Our mortgage payment calculator estimates how much you might pay each month to buy a house. The calculator does not estimate if this payment is affordable, however. When you are thinking about your monthly mortgage payment, also think about the cost of other monthly bills and debt payments you may have. Think about expenses for things like food and clothing. And think about the cost of other financial goals you might have, such as building up a rainy day fund, saving for retirement, or saving for college.
One way to think about mortgage affordability is to calculate your debt-to-income ratio (DTI). You can calculate your DTI by taking the total of your monthly debt payments, dividing this total by your monthly gross income, and expressing the results as a percentage. For example, if your monthly debt payments total $1,500 and your monthly gross income is $5,000, then your DTI is 30%. (That is $1,500 ÷ $5,000 = 0.30 or 30%.)
Financial professionals often recommend you try to keep your DTI under 36%. This helps ensure you have enough money in your monthly budget to pay for your other expenses. Keeping your DTI at 36% or less can also help improve the chances of getting your mortgage approved. That’s because many lenders want their customers to have a DTI of 36% or less. When lenders calculate your DTI, they typically include the cost of your mortgage payment plus other payments you might have for car loans, student loans, credit cards, and other debts.
Freedom Mortgage Corporation is not a financial advisor. The ideas outlined above are for informational purposes only and are not investment or financial advice. Consult a financial advisor before making important personal finance decisions, and consult a tax advisor for information regarding the deductibility of interest and charges.