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Financial Literacy

Financial Literacy

Home Financial Literacy Mortgages What Can I Afford?

What Can I Afford?

There are formulas. In the 1990s when the U.S. economy was still growing, banks would lend to pretty much any buyer who had a pulse. Sorry, zombies. The rough rule of thumb was that a bank would loan 4X AGI (or adjusted gross income) assuming you were able to put down 20% of the total purchase price of the home as a down payment. AGI is all of the income you and your spouse (and your dog if she works) earn in a given year + dividends from stocks, interest from bonds, and side work you make cleaning tile grout in your neighbor’s shower. This formula was so loose it opened the door to a lot of abuse, and bad things happened to generally good people who borrowed more than they should have.

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