As you begin the search for a new home one of the obvious questions is: how much home can I afford? Or, put another way: what price range should I be looking at?
If you’re not looking for a mortgage then the answer comes down to how much savings or current home equity you’re willing to part with. But if you are looking for a loan then things get more complicated.
Most lenders start with your income, assets, down payment and credit score, then weigh those against your debts (for example credit card payments, other loans, expected property taxes and insurance premiums). From this comes an amount that they feel comfortable loaning to you.
That number depends in part on the type of mortgage you want plus current interest rates, and can also vary a bit from lender to lender. It also depends on the area you’re looking at (because of taxes) and the type of home (because of insurance). To get an exact figure you’ll have to talk to a bank or mortgage broker.
However, if you’re looking for a general estimate of what you can afford, the best starting point is with the many free online tools. Below are four of our favorites. We recommend starting with one of the quick calculators to get a ballpark figure, then diving into one of the in-depth tools to get a more accurate range.
Top Choice: Zillow
This tool from Zillow couldn’t be simpler. After you plug in your income, down payment and monthly debts the calculator gives you an exact ideal home price. It also gives you a visual breakdown of what your monthly budget would look like. If you’re looking to change the standard assumptions that Zillow uses just click the “Advanced” link for additional options.
Second Choice: CNN Money
This is another easy to use calculator. It’s not as visual as the Zillow tool and doesn’t offer any advanced options, but it does have the benefit of giving you a conservative to aggressive range of home prices that you can afford. There is also a good explanation of the assumptions that the numbers are based on.
Top Choice: Smart Money
This interactive home buying worksheet is an excellent resource. You’ll have to do more thinking than with the simple calculators, but that means that the eventual results are more reliable. We recommend clicking the “Expand All Help” option. The explanations are informative and offer a great starting point for understanding some common real estate and budgeting terms.
Second Choice: MSN Money
This tool from MSN (via a third party) isn’t as in-depth as the Smart Money worksheet, but it does offer some some useful options. In particular, it does a good job of helping you organize your debts. One thing to note is that it makes a standard assumption about interest rates that doesn’t change with time — to get a more accurate number do a bit of research and plug in the current rate.
Photo by 401(k) 2013 via Flickr.