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Serving members worldwide since 1935.

Fewer than 10 percent of homebuyers purchase their homes with cash, so chances are you’re going to need financing. The best way to get a low interest rate (and to avoid a default later!) is to not borrow more than you can afford. Here’s how to figure out a reasonable amount:

Calculate Your Debt-to-Income Ratio

The general rule of thumb is that your mortgage payment should equal no more than 28 to 33 percent of your gross income. And your total debt (i.e. your anticipated mortgage amount plus your car loan, credit card balances, etc.) should not surpass 36 percent of your gross income.

Determine Your Down Payment

Look at how much cash you have saved up for a down payment. The larger the down payment, the lower your monthly payments can be.

Map Your Budget & Test It Out

Use a budget worksheet to determine how much income you can spare each month to put toward a mortgage payment. Simply subtract your expenses from your total income. Do a "practice run” for two months by saving the difference in your anticipated monthly mortgage, taxes and insurance payment and your current rent payment. See if you can maintain the lifestyle that you are accustomed to while not neglecting savings activities such as your IRA and college savings for the kids. If you find yourself falling short you may want to consider a smaller mortgage.

Learn more about Lafayette Federal Mortgage Loans.

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