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# How much can I afford

Listen The first step in buying a home is determining the price range of the home you can afford. If you are buying a home that is \$300,000, then you don't need \$300,000 to buy the house. You can probably buy the house with no money in your bank account. This all depends on how much money you make. Let me briefly explain what I mean here. Banks will give you a loan to buy a house. You are required to pay a monthly payment until you pay off the loan. The loan term is usually 30 years. I'll get more into the mortgage details in the lesson on mortgages. For now, let's figure out how much you can afford.

Listen Banks determine how much money they will let you borrow depending on how much money you make. The common loan amount can be calculated by dividing your monthly income by three. For example, if you make \$5,000 a month, divide \$5,000 by three. This will give you about \$1667 buying power. The bank will think that you can safely pay \$1667 a month towards your mortgage. So now we have to calculate how much money \$1667 a month will buy you. To get this figure, you can find a mortgage calculator. But to speed up the process, the answer is roughly \$210,000. That means the bank will give you a loan of \$210,000. This figure will vary depending on your credit score (we will cover credit in a different lesson), how much down payment you have, and how much other debt you have. But let's keep this figure for now and move on.

Listen If you have \$40,000 saved up, then you can use that for down payment. That means you will put in \$40,000, the bank will put in \$210,000 and that means you can buy a \$250,000 house without any problems. If you have \$100,000, then you can buy a house that is \$310,000. Finally, if you make more money a month, then the bank will allow you to borrow more money.

Listen I gave you an example in the case you made \$5,000 a month. If you make \$10,000 a month, then any bank will allow you to borrow \$500,000.

Listen But moving forward, I will use the \$5,000 a month figure for future examples. Now that we know how much house we can afford, let's determine what area we want to live in and the type of housing we want.

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