How much should a home cost?

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What’s the ideal price for a home? Is there some kind of formula to use or what? Someone told me that when you rent, your rent should be 25% of your gross income. Is this also true when buying a home?

  1. Reply
    November 10, 2011 at 1:52 am

    25% of your take home.
    No more than 31% of your gross.
    Google “how much home can I afford”
    Remember that putting 20% is a good idea.
    That way you don’t pay PMI.
    PMI does not go towards principal, interest, and it’s not tax deductible.
    It’s like throwing thousands away a year.

    Don’t forget to get your credit reports at
    annual credit report. com
    Make sure there are no errors in yours or your wife’s.
    You can get the score after you make corrections at for about 8 bucks, or for $ 15.
    If you have any credit card balances pay them off.
    Revolving credit is harmful for your score.
    Don’t close your oldest credit card.
    And don’t open any new loans 6 months before buying.

    CNN Money website has a good calculator
    Yahoo real estate has a more detailed one
    Also try
    These calculators will give you the maximum you can afford.
    Remember that if you like to travel or dine out, you’ll want to buy a smaller home.

  2. Reply
    November 10, 2011 at 2:46 am

    A simple rule of thumb would be that a house should cost 3 times your annual income. i.e. if you make $ 50,000 a year look for a house in the $ 150,000 price range.
    But that doesn’t take into account the amount of your down payment, or current interest rates, therefore, the monthly rate could be more or less.

    Google “mortgage calculator” to figure out what the monthly principal and interest would be for your target home price.
    Here’s one link:
    You will also need to add in property taxes (figure about 1.2% annually of the value of the home, and divide by 12 for the monthly)
    If you are not putting 20% down you will also have to pay PMI ($ 78-125 per month)

    For example: $ 150,000 house, you put down $ 15,000 (10%).
    Mortgage amount $ 135,000 ($ 150k = $ 15K)
    At 5.25% interest rate, your principal and interest would be $ 745.47 + $ 150 property tax + $ 100 PMI = monthly payment of $ 995.47
    This should all equal not more than 28-31% of your monthly income, so in this scenario you would need a monthly income of $ 3300 or $ 39,600 annually.
    In addition, all obligations including the above figures plus auto loans, student loans, personal loans, credit card payments, should not exceed 41% of your monthly.

    Of course the lower the percentage of your monthly income you spend on your mortgage the better.
    Talk to a mortgage lender about what you can qualify for.

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