How Much Can I Afford to Borrow?
So, you are tired of renting from your overbearing landlord, shoveling thousands of dollars per year into your 600sqft apartment with nothing to show for it or you have been living at home for so long that your dating life is nonexistent. Maybe your family is just getting too big for the 2-bedroom, 1-bathroom home you are currently in. Fear no, you are not alone. You cannot imagine how many people we have seen that are in the same situation.
You have so many questions though and among them is: “How much can I afford to borrow?” Great question. Generally there are two approaches to figuring out how much to borrow, and one is definitely better than the other.
The first way to figuring out your mortgage affordability is to call up 123 Kicken Loans or fells wargo and ask them how much you can borrow. They will ask you questions like:
“What is your gross monthly salary?” “How much do you pay in credit card bills?” “How much do you pay in auto loans?” “What is your credit like?”
Then, depending on how you answer those questions, they will plug those numbers in and come up with a payment that is about 45% of your gross monthly income.
It may seem simple but can you really afford to use up 45% of your gross income on a monthly mortgage payment?
The median monthly salary in Iowa is $4352.00. This means that the lender says you can afford a mortgage payment of $1958.40 assuming you have no other debt.
This monthly payment will leave you with $2393.60 left over and still needing to pay your income taxes. $2393.60-$344.67(state)-$578.85(federal)-$284.17(social)-66.46(medicare) = $1119.45.
That does not give you much left over to pay for things like food, clothing, utilities, and entertainment.
The other way (and best way) takes a little bit more work on your end. It involves extensively putting a detailed monthly budget together. This monthly budget takes time but if you stick to it you will be able to go right to your lender and know exactly what you can afford and be able to shoot down the temptation for a larger pre-approval.
This can be hard because the dream house is extremely appealing. But if you do not seriously check your financials, your dream house could quickly become a nightmare.