How Much House Can I Afford?

Asking how much house can I afford in Florida gives you two different answers. Your lender calculates one. You have to work out the other.

What a lender will approve

• Housing costs at or below roughly 28% of gross monthly income, the front-end ratio
• All debt payments at or below 43% to 50% of gross income, the back-end ratio
• Housing costs include principal, interest, property taxes, insurance, flood cover and HOA dues
• A down payment of 0% to 20%, depending on the program
• Closing costs of 2% to 5% of the purchase price in Florida
• Reserves of two to six months of payments left after closing

Approved and affordable are different numbers

A lender assesses your gross income against your recorded debts. It does not know what you spend on childcare, what you save each month, what your car will need next year, or how secure your job feels. Consequently the maximum approval is a ceiling rather than a recommendation.

Work out your own figure a different way. Start from what you take home rather than what you earn, subtract everything you actually spend that does not appear on a credit report, and see what remains for housing. Most buyers who do this honestly land 10% to 20% below what they were approved for, and they are the ones who still enjoy the house three years later.

Florida escrow is where budgets break

In many states, taxes and insurance are a footnote. Here they can approach the loan payment itself.

Property taxes run around 0.89% of assessed value on average, so a $450,000 home costs roughly $4,000 a year, or $333 a month. Homeowners and windstorm insurance commonly runs $2,000 to $5,000 or more annually, which is another $170 to $420 a month. Add flood cover where required, at anywhere from $500 to $3,000 a year, and HOA or condo dues on top.

Therefore a $2,400 principal and interest payment can arrive as $3,200 or more once escrow is included. Any calculator that shows you principal and interest alone is describing a payment nobody in Florida makes.

Three adjustments worth making

• Do not use the seller’s tax bill. Their homestead exemption and Save Our Homes cap end when they leave, and your assessment resets closer to what you paid. Estimate from the purchase price instead.
• Get an insurance quote before you fix your budget. Two similar houses at the same price can differ by $300 a month on the premium alone, depending on roof age, construction and distance from the coast.
• Budget for the escrow increase. Premiums have risen steadily, so leave room for the payment you will have in year three rather than the one you start with.

Once you have a realistic figure, check what your debt to income ratio allows, and see whether down payment assistance changes the picture.

Figures above are illustrative averages and vary considerably by county, property age and proximity to the coast. Confirm your own tax estimate with the county property appraiser and your premium with a licensed insurance agent.