
Condo HOA Dues$400.00
Total Monthly Payment $3,437.23

Here’s a row house example using a 2.875% interest rate conventional loan.

500K Row House

Principal and Interest$2,138.73
Mortgage Insurance$358.86
Homeowners Insurance$95.00
Estimated Property Taxes$371.88
Total Monthly Payment $2,964.47


We will be happy to answer any questions and help you get started.

By Dana Ash-McGinty

Dana Ash-McGinty is the Principal Broker of ASH | MCGINTY, a Washington, DC Real Estate Brokerage. This real estate maven has 15+ years experience in residential, commercial and land sales in addition to multi-state residential renovation, re-zoning, and condo conversion projects. A sought after real estate authority, she has been featured on CNN and in various real estate and financial publications. Dana is married to the highly esteemed Dr. Dana W. McGinty, a Washington, DC internal medicine physician and medical correspondent. They are often referred to as "The Danas".

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