Mortgage Calculator

How come different people give you different answers when you ask "How much can I spend on a house?" Because everyone calculates it a little differently. Every mortgage calculator takes into account different parameters. This article should help.

"My financial planner said I could afford to spend $250,000 for a house, my real estate broker said $280,000 and a calculator I found on the internet said $295,000. How come these large differences?"

The affordability calculation is fairly complex when done correctly, and some approaches oversimplify it. The calculation also involves a number of assumptions that affect the answer.

To do it properly, affordability must be calculated three times using three different rules. I call these the "income rule", the "debt rule", and the "cash rule." The final figure is the lowest of the three. When affordability is measured on the back of an envelope, which real estate brokers often do, usually it is based on the income rule alone, ignoring the other two. This can result in error.

Go to this excellent site for more information on the three rules and how much house you can afford.