What should your income be to buy a house

The amount you can afford is the range between these two figures. Multiply 10, by 0. Then, multiply 8, by 0. This model gives you less money to spend as opposed to other mortgage calculation models.

Though these models and rules can help you gauge what you can afford, you also need to keep your financial needs and goals in mind. Whether you qualify for a mortgage depends on your mortgage lender's standards and requirements. Typically, lenders focus on three things: your gross income, your debt-to-income DTI ratio and your credit score. Here's an explanation of each and how to calculate them:.

Gross income is the sum of all your wages, salaries, interest payments and other earnings before deductions such as taxes. While your net income accounts for your taxes and other deductions, your gross income does not. Lenders look at your gross income when determining how much of a monthly payment you can afford. While your gross income is an important part in determining how much you can afford, your DTI ratio also comes into play. Simply put, your DTI is how much you make versus how much debt you have.

Lenders use your DTI ratio and your gross income to determine how much you can afford per month. To determine your DTI ratio, take the sum of all your monthly debts such as revolving and installment debt payments, divide this figure by your gross monthly income and multiply by If your DTI is on the higher end, you may not qualify for a loan because your debts may affect your ability to make your mortgage payments.

If your ratio is lower, you may have an easier time getting a mortgage. Your credit score is an important factor lenders use when deciding whether or not to offer you a loan. If you have a high debt-to-income ratio, your credit score may increase your chances of getting a loan because it shows you are able to handle a higher amount of debt. Different loans have different credit score requirements, so check with your lender to see if your score is where it needs to be.

If you're a first-time homebuyer, you may want to have a lower mortgage payment. The higher your credit score, the greater your chances are of getting a lower interest rate. To increase your credit score, pay your bills on time, pay off your debt and keep your overall balance low on each of your credit accounts.

Don't close unused accounts as this can negatively impact your credit score. If your mortgage term is longer, your monthly payments will be smaller. Your payments are extended over a longer time, resulting in a lower monthly payment.

Though this may increase how much interest you pay over time, it can help reduce your DTI. The higher your down payment, the lower your monthly payment will be.

This removes the need for PMI, which lenders typically add to your monthly mortgage payment. And it could mean you qualify for a larger loan amount. Depending on the type of mortgage you choose, the seller can contribute 3 to 6 percent of the home price in closing costs. This can make all the difference when you want to buy a new home and stop renting.

Seller contributions can cover closing costs, buy your interest rate down to a more affordable level, or make a one-time payment to cover your mortgage insurance.

By purchasing a duplex, tri-plex or four-plex, you can live in one unit and rent the others out. This gives you access to primary residence loan programs with low rates and costs, but you also get the advantage of rental income to pay your mortgage. One of the easiest ways to find your price range is to get a pre-approval from a mortgage lender. Pre-approval is kind of like a dress rehearsal for your actual mortgage application. A lender will assess your financial situation — as shown by your annual salary, existing debt load, credit score, and down payment size — without making you go through the full loan application.

You could also learn whether you can afford a year loan term or whether you should stick with a year mortgage. Finally, your pre-approval shows you the added monthly costs of homeownership such as home insurance, real estate taxes, HOA fees, and mortgage insurance if necessary. Check out available programs and see how much home you can buy. Verify your new rate Nov 11th, How Soon Can I Refinance? How Often Can I Refinance? It Is Worth Refinancing For 0. Talk to a Lender: Michele Lerner The Mortgage Reports contributor.

July 30, - 9 min read. Home affordability by interest rate Regardless of your annual salary, your mortgage interest rate will affect how much house you can afford. Home affordability by down payment Your down payment amount also has a big impact on what you can afford.

To qualify for a VA loan , borrowers need to be a veteran or active—duty service member. Calculations do not include mortgage insurance premiums required on USDA loans or home insurance and property taxes.

However, USDA does impose income caps that limit the amount of household income you can earn and still qualify. You can learn more about USDA income limits here. Your own mortgage interest rate will be different. You can check your home loan eligibility at today's mortgage rates here.

Your existing debts — specifically, your debt—to—income ratio — and your credit score also play a big role. Generally speaking, the higher your credit score, the lower your interest rate will be.

This allows you to afford a higher—priced home with less cash. The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.