What Mortgage Can I Afford on My Salary?

by Maggie McCormick, Demand Media
    A lender can tell you how much home you can afford.

    A lender can tell you how much home you can afford.

    Buying a house comes with a large monthly payment; if you purchase more than you can comfortably afford, you may struggle with payments and eventually lose the home. Before you start looking for homes, figure out how much you can afford to pay monthly based on your salary. This gives you an idea of the price range of homes to look at while shopping for a home.

    More Than the Mortgage

    It's easy to miscalculate the affordability of your mortgage if you don't factor in the full costs of owning a home. Your monthly payment includes principal and interest from the mortgage, but you must also pay property taxes, homeowners insurance and -- if you put less than 20 percent down on your home -- mortgage insurance. Depending on the type of home that you buy and the area in which you live, these additional costs can add hundreds of dollars to the cost of your monthly payment.

    Ideal Ratios

    A lender will look at your monthly income to tell you how big a mortgage you can afford. In general, your mortgage payment should be no more than 28 percent of your monthly income. However, if you have a lot of other debt -- credit card bills, student loans and car loans, for example -- that percentage may decrease. Your total debt, including mortgage, should be no more than 36 percent of your gross income.

    When You Have Two Incomes

    When two people are paying off the mortgage, your ability to qualify for a bigger loan increases. This doesn't mean that you should borrow the maximum amount. You never know what the future may hold. If one of you loses a job or you decide that you want one person to stay home when you have a child, it can be much more difficult to make ends meet on one salary.

    The Benefit of Tax Deductions

    When you buy a home, you are able to get a tax deduction for the interest that you pay on your mortgage. Realtor Magazine suggests that you if you are comfortable paying the amount of rent that you're currently paying, you can afford about one-third more than that amount in a mortgage, assuming you're in the 28 percent tax bracket. You will be paying extra each month, but it evens out at tax time, as long as you itemize deductions so you can claim the mortgage deduction..

    About the Author

    Maggie McCormick is a freelance writer. She lived in Japan for three years teaching preschool to young children and currently lives in Honolulu with her family. She received a B.A. in women's studies from Wellesley College.

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