Are you on shopping for or about to shop for a home? Have you made your budget for your new home? Yes. It is very important that you determine, well in advance, how much home loan you can afford. More importantly the estimation of your affordability should be very accurate to save you from future troubles.

Mistake Often Made
We usually decide to buy a home for a price. Then we determine the home loan required for it and think about our financial position. More often we get disappointed to find that our dream home does not fit the home loan requirement. So, it is wise to decide before hand on how much we can afford to pay as home loan.

A Casual Estimate
You don’t need a high precision calculating machine to establish that you can’t buy anything for more than you earn. Yes, the amount you can afford for your home loan largely depends on how much you earn, your annual gross income. The commonly used thumb rule is that the price of your new home can be roughly one and a half times your gross annual income. For example if you earn $100,000 a year, you can conveniently purchase a home priced at $150, 000. But as the name says it is only a thumb rule and an exact calculation of how much you can afford to pay for your home loan is very important.

Home Loan Calculation
When calculating how much home loan you can afford, the two major things to be considered are your income and expenses. All sources of income including wages, dividends, interest and alimony have to be considered and when calculating monthly expenses, include everything-car payment, credit card payments, alimony payments and any other debt payments that you may have.

Don’t just decide based only on the rent you pay now. Because the monthly rent you pay now is not at all an indicator to estimate your home loan.

Income-Expenses calculation is only one half of the estimate. The other half of the calculation is the complete financial information about your home loan. When doing so, you have to take in to account everything including down payments, duration of the loan, loan term, interest rate, home owner’s insurance and property taxes.

Home Loan Calculators
To help you with the actual calculation free calculators are available on Internet. These special calculators help you calculate your home loan very accurately. You can find several of these kinds of home loan calculators from search engines. Different calculators take in to account different set of parameters (but mostly they all consider income, debts and loan information) to estimate the amount of home loan that you can afford. You can easily find a calculator that fits your specific needs.

How Can You Enhance Your Ability to Afford a Home Loan?
Yes, There are ways to help you buy that high priced home of your dreams. You can afford an expensive home loan, and here are some tips to help you do that.
• Increase your down payment. This will increase the total home loan amount that you can afford
• Decrease your monthly debts.
• Increase your gross annual income. May be it is time that you have a talk with your boss!

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