Ask Cyberhomes: With so many foreclosures out there, I want to make sure I don't take out more mortgage than I can handle. How do I determine a monthly mortgage payment I can afford?
Answer: Qualifying for a home loan is harder these days. But if you can qualify for a mortgage, calculating a monthly mortgage payment within your reach is good insurance against taking out more loan than you can handle. Cyberhomes, in partnership with Bankrate.com, offers a calculator that can help determine a mortgage payment and a home price that are within your means.
To get the clearest picture of a mortgage payment you can afford, use the "compare rates in your area" link on the mortgage calculator page and type in on your worksheet the interest rate that matches the loan type you'll be using.
The calculator will take into account your monthly income and the down payment you plan to make, monthly expenses like car and credit card payments, plus the cost of home insurance and property taxes. However, Joseph Montanaro, a certified financial planner for USAA Financial Planning Services, says that while such calculators are helpful, there are other financial considerations you should also consider when computing what you can afford. "Think about the things that don't fall into a housing calculator like saving for retirement or saving for college," he says. "Make sure you take everything into account."
As a rule of thumb, he recommends dedicating only about 28 percent, and at most 33 percent, of your income to housing costs.—Lauren Baier Kim