Here’s the simplified version of what a mortgage broker would do with you.

Step One: (Annual salary ÷ 12)

What is your gross monthly income from all sources?

$75,000 ÷ 12 = $6,250 (Monthly Income)

If your annual salary is $75,000, divide this by 12 and you’ll see that your monthly income is $6,250.

Step Two: (Monthly salary x percent you want to spend)

Brokers and financial planners will recommend that you spend anywhere between 25% and 36% of your monthly income on household expenses.

We’re going to use 36%.

$6,250 x .36 = $2,250 (Total Budget)

Step Three: (Calculate your debt)

Add up your current monthly debt. This includes things like a car loan, insurance, school loans, credit cards, and any other personal debt you may have.

All of this added together gives you your total debt.

Just a guess, but let’s say that these add up to $750 a month.

Step Four: (Amount you want to spend minus total debt)

Now, take that total debt and subtract it from the amount that you were willing to spend per month to get your maximum monthly payment for your mortgage.

$2,250 – $750 = $1,500 (Max Mortgage Payment)

Step Five: (Monthly payment x 12)

Multiply that house payment by 12 months, and you have $18,000 to spend each year.

Step Six: (Annual payment ÷ interest rate)

Divide this annual amount by the current interest rate (I’m using 6%, because it’s a nice round number, and a good average).

$18,000 ÷ .06 = $300,000 (Mortgage Amount)

So, $18,000 ÷ .06 leaves you with $300,000 available for a mortgage!

Step 7: (Mortgage + Down payment)

Now, take the amount that you have calculated that you can afford to pay for a mortgage, add the amount of cash that you have on hand to make a down payment, and you get your purchase price!

Tip: Many lenders in today’s marketplace will lend with no downpayment if you have good credit and a steady job.

So, using the current example: The mortgage was $300,000 plus you have $20,000 hand for a down payment, then you can afford to purchase a home for $320,000.


Now, did that REALLY seem like algebra to you?

Although this is a quick and easy estimate, you should work with a mortgage lender so that you know EXACTLY how much you can afford.

Summary: The Affordability Formula

  • 1. Monthly Income: (Salary ÷ 12)
  • 2. House Budget: (Income x 36%)
  • 3. Disposable: (Budget – Current Debt)
  • 4. Mortgage Capacity: (Disposable x 12 ÷ Rate)
  • 5. Total Price: (Mortgage Capacity + Down Payment)

Use this quick math to get a rough estimate, but always verify with a professional lender.

Want early access to serious buyers?

If you’re going to be moving in the next six months, what you might not realize is that there are a significant number of buyers searching for homes like yours.

In fact, for every buyer actively viewing homes right now, there are 5-10 more about to begin their search, or eagerly waiting for the perfect property to come up.

If you’re interested in getting a head start on finding a buyer for your home, leave us some details below… We’ll see if we can find a match!

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Before you put your house on the market, you need to find out how much it’s worth in today’s market, so you can make your plans based on the most current information available.

We can prepare a detailed Pin-Point Price Analysis for you that shows the most current market activity in your area for homes like yours, and we can recommend an optimal marketing price range that will give you the best odds of selling quickly – and for top dollar!

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