Unit 1 : Lesson 2: Getting money to buy a home

Looking further

What you can afford

This chart describes a way you can find out how large a mortgage you might qualify for based on your annual income and the current interest rate for a 30-year fixed-rate mortgage. The chart assumes you could afford a loan with payments equal to 25 percent of your income and that the amount you need to set aside to pay for taxes and insurance would be approximately 3 percent. This simplified approach can give you a fairly accurate estimate of the purchase price of a house you can afford with a regular loan.

If you have a low or moderate income, you may be able to qualify for a variety of special
loan programs that can allow you to buy a house even if your income is low. Unit 3 in this
book will tell you more about how to find out about these programs.

For a larger version of this table, click here.

The kind of house you can afford depends on your income and debt, but it also depends very much on where you live. Across the United States, the cost of houses varies greatly. In many rural areas, the cost of housing is much lower than the cost of housing in big cities such as San Francisco, Boston, Chicago, and Atlanta. In the city, a small one-bedroom house may cost much more than a large three- or four-bedroom house in a rural area.

Housing prices also vary within the same city. Often the farther you get from the downtown area of a city or town, the less expensive the housing. However, homeowners may then be faced with a long commute to and from work. In choosing where to buy a home, you must often make hard choices between the location of the house, the kind of house you want, and what you can afford.

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