Mortgage calculators may offer misleading numbers

Mortgage calculators offer guideline figures, but yours may vary

One of the biggest questions facing house shoppers is “How much house can we afford?” Most people today want larger homes than the ones their parents had. After all, few people had big screen televisions or computer equipment 30 years ago, and these things take up space. The question of “how much house” is a vital one, and there is no clear answer for anyone.

An attempt to quantify the amount of money one may spend on a home is presented in the form of an online mortgage calculator. These simple tools, available on this and on many other mortgage-related Websites, provides a simple interface for determining a price range for a house based on a given amount of income and a given interest rate.

The calculators can vary from site to site, however, and many of them return figures that are optimistically large. This is true for a number of reasons, the primary one being that lenders want to lend as much money as possible. That said, mortgage lenders would like to see borrowers take out loans for the largest amount they can afford. The problem is that the calculators make some assumptions about other debts the borrowers may have to pay that simply may not be true.

A rule of thumb in the mortgage industry is that monthly debt for all payments, including the mortgage, should not exceed 36% of the buyer’s gross income. That figure covers everything - utilities, car payments, insurance, groceries, and what have you. Some calculators found on the Websites of prominent national mortgage companies actually allow the debt to rise to as much as 55% of the monthly income. Such a debt load would probably make all but the most frugal of home buyers uncomfortable. For some buyers, even a figure of 36% might be higher than they would like to pay.

Anyone who is using an online mortgage calculator should take a few things into consideration when trying to determine how much house they can afford:

• Use several different calculators from several different sites in order to get a range of figures.
• Compare the results of the calculator with the 36% recommended figure and see how they compare.
• Talk to several different mortgage lenders about their philosophies of lending and get their input on how much you can afford to pay on your actual income.
• Look over your own finances and see how much you are comfortable spending. If you are only comfortable spending $800 per month on a house payment and a calculator suggests that $1700 per month is acceptable, then you should probably compromise with a figure that is close to your comfort level.

Ultimately, you are the one who has to decide how much you can afford to pay each month. In the end, the payments are yours to make, each and every month. That being the case, you need to make sure that the amount of your payment is one that you can make without undue discomfort. The last thing you want to do after you purchase a new home is to have to take on a second job in order to make the payments.