Dear Jan: We are trying to figure out what price of home we can afford. Is there a formula or chart that will help us figure out what we can buy on our income? — KBS

Dear KBS:  I was asked this same question just recently by another person. I had to share that I know of no chart or formula that gives that information, that it seems to be a well-kept secret.

I did do some research and there are websites with calculators but I did not click on it as I did not want to give out my contact info.

The reason it is not so easily found is that the dollar amount the lender thinks you can afford is governed by many factors.  Debt-to-income ratios are an important factor. Some lenders will not loan if you have too many outstanding debts. The interest rate can also fluctuate due to your credit score.

Another factor is your down payment. If you have a huge amount of money to put down, then your house payment will be smaller.

Another important number in the equation are your closing costs. Buyers have their own closing costs that need to be paid. In a buyer’s market, most of the time you can get the seller to pay for your closing costs.  But as our market turns, sellers will be saying “no” to that idea and the buyer will have to pay for them out of savings or add them to their loan and finance them in — which, of course, will change the amount of the house payment.

So, as you can see, determining the amount the lender thinks you can afford truly differs from buyer to buyer.

Here is the good news: A good loan officer can usually run numbers very quickly and give you that number, usually on the same day. They will then be able to advise you if you have some credit items to clear up or if you are ready to buy.

I usually advise my buyers to contact one of my favorite lenders to see what that number is … and then have them let the lender know what dollar amount they are comfortable with each month. That way, they own the house instead of the house owning them.

If you need the name of a lender to trust, please contact your favorite local real estate broker. I am sure they will have some great choices for you. Remember to use that broker when the time comes around to shop for a home.       
—  Jan