How much house can I afford?

The number lenders actually look at

Your debt-to-income ratio, usually written DTI, is the core test. Add up the monthly payments you are obligated to make — car loans, student loans, minimum credit card payments, child support — then add the full housing payment on the home you want. Divide that by your gross monthly income, before tax.

Automated underwriting allows more flexibility than the old rules of thumb suggest, and the acceptable ratio varies by program and by the rest of your file. Strong credit and cash reserves can support a higher ratio than a thin file with the same income.

What people forget to include

The housing payment in a DTI calculation is not just principal and interest. It is what the industry calls PITI, plus association dues:

• Principal and interest — the loan repayment itself.
• Property taxes, which vary by county and municipality across the Triangle.
• Homeowners insurance.
• Mortgage insurance, if your down payment is under 20% on a conventional loan or you are using FHA.
• HOA dues, which are common in Cary, Apex and newer Raleigh developments and can move your qualifying number noticeably.

What you can borrow is not what you should borrow

A lender will approve you for the maximum the ratios allow. That figure takes no account of childcare, retirement saving, travel, or how much slack you want in your month. Plenty of buyers deliberately borrow below their approval and are glad of it later.

The useful exercise is to work backwards from the monthly payment you are comfortable with, rather than forwards from the maximum a lender will allow.

Sources

We would rather you checked than took our word for it.

• CFPB: how much can you afford

Written by Triangle Mortgage LLC, a licensed mortgage broker in Raleigh, NC (NMLS #1725415). General information, not personalised financial advice — your situation may differ.