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How to Get a Mortgage or Refinance Your Home
Tool: Mortgage Calculator
By Jean Chatzky
Expert Content  |  January 01, 2006
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You dream of owning a house—or lowering your current mortgage plans. Now it's time to come back to earth and find out how much you can really afford. Use this worksheet to see how much of a mortgage you can handle.


1. Calculate your net monthly income. That's your income after taxes, Social Security contributions, retirement contributions, etc.
Example Figure A
Let's say your current net monthly income is:

$4,500.00		 Your Figure A
Enter your current net monthly income (without commas):

$ .00

2. Next, total up monthly payments on your debt—all your debt: car loans, credit card balances and/or student loans. (Exclude your rent or mortgage payment.)
Example Figure B
Let's say your monthly debt payments are:

$1,000.00 		Your Figure B
Enter your total monthly payments (without commas):

$ .00
Your Figure B is % of Your Figure A.

If Figure B is more than 25 percent of Figure A, you must reduce your debt before you can afford to pay a mortgage.

3. Add up all your monthly living expenses. Go back over a year's worth of expenses and tally every check and card charge purchase, including those for your monthly transportation costs, drying cleaning, food and entertainment, vacations, birthday gifts, holiday expenses and other miscellaneous costs (excluding mortgage payments). Next, total all these expenses and divide by 12.
Example Figure C
Let's say that your current monthly expenses on average come to:

$1,500.00 		Your Figure C
Enter your current monthly expenses (without commas):

$ .00

4. Add Figures B and C together to get Figure D.
Example Figure D
In this example, that would be $1,000 + $1,500 =

$2,500.00 		Your Figure D
Your Figure B + Your Figure C =

$ .00

5. Now, subtract Figure D from Figure A.
Example Figure E
In our example, this would be $4,500 - $2,500 =

$2,000.00 		Your Figure E
Your Figure A - Your Figure D =

$ .00
Figure E is the maximum monthly amount you can afford to spend on all home ownership costs.

6. Reduce Figure E by 30 percent to get Figure F.
Example Figure F
In our example, this is $2,000 - ($2,000 * .3) =

$1,400.00 		Your Figure F
Your Figure E - (Your Figure E * .3) =

$ .00
Figure F is the highest monthly payment you can afford to make for a mortgage alone. Remember, you will still need that 30 percent (and sometimes even 40 percent) to pay for property taxes, home insurance, etc.

What size mortgage you can afford will also depend on available interest rates, the length of the mortgage and whether you get a variable- or fixed-rate mortgage. A difference in interest rates of even half a percentage point can mean a lot. The monthly payment for a 30-year fixed mortgage of $300,000 at 6 percent is $1,799. But at 6.5 percent, the monthly payment on the same mortgage is $1,896—a difference of almost $100.


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Please note: This is general information and is not intended to be legal advice. You should consult with your own financial advisor before making any major financial decisions, including investments or changes to your portfolio, and a qualified legal professional before executing any legal documents or taking any legal action. Harpo Productions, Inc., OWN: Oprah Winfrey Network, Discovery Communications LLC and their affiliated companies and entities are not responsible for any losses, damages or claims that may result from your financial or legal decisions.
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