Home Buying - What Can I Afford?

Dear Dr. Dave and Dr. Dee,

My fiance and I are thinking of buying a home after we get married next year. Our combined incomes are about $150,000. About what price home should we be looking at? I don't want to call a real estate agent because we are just at the thinking stage and not actually interested in pursuing this at the moment. Thank you.

Signed,

Dreaming

Dear Dreaming,

One way to quickly deteremine how large a mortgage payment you could afford is to multiply your annual income by 2 or 2.5. So, with an annual income of $150,000, you might qualify for a $300,000 to $375,000 mortgage (Key Bank, 2009).

Besides income, other factors such as mortgage rate, down payment, current debt (i.e. payments on credit cards, car payments, other loans) are used to determine the size of the loan for which you qualify.

Key Bank also has a calculator where you can decide what your maximum monthly mortgage payment will be and how large down payment you can make. For example, if you can afford a $3,000 per month mortgage payment and plan to put $20,000 down, then with a 30 year fixed mortgage at 5%, you would be able to look for a home in the range around $430,000 (Key Bank, 2009).

Mortgage rates continually fluctuate and vary from lender to lender, so look for the company with the best rates and conditions most appealing to you.

To calculate what price home you might be able to afford, go to www.key.com/html/MOL.afford.html