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What You Can Really Afford

CALCULATING THE LOAN AMOUNT
You can use an inexpensive financial calculator to calculate your loan amount. Lacking that, use the following table to calculate the loan amount you can afford.

 30 Year 20 Year
Interest Rate: Multiply Multiply 
 P&I Payment by: P&I Payment by:
6% 166.7 139.6
7% 150.4 129.0
8% 136.2 119.6
9% 124.2 111.1
10% 113.9 103.5
11% 104.9 96.8
12% 97.2 90.7

Our example couple have determined local mortgage interest rates to be about 8%, and have opted for a 30 year loan.

Multiplying $1007 times the factor above (136.2) gives them a maximum affordable mortgage amount of about $ 137,000.

Finally, adjusting the mortgage amount by adding in the down payment, and allowing for closing costs, you will arrive at how much dream home you can afford.

Our example couple have saved $9500 to pay down on their home. They have estimated closing costs to be about 5%. Therefore:

(1 - %Closing Costs) x (Max. mortgage + Down Payment)=How much house they can afford