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After you have made the decision to buy a home, the loan will be one of the biggest purchases that you will make in your life and you will need to know, ‘Can I afford to buy a house?’ when you start the home ownership quest. There are several things that a lender will look at to determine if you meet their criteria for a home loan and if you qualify for the amount that you are applying for. You will need to know what your monthly income is and have the verifiable documentation to support what you make. You will also need to look at the total amount of the other debt that you may make payments on throughout the month and the term of the home loan.

Let’s look at some of the ratios that lenders use to determine if you can afford to buy a house. Some of the lenders that you will apply with will require that you have a certain percentage of your monthly income that you can allocate to the mortgage payment. You will have to include the private mortgage insurance payment, the hazard insurance payment, the taxes that will be paid into escrow, and any other monthly fees that will be paid with the loan for the home. Some lenders put a cap of 20% on the amount that you can allocate for the expenses associated with the home loan. The percentage is a part of your gross income. This is the amount you make before any mandated deductions are taken out. If you want to quickly figure this amount for a ball park figure, you can multiply your hourly wage by the number of hours you work in the month. When you get that total, multiply by .28 to determine the maximum allowable you should allocate for total mortgage payments in the month.

To determine if you can afford to buy a house you will need to look at the ratio of your other debt to the total income that you bring in during the month. You may owe for the school expenses you borrowed to fund your education. You may have a car loan. You may have credit cards that you opened to begin building your credit history. All these payments will need to be totaled and that figure should not exceed a maximum portion of your monthly income. A lot of lenders set 36% as the total percentage allowable.

We can look at some of the national averages to see where you may fit into this equation. The United States Census Bureau states that the 2000 census revealed that homeowners averaged 21.7% of their income each month on a mortgage payment. Homeowners aged 15 to age 24 spent 25.7% and individuals age 25 to 44 spent 21.9%. Individuals in the age group of 55 to 64 spent 20.6% and ages 65 through 74 spent at least 25.4% of their monthly income on a home loan. When individuals ages 75 and older reported their percentage it was almost 32%.

There is a difference in the amount that you can afford and the amount that you can qualify for. If you have other financial obligations that you make like contributions to a retirement account or allocations to your savings account, you will not want to spend as much for a home that you will qualify for. These amounts will not be reviewed and considered as obligations by the lender and you can qualify for a higher amount than you can actually afford to pay if you continue these other financial obligations. ‘Can I afford to buy a house?’ is really a question that only you can answer and you must consider all of the above points when you come to the decision about how much you are willing to allocate for a home loan.