What Can I Afford?

Ready to buy a home given the pros and cons? Great. Now comes the time to decide on a price range that is realistic: what can you afford? Get into home shopping shape using Loanzify's mortgage calculators and our budget planning tips below.

Budget Planning Need-to-Knows:

• As a general rule, the cost of your home should not exceed 3 times the amount of your gross annual income.

• How much cash do you have to put down? Consider your realistic Loan-to-Value ratio (LTV). A borrower's LTV is the loan amount divided by the cost of the home. If you have enough for a 5% down payment, your LTV will be 95%.

• Do not forget that your down payment is not the only cost necessary for securing your loan. Closing costs like origination and appraisal fees must also be paid.

• What is your debt load? Consider your Debt-to-Income ratio (DTI). A borrower's DTI is recurring monthly debts divided by gross monthly income. Your DTI is an important indicator of your financial standing for lenders, who will calculate it with the most accuracy when you apply for a mortgage. With exception, DTIs no greater than 43% are considered qualifying.

• Be aware of your Monthly Discretionary Income. This can be calculated by subtracting any regular and necessary payments you make every month from your net monthly income.

Planning a Budget:

First, list any and all monthly expenses you consider necessary and make note of the highest average price you've ever paid per item (remember that if your new home size or number of occupants is greater, utility bills will likely be inflated). If you've never had to pay for any of the following, research the average costs in your area:

• Electricity

• Gas

• Water/Trash/Sewer

• Cable/Internet

• Groceries

• Gasoline

• Car insurance

Next, list any and all monthly other items. Do not underestimate how much you spend on monthly splurges or other costs; if they end up throwing off your budget, go down this list and decide if you need to make lifestyle changes in order to accommodate a mortgage:

• Restaurants

• Movies

• Beauty appointments

• Membership fees

• Subscriptions

• Pet-related costs

If you ever unsure of exactly where your money is going on a monthly basis, review past bank statements or checkbook records.

Once you've compiled your monthly costs, subtract them from your net monthly income. If you'd like to save on a monthly basis, make room for it in your budget:

• Net Monthly Income - (Monthly Costs + Desired Monthly Savings) = Mortgage Budget

Last, use our mortgage calculators and see if down payment or lifestyle changes will be needed to remain within your mortgage budget.