How Much House Can You Really Afford?

Buying a home is an exciting milestone, but it's crucial to approach this decision with a clear understanding of your financial capabilities. At Public Service Credit Union, we're committed to helping our members make informed choices about their home purchases. Let's break down the factors that determine how much house you can realistically afford.

The 28/36 Rule

A common guideline in the lending industry is the 28/36 rule. This suggests that:

  • Your monthly mortgage payment shouldn't exceed 28% of your gross monthly income.

  • Your total monthly debt payments (including your mortgage and other debts) shouldn't exceed 36% of your gross monthly income.

For example, if your household earns $5,000 per month before taxes:

  • Your mortgage payment should be no more than $1,400 (28% of $5,000)

  • Your total monthly debts should be no more than $1,800 (36% of $5,000)

Beyond the Mortgage Payment

Remember, the cost of homeownership goes beyond your mortgage. Consider these additional expenses:

  1. Property taxes

  2. Homeowners insurance

  3. Utilities

  4. Maintenance and repairs

  5. Homeowners Association (HOA) fees, if applicable

These costs can add up quickly, so factor them into your budget when determining affordability.

“Just because you can qualify for a certain mortgage amount doesn’t mean you should stretch your budget to the limit.”

Down Payment: Our 20% Requirement

At Public Service Credit Union, we require a 20% down payment on home loans. While this might seem substantial, it offers significant benefits to our members:

  1. No Private Mortgage Insurance (PMI): This requirement saves you money by eliminating the need for PMI, which can cost hundreds of dollars per month.

  2. Lower monthly payments: A larger down payment means a smaller loan amount, resulting in lower monthly payments.

  3. Better interest rates: A 20% down payment often qualifies you for better interest rates, saving you money over the life of your loan.

  4. Instant equity: You start with a stronger equity position in your home.

We believe this approach sets our members up for long-term financial success in homeownership.

Your Overall Financial Picture

Consider your entire financial situation:

  • Emergency fund: Do you have 3-6 months of expenses saved?

  • Retirement savings: Are you on track with your retirement goals?

  • Other financial goals: Will buying a home impact other important financial objectives?

Get Pre-Approved

Before house hunting, get pre-approved for a mortgage. This process will give you a clear picture of how much you can borrow based on your financial situation. At Public Service Credit Union, we offer free pre-approval consultations to help you understand your options.

The Bottom Line

While formulas and guidelines are helpful, the amount of house you can afford ultimately depends on your comfort level. Just because you can qualify for a certain mortgage amount doesn't mean you should stretch your budget to the limit. Consider your lifestyle, future plans, and financial goals when deciding on a home purchase.

Remember, at Public Service Credit Union, we're here to help you navigate the home-buying process. Our team can work with you to find a mortgage solution that fits your unique financial situation and goals. Contact us today to start your journey towards homeownership!

MortgagesKyle Turner