Finding your Maximum House Price

When someone decides to buy a house, one of the first tasks is to talk to a lender and determine the maximum loan they can get. The max loan will determine the cap on real estate prices for that the buyer. There’s lots of calculators out there that will help determine this. Here's a mortgage payment calculator.

But what if you want to have a certain payment per month and you want to know what the max house price would be for that payment? For example, you are renting at $800 per month right now, and you could deal with a couple hundred more per month to be able to have ownership. So, you want to know what house price would be equal to paying $1000 per month.

Well, you still take into consideration a lot of familiar items:
1) Your down payment, which is how much cash you will put down on the real estate up front. The rest of the sales price will be the loan amount.
2) The number of years the loan will be amortized over.
3) The interest rate for the loan.
4) The tax rate of the area where your property is located.
5) And the insurance rate.

The difference is that you take into account the $1000 monthly payment you want to make and go towards figuring out the house price, rather than the vice versa.

Setting your monthly limit first rather than your price maximum puts your home purchase in perspective with your daily life. You know you spend a certain amount on rent, so it’s a good starting point to figure out what price of house you could own by investing the rent you are paying someone else.

If houses in your area are more expensive than what your rent allows, you can work your way up figuring out how much more you can spare per month to raise your house price. There are of course benefits to home ownership like mortgage interest deductions and possible appreciation, but that is a topic for another article… For now, get started thinking about what payments you can comfortably pay per month.