over the last couple years the housing market has exploded and homes are getting more expensive by the month. so how much house can you really afford in today's market 2022.
low interest rates have made it a lot easier to buy more expensive homes because most of us out there only care about the monthly mortgage payment.
HOW MUCH HOUSE CAN YOU AFFORD IN 2022
The problem is just because you think you can afford the monthly payment doesn't actually mean you can afford the house, because you've always got to understand that you're going to have the monthly mortgage payment plus the other associated fees with owning the home. like property taxes insurance hoa fees and maybe even pmi which is private mortgage insurance if you don't have 20 down on your home.
don't expect your property taxes to stay the same every single year especially if your home value keeps going up, because as the value goes up you're also going to be paying more in property taxes because it's a percentage of what your home is worth.
now normally it's recommended that your mortgage alone shouldn't exceed 28 to 31 of your gross monthly income.
so for instance if you make a hundred and twenty thousand dollars a year gross then you're going to be pulling in ten thousand dollars a month and if you go off thirty percent then that's obviously going to be a three thousand dollar mortgage that's recommended for the home that you can afford.
but i don't think this is a very good way to measure how much home you can afford because for starters i think that you should at least be basing it off of your net income meaning how much you're bringing home after taxes.
because that's really how much money you're really seeing every single month and then on top of that you also need to account for like i said the associated costs that are also going to come with the home that you own.
now the way i figure out home affordability is pretty simple but it is my opinion so take whatever advice you want from this and you can do the math yourself or you can search online and you can find other ways to figure out how much home you can afford but this is just my simple way of doing it.
the first thing i need to mention is how long your mortgage needs to be. honestly i don't have a problem with 30-year mortgages especially right now because interest rates are so low and i understand that home prices keep going up.
now obviously if you can afford to get into a 15 or a 20-year mortgage go ahead and do that but i'm okay with 30 years and that's what i'm going to base the math off.
also recommend that you try and put 20 down on your home because if you do you're going to have a lower payment you're going to pay less in interest over time and you're not going to be paying pmi which is private mortgage insurance if you're putting at least 20 down or more on the home.
but i also understand that that's a lot of cash especially if you don't have equity rolling over from another home like for instance if you're a first-time homebuyer and you're just saving up cash from the beginning it is hard to come up with 20 especially with the really high home prices.
so i'm okay here i'm going to say that you can go between 10 and 20 down but don't go below 10. i want you putting at least 10 down and try for 20 if you can.
so in my opinion if you take on a 30-year mortgage and you put 10 to 20 down on the home then what i'm gonna say here is that your mortgage and all the other associated costs with owning the home should not exceed 30 to 35 percent of your net take-home pay.
so if you happen to bring in 8 000 every single month after taxes then technically your mortgage and the associated costs should be about twenty four hundred to twenty eight hundred dollars and that's including everything.
i would also factor in your existing debt as well because if you've got a lot of monthly debt payments that you have to make, then i don't want those exceeding ten percent of your net income.
so if you've got a car credit cards all sorts of debt don't exceed 10 of your net monthly take-home pay.
so as an easy example here if you do bring in 8 000 a month net then all of your debt payments combined shouldn't be more than 800 a month.
otherwise you probably shouldn't be taking on a mortgage or you should be getting those debts chiseled down before you take on a home.
the big problem here is if you're already stretching out your mortgage to 35 of your income and let's say you have 20 in debt payments then now you're looking at 55 in total income being gone every single month for your house and those debts and that's just too much money considering you have the rest of life that you have to pay for.
so you really don't want to be house poor you want to be safe and you want to have money for everything that's coming at you emergencies life groceries everything has to happen and you just don't want to be stretched too far.
so if you want to figure out how much home you can afford just take on a 30-year mortgage put 10 to 20 percent down on the home and then make sure that your mortgage and the other fees don't exceed 35 of your net monthly take-home pay.
also don't let your debt payments exceed another 10 percent of your monthly net. so as long as you're at 45 or less including all of the debts then you're probably okay to go ahead and take on the mortgage.
So this was our explanation how much house can you afford in 2022.