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How much house can you actually afford? The three numbers that decide it
Most affordability arguments online use one number, usually a percentage of income. In practice, three numbers decide what a buyer can actually carry:
1. The housing ratio: your total monthly housing payment (principal, interest, taxes, insurance, HOA, and mortgage insurance if it applies) divided by your gross monthly income.
2. The total debt ratio: that same housing payment plus your other monthly debts, like car payments, student loans, and minimum credit card payments, divided by gross income.
3. Cash to close: down payment plus closing costs plus prepaids, minus any seller credits or assistance. Plenty of buyers pass the first two tests and get stopped by this one.
Different loan programs set different limits for the first two, and the limits are guidelines with some flexibility, not hard walls. This is also why two affordability calculators can give you two different answers: they are assuming different limits.
Curious how others here explain this to buyers. Do you lead with the monthly payment, the ratios, or the cash?
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