First, find your total monthly household income. This should be the amount you make before taxes and must be able to be documented. Now, take that number and multiply it by .50.
Next, add up your minimum monthly debt payments like your credit card payments, car loans, and so forth. Do not include expenses like insurance or utilities in this number.
Now subtract your debt payments from the number you found in step one. This number is the maximum monthly mortgage payment you can qualify for. To see what that translates into as far as home value is concerned, divide it by .008 (this formula works in Texas).
For example:
Monthly Income: $10,000 x .50 = $5,000
Debt Obligations: $1,200
Maximum Monthly Mortgage Payment: $5,000 – $1,200 = $3,800
Maximum Purchase Price: $3,800 / .008 = $475,000
Using this equation can help you get an idea of how much you can afford so you can start looking at homes available in the price range you can afford. Another good rule of thumb is that if your monthly household income is more than 2.5% of the home’s purchase price, you should be able to qualify for the home without any issues.
