San Jose
lenders use two standard (but somewhat flexible) guidelines
to determine how much of a monthly mortgage payment you
can afford. The first guideline is that your household
should spend no more than 28 percent of its gross monthly
income (before taxes) on monthly housing expenses, including:
mortgage principal and interest, hazard insurance, real
estate taxes and private mortgage insurance, if applicable.
However, some lenders will stretch that figure to 33 percent.
The second guideline is that your monthly household expenses
(as outlined above) plus other debt should not exceed
36 percent of your gross monthly income, although some
lenders will stretch this to 38 to 40 percent.
How can I estimate how
much of a monthly mortgage payment I can afford?
First, calculate your monthly household income, including
that of your co-borrower, if you have one. In addition
to regular wages, don’t forget to include overtime,
bonuses, commissions, dividends/interest, alimony/child
support and any other income.
A. Your
Maximum Allowable Housing Expense
After you total your gross monthly income, multiply it
by 28 percent to get your maximum allowable housing expense.
1. Gross Monthly Income $
2. Multiply By 28% x 28%
3. Your Maximum Allowable Monthly Housing Expense $
[see calculators] B. Your Debt
Now, determine your debt. Credit cards, car payments,
student loans, alimony or child support should be included
here, as should any debt incurred by your co-borrower,
if you have one.
1. Installment and revolving debts (credit cards) $
2. Car Loans $
3. Student Loans $
4. Alimony/Child Support $
5. Other Long-Term Monthly Debts $
[see calculators]
Total Debt $
Now that I know this, what can I afford relative to
my overall debt?
Most lenders generally will allow you to allocate up
to 36 percent of your household income to overall debt,
although some lenders will allow you to go up to 40
percent under the right circumstances, including a larger
down payment. You can calculate your maximum allowable
combined housing and monthly debt in the space below:
1. Your Total Gross Monthly Income $
2. Multiply By 36% x 36%
3. Your Maximum Allowable Combined Housing and Monthly
Debt $ [see calculators]
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