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How much house can you afford?

Low mortgage rates in homebuyers' favor

SAN ANTONIO – If you're considering buying a home soon, historically low mortgage rates are in your favor. Today, the rate on a 30-year loan is about 4.1 percent. But how much house can you really afford?

When picking their price range, Chiara Norbitz and Mike Grubiak said they wanted to keep their monthly housing costs less than what they’d been paying in rent.

"We tried to break it into a pie, where we were at least saving a certain amount of money every month,” Norbitz said.

Their bank preapproved them for a certain amount, but Consumer Reports said that number can be deceiving. Lenders look at how much they think you can afford to pay them each month.

“That doesn’t mean you can make those payments and still save for retirement, still save for college and still manage to go on vacation each year,” said Lauren Lyon Coles, Consumer Reports’ money editor.

Deciding how much mortgage you can afford is personal, but financial experts say a good rule of thumb is to cap your housing costs at 25 percent of your take home pay. That includes property taxes and homeowners insurance.

That cap should give you some wiggle room.

“You need to have money in case the A/C breaks or you need to replace the roof. Owning a home is cost-intensive, so keeping your mortgage payments as low as possible will help you afford everything else that goes with it,” Coles said.

In the end, Norbitz and Grubiak found a home they loved for less than the bank was willing to loan them, leaving them room in their budget.

“We really want to have a nest egg right now, for vacations and emergencies and eventually down the road having our first child,” Grubiak said.

If you have trouble calculating a number you are happy with, working with a financial planner or third party you can trust can be a good move.

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