|
All potential home buyers start with the same question.
"What can I (we) afford?"
The answer to this question is based on "Net Monthly Take Home Pay".
Consumers make decisions based on monthly net income and not their
gross income.
Consumers will limit their "Monthly Housing Expense" (MHE) from 50% to 62% of their net monthly income.
Other monthly debt payments (auto, credit cards, etc.) will represents approximately 0 to 12% of net monthly income. Other debt payments are determined by family circumstances and can vary widely depending on need.
As a general rule, consumers will limit housing plus other debts to 62% of net income. Click here to use Generic Calculator.
Here are a few loan amounts that are determined by interest rates:
The following table present a total of 62% of net income allocated for PITI and other debt (auto, revolving, etc.). Property Taxes, Insurance, and any HOA fees, must be deducted from from PITI to determine the maximum P&I payment that is used to calculate the loan amount.
Based on 6.000% Interest Rate
|
Net Income |
PITI |
P&I |
T&I |
Other Debt |
Maximum |
|
|
|
50% |
41% |
9% |
12% |
Loan Amt. |
|
|
$3,500 |
$1,750 |
$1,441 |
$309 |
$420 |
$240,350 |
|
|
$4,500 |
$2,250 |
$1,845 |
$405 |
$540 |
$307,700 |
|
|
$6,500 |
$3,250 |
$2,665 |
$585 |
$780 |
$444,500 |
|
|
$8,500 |
$4,250 |
$3,485 |
$765 |
$1,020 |
$581,250 |
|
Based on 7.000% Interest Rate
|
Net Income |
PITI |
P&I |
T&I |
Other Debt |
Maximum |
|
|
|
50% |
41% |
9% |
12% |
Loan Amt. |
|
|
$3,500 |
$1,750 |
$1,441 |
$309 |
$420 |
$216,700 |
|
|
$4,500 |
$2,250 |
$1,845 |
$405 |
$540 |
$281,950 |
|
|
$6,500 |
$3,250 |
$2,665 |
$585 |
$780 |
$400,750 |
|
|
$8,500 |
$4,250 |
$3,485 |
$765 |
$1,020 |
$524,000 |
|
Based on 9.000% Interest Rate
|
Net Income |
PITI |
P&I |
T&I |
Other Debt |
Maximum |
|
|
|
50% |
41% |
9% |
12% |
Loan Amt. |
|
|
$3,500 |
$1,750 |
$1,441 |
$309 |
$420 |
$179,500 |
|
|
$4,500 |
$2,250 |
$1,845 |
$405 |
$540 |
$229,200 |
|
|
$6,500 |
$3,250 |
$2,665 |
$585 |
$780 |
$331,100 |
|
|
$8,500 |
$4,250 |
$3,485 |
$765 |
$1,020 |
$432,900 |
|
The 41/9/12 rule can be utilized to determine the maximum mortgage loan amount a lender will approve based on the borrower's net income, other debt, interest rates, proposed sales price and down payment.
|