How much house you can afford depends on your income and debts, as well as the interest rates at the time of purchase and how much you have saved for a down payment.
INTEREST RATES TODAY
Interest rates change frequently and are out of your span of control, so even if your rates today are high, you can always refinance when rates go down to lower your payment.
Time your home purchase to your life situation, not interest rates.
DOWNPAYMENT - HOW MUCH SHOULD I HAVE?
Down payments can range from 0% down to 20% of the purchase price of a home, and typical buyers in Texas have saved or been gifted between $10,00 and $30,000 as a down payment.
For a home priced at $250,000 , a $10,000 down payment is 4%. For a home priced at $300,000, a $30,000 down payment is 10% down
HOW MUCH HOUSE PAYMENT CAN I AFFORD?
Let's share a few specific scenarios to give you an idea.
Fixed income of $50,000, no debt and $10,000 for a down payment
Estimated Home Purchase Price for this shopper: $174,400. This person may be retired on a teacher pension.
Family Income of $75,000, $1000 per month in debt and $30,000 for a down payment
Estimated Home Purchase Price for this shopper: $165,600. This family has car payments and some student loans.
Family Income of $100,000, $1000 per month in debt and $30,000 for a down payment
Estimated Home Purchase Price for this shopper: $249,600
Family Income of $85,000, $500 per month in debt and $20,000 for a down payment.
Estimated Home Purchase Price for this shopper: $243,800.
The down payment vs. debt trade off.
Home shoppers may debate, is it better to pay off my debts, or save for a down payment? The short answer is generally it is better to pay off your debts because the interest rate on a home is likely to be lower than the interest rate on your other debts like car payments or credit cards.
Let's look at an illustrative example:
A family earns $75,000 per year:
Lowest debt ($0 per month) & lowest down payment ($10,000) creates a purchase budget of $252,600
Middle debt ($300 per month) and middle down payment ($15,000) creates a lower purchase budget of $228,400
More debt ($500 per month) and more down payment ($20,000) creates a still lower purchase budget of $210,600.
$1000 per month in debt and a $30,000 down payment creates a purchase budget of $166,900.
$1000 per month in debt and a $40,000 down payment creates a purchase budget of $178,800
The take away is use the savings for your down payment to lower your total debt and that will have a fantastic impact on the purchase budget you can afford
