Why do home affordability calculators come back with such a small number?

Question

When I enter information into a calculator on any website that offers them, it comes back saying I can only afford to pay a mortgage of 300ish a month. I currently pay almost 700 a month in rent and I'm fine, and I could pay higher and still be FINE. Where are they coming up with this? If I were to go talk to a loan officer at a bank, would they do something similar and only approve me for a very low amount? I mean, I could probably pay the amount their saying I could afford 3 times in a month.

A little info here. I was calculating the gross income (which would include myself and my fiance together) at about 3500, total debt payments required each month at 500 (not including mortgage/rent related expenses). And the number it came back with in the 300s. Someone please enlighten me, maybe I'm missing why they think I'm so destitute. I'm really only trying to be approved for a 110,000 loan. Also eligible for VA loan if that helps.

Answer 1

Mmmm.  Not sure.  Couple rules of thumb:

1.  You can afford a house 2x your annual income, which is in your case is roughly 84K

2.  The banks like you to stay at debt ratio under 35%.  $3500 * 35%= $1225.  Your monthly expenses should not exceed this. So $1225 - $500 (current expenses) = $750, so you can afford $750 a month toward a mortgage & taxes.

I went to http://cgi.money.cnn.com/tools/houseaffo... an used Gross Annual = 42,000; Down Payment=10,000; monthly debt=500;loan rate=6.5%; taxes=3500;Insurance=481 and the result was you can afford a house between 77.7K and 88.8K  with monthly payment between 760 an 830.

Answer 2

Every mortgage professional I have talked to (over 20) says that your total housing payment should be 35% or less of your gross monthly income.  That would mean that your principal, interest, taxes, and insurance should be $1,225.  Which, depending on taxes and insurance, means you can afford a $120,000-$140,000 house (also depending on your down payment).

Answer 3

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Answer 4

CNN guide shows you need 35K down and a 6% mortgage to buy a house of that price range. This requires a monthly payment of 800. You are forgetting taxes and insurance in your calculations. They total well over 300 per month, that you must add.

You guys better get second jobs and go on an austerity budget to get that downpayment saved up.

P.S. With 10K down and a 5% mortgage you're still looking at only a 95K house. Better lower your sights or increase your income.