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How Much House Can You Afford?

The first consideration in buying a home is comparing your dreams with reality. Put simply, how much house can you afford? Determining a ballpark figure for what you can afford is an important first step in finding your new home - it saves you time by ruling out homes that are out of reach, or too modest.

Down Payment

It's a simple fact: The bigger your down payment, the less you need to borrow to buy your home. Take a look at your assets - savings, stocks, bonds, the equity in your current home - and see what kind of down payment you can make. Remember, lenders prefer to have buyers put down at least 20 percent of the purchase price; if your down payment is less than that, your lender may require you to purchase mortgage insurance.

Monthly Payments

Once you decide on your down payment, it's time to figure out how much you can afford to borrow. The best way to do that is to look at your monthly income to determine what mortgage payment you can afford.

Lenders look at your total debt when figuring out how much you can afford to borrow. After all, if you are carrying a large credit card debt, it's going to be harder to pay your mortgage at the same time. For example, many lenders think your total debt payments including mortgage shouldn't be more than 36 percent of your income. The formula is a lot like that for mortgage ratios:

Basic Calculations

Monthly Gross Income x .36 = Maximum Debt Payments
Below is the calculation for our $4,000-a-month household with a monthly debt of $400:
$4,000 x .36 = $1,440 - $400 = $1040 Maximum Mortgage Payment

Two important things to keep in mind when working with these ballpark figures:

  1. Your maximum monthly payment includes property taxes and homeowner's insurance, not just your mortgage. You also may need to purchase mortgage insurance if you are making a down payment of less than 20 percent of the home's price.
  2. The ratios may not fit your family. If you are saving for kids' college expenses or a new car, for example, you'll probably want to be more modest about how much you borrow.

If you need help calculating your maximum monthly payment, please contact us anytime.

Office Locations

  1. Landoak
    Realty Executives Associates
    10255 Kingston Pike
    Knoxville, TN 37922
    Phone:(865) 693-3232
  2. Bearden
    Realty Executives Associates
    109 Northshore Dr. Ste 200
    Knoxville, TN 37919
    Phone:(865) 588-3232
  3. North
    Realty Executives Associates
    3232 Tazewell Pike
    Knoxville, TN 37918
    Phone:(865) 688-3232
  4. Maryville West
    Realty Executives Associates
    1213 W Lamar Alexander Pkwy
    Maryville, TN 37801
    Phone:(865) 983-0011
  5. Maryville Downtown
    Realty Executives Associates
    535 W Lamar Alexander Pkwy
    Maryville, TN 37801
    Office:(865) 984-1111
    Fax:(865) 983-4621
  6. Ebenezer at Westland
    Realty Executives Associates
    8915 Linksvue Drive
    Knoxville, TN 37922
    Phone:(865) 531-2020
  7. Oak Ridge
    Realty Executives Associates
    190 North Purdue
    Oak Ridge, TN 37830
    Phone:(865) 482-3232
    Fax:(865) 482-0203
  8. Madisonville
    Madisonville
    4013 Highway 411
    Madisonville, TN 37354
    Office:(423) 442-1975
    Fax:(423) 442-8015

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Realty Executives Associates is licensed in the state of Tennessee. The Fair Housing Act prohibits discrimination in the sale, lease, or rental of housing, or making housing otherwise unavailable because of race, color, religion, sex, national origin, familial status, or disability. Each office is independently owned and operated. By registering on this website (providing your name and/or contact information) you are making an inquiry and are granting permission for an agent to contact you via telephone and/or email, regardless if you are registered with the national, state, or other Do Not Call list. The data relating to real estate for sale on this website is being provided for the consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties the consumers may be interested in purchasing. This information is updated daily, however, some of these properties may subsequently have sold and may no longer be available. The Real Estate Broker providing this data believes it to be correct, but advises interested parties to confirm the data before relying on it in a purchase decision. Some or all of the listings on this website may not belong to Realty Executives Associates. Each office is independently owned and operated. Each office is independently owned and operated. Each office is independently owned and operated. Each office is independently owned and operated. Each office is independently owned and operated. Each office is independently owned and operated.