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How to Calculate How Much House You Can Afford in Texas

May 25, 2023 | By Mendy Rimler

Table Of Contents

Buying a home is an exciting milestone, but it's essential to approach it with careful financial planning. Determining how much house you can afford is a crucial step to ensure a smooth and stress-free home buying journey. 

At Texas United Mortgage, we understand the significance of this calculation, and we're here to guide you through the process. With thousands of mortgages under our belt, we'll provide valuable insights on how to calculate your affordable housing budget, along with the expert assistance we offer at Texas United Mortgage.

How Do You Determine Your Home Buying Budget? 

To determine your home-buying budget, you’ll need to assess your financial situation using the debt-to-income ratio and housing expense ratio. You’ll also need to save up for a down payment and other costs that may come up. 

“A great starting point is to take your gross monthly income and calculate 35% of that,” says Reef Merhi, Branch Manager and Loan Officer with Texas United Mortgage. “That 35% is the top of your budget for your monthly payment.”

Assessing your financial situation

Before diving into the home-buying process, it's essential to evaluate your financial stability. Consider factors such as your income, employment stability, monthly expenses, and existing debt obligations. 

Additionally, focus on saving for a down payment and closing costs, as they are essential components of your overall budget.

What Are Affordability Ratios?

Debt-to-Income Ratio (DTI)

One key factor lenders consider when determining your loan eligibility is the Debt-to-Income Ratio (DTI). This ratio compares your monthly debt payments to your gross monthly income. 

It's calculated by dividing your total monthly debts by your gross monthly income and multiplying the result by 100. Texas United Mortgage can provide guidance on recommended DTI limits to ensure you're within a range that suits your financial situation.

Housing Expense Ratio (HER)

The Housing Expense Ratio (HER) focuses specifically on your housing-related expenses, including your mortgage payment, property taxes, insurance, and any applicable homeowner association (HOA) fees. 

To calculate the HER, divide your monthly housing expenses by your gross monthly income and multiply the result by 100. Striking a balance with your HER is crucial to managing your overall financial health.

What Are the Additional Costs of Buying a Home?

Apart from your mortgage payment, there are other costs associated with homeownership in Texas. These can include property taxes, homeowners insurance, Private Mortgage Insurance (PMI) if applicable, and HOA fees. It's essential to factor in these expenses when calculating your overall affordability.

“When you’re buying a home, right off the bat, whether you put 3% or 10% down, it’s good to expect a deposit of 1% of the sales price for additional expenses,” shares Mehri. 

“On top of that, you have inspections and appraisals to pay for out of pocket. That could add $300 to $600 per inspection. Some specialized inspections, such as for termites or septic, can cost even more. And if you’re financing the purchase, you’ll need an appraisal which is another $500. So it’s best to assume an additional $1000 for appraisal and inspection.”

Find an Online Mortgage Calculator

Online mortgage calculators are valuable tools that can help you estimate your affordability quickly and conveniently. An affordability calculator allows you to input your income, debts, expenses, and other relevant information. 

Aside from overall affordability, if you want to look at different mortgage options, a monthly payment calculator can be helpful, too. They consider different loan terms, interest rates, and down payment amounts, giving you a clear idea of what you can afford. 

What is the Pre-Approval Process for Buying a Home?

Pre-approval is when a mortgage lender works with you on a thorough assessment of your financial situation, credit history, and income verification to determine what loan amount you are eligible for. Obtaining pre-approval from a reputable lender like Texas United Mortgage can give you a competitive edge in the housing market.

It provides a realistic estimate of the loan amount you qualify for, helping you narrow down your home search with confidence. Reach out to Texas United Mortgage to start your pre-approval process today.

Should I Work with a Mortgage Professional?

Absolutely! Navigating the mortgage process can be overwhelming, especially for first-time homebuyers. That's why working with a knowledgeable mortgage professional is invaluable. 

“People make a lot of mistakes by misunderstanding costs and benefits,” says Mehri. “For example, they may not realize that they could save thousands of dollars by actually offering a higher sales price but including contract provisions to cover closing costs. This is where an experienced professional can really help you get the best value.” 

Texas United Mortgage is committed to providing personalized guidance and exploring different loan options and programs that align with your financial goals. Our experts will help you make informed decisions, ensuring a seamless homebuying experience.

Consider  Long-Term Financial Goals

As you calculate how much house you can afford, it's essential to strike a balance between affordability and comfort. Consider your long-term financial goals, such as saving for retirement, education, or other life milestones. A mortgage that aligns with your financial objectives will contribute to a secure future.

Calculating How Much House You Can Afford

Calculating how much house you can afford is a crucial step in the home-buying process. Texas United Mortgage is dedicated to assisting you in this endeavor, providing valuable resources and personalized guidance. By assessing your financial situation, understanding affordability ratios, considering additional costs, utilizing online mortgage calculators, and working with our mortgage professionals, you can make informed decisions that align with your goals.

At Texas United Mortgage, we understand that homeownership is a significant investment, and we are committed to helping you navigate the complex world of mortgages. Our team of experts is here to answer your questions, guide you through the pre-approval process, and explore loan options that suit your unique circumstances.

Remember, your financial well-being should be at the forefront of your decision-making. By carefully calculating your affordable housing budget, you can embark on your homebuying journey with confidence, knowing that you've made a responsible and informed choice.

Contact Texas United Mortgage today to take the first step toward homeownership. Our team is ready to assist you every step of the way, ensuring that you find the perfect home within your means. Let us help you turn your homeownership dreams into a reality!

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