How to calculate when to buy a house

Don TaylorQuestionDear Dr. Don,
My wife and I are close to buying a house but haven't started the process yet. I know how to calculate how much we can afford, but also know I'm not an expert.

My wife is unemployed, but I'll be starting work after I finish graduate school. I'll earn a base salary of $95,000 with some bonuses. I'll have a student loan payment of about $1,200 per month, but we have no other debt. We will probably look to put 5 percent to 10 percent down. We have good credit and are in our mid-20s.

I've ballparked that we can get a $300,000 house on my salary alone. If you want to talk insurance and taxes, use the Charlotte, N.C., area. Any insight you can share on the process or my calculations would be very helpful.
-- Philip Payment

AnswerDear Philip,
There are a host of home affordability calculators on the Web, including Bankrate's How much house can you afford? calculator. I also like the Ginnie Mae "Loan Estimator" because with a few easy inputs it will return the home affordability for Federal Housing Administration, Department of Veterans Affairs and conventional financing. I'd suggest using both calculators, because the Ginnie Mae estimator doesn't explicitly consider your income.

Compare mortgage rates
Bankrate can help you find the best mortgage rates in your area.

Speaking of income, I think you're a little optimistic as to the amount of house you can afford. You may be counting on your expected bonus income, and a lender is unlikely to consider it in your first year on the job.

It's likely that you'll be looking at an FHA loan for that first home purchase. These loans have a lower down payment requirement than conventional financing. You can get conventional financing with 5 percent to 10 percent down, but lenders have tightened up their underwriting standards since the bubble burst in real estate prices and it may be an issue.

You're just starting out on your career. I don't know your hopes, plans, dreams or ambitions as a couple, but one of the things you want to consider is how long you plan to live in this first house. Does your wife plan to work? How do her plans influence where you will live? Take a look at Bankrate's buy or rent your next home tool. It's an interactive work sheet that will walk you through some of these factors.

Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.

Ask the adviser

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.

Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.

News alert Create a news alert for "mortgage"


Show Bankrate's community sharing policy
          Connect with us

Timely market news and advice for consumers ready to buy, sell or invest in real estate. Delivered weekly.


Poonkulali Thangavelu

Get the best bang for your mortgage buck

If you are looking for a mortgage, make sure to avoid these common mistakes.  ... Read more

Partner Center

Connect with us