How much home you can afford.

Land for sale

As you know from the basics page you just read, to buy a

Land for sale

you need both up-front money as well as the ability to make monthly mortgage payments. You therefore might be tempted to ask, "How much will I need in order to make the monthly payments?" But actually we'll approach this question from the other direction: We'll find out the most expensive Land for sale you can buy given your income and savings. This is called how much home you can afford. You won't necessarily buy the most expensive home you can afford, but you still want to know what your upper limit is. You don't want to waste your time looking at homes you can't afford, and you also don't want to pass up homes you thought you couldn't afford but which might actually be within your reach.

Here's the super-quick rule of thumb: Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt. If you have little to no debt and can put 20% down you can probably buy a house worth up to four times your annual income.1

Examples: If you make $57,200 a year (which was the median household income for first-time homebuyers in 2006) and have money for a down payment saved, you can probably buy a $171,600 home if you have moderate debt (debt payments of <12%>

The first concept for figuring how much home you can afford is pretty simple. Since you pay for your house with a combination of a down payment and a bank loan, the total of both is the cost of the home:

Down Payment + Biggest Loan You Can Get = How Much Home You Can Afford

The down payment part of the equation is easy to figure -- this is the total of your savings that you're willing to put into your house. (We'll cover down payments in more detail on the next page.) We assume you have money for a down payment because if you don't then you probably can't afford any home, since it's hard to get a loan with 0% down. You usually need a bare minimum of 3% of the purchase price down, more typically 10% or more.

The amount you can get from a lender is a little trickier since it's based on many factors. Here's a calculator that will help you with that.