How much house can I afford?

How to buy a house in 2016

Lower home prices and interest rates make this a great time to buy a house.

But figuring out exactly how much house you can afford can be tricky. A lot of variables are involved, such as how much debt and savings you have, your credit score, and so on.

There are a few general rules of thumb to consider:

* Don’t spend more than one-third of your monthly gross income on homeowner-related expenses, including mortgage payment and real estate taxes.

* In most cases, expect to make a 20 percent down payment.

Here are some other tips for determining how much house you can afford.

1. Check out home prices in your desired neighborhoods. Using or Google, you can get a sense of what homes are selling for where you want to live.

2. Gather your financial data. Your existing debt, savings, and annual gross income are all part of the answer to how much house you can afford. Get an updated credit report, too, so you’ll know your current score. Why? Because your FICO credit score can affect how much the lender will loan you and the mortgage rate you’re offered. A credit score of 720 or higher will typically get you the best rates.

Through, set up by the three U.S. consumer credit reporting companies Equifax, Experian, and TransUnion, you can get one free credit report every year.

3. Try some online mortgage calculators. The Web is full of free calculators designed to total up your monthly home-related costs (including mortgage payment and real estate taxes). Check out the calculators, or

You’ll need to plug in some data to get the most out of these calculators, however, such as the current interest rates for a 30-year fixed mortgage in your area. is a good resource for current interest rates, too.

4. Talk to a banker or mortgage broker. You could simply start the process with this step, of course. But I think it helps to be as informed as possible before meeting with a potential lender. Ask your Realtor for recommended bankers or brokers.

5. Don’t get in over your head. Real estate is still a good long-term investment. The financial and banking crisis has taught us a lot about lending and loans. Go for the longer-term loan as opposed to an interest-only, short-term fixed.

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