Itâ€™s really easy. You do not need to consult lenders or even Realtors. You may wish to do so but even then, you have to do your own homework first.
Here are the steps I'd use:
1. Determine your income per month in retirement. You can add any part time work you might wish to do but remember that if you do so, the work may be curtailed before the mortgage and you don't want to be in the hole in the future.
2. Determine expenses, also per month, other than housing. Medicare isn't free. Food, Car, Household, Clothing, Utilities, Heat, Life Insurance, Vacations and other entertainment, Any loan payments, A little savings for a rainy day (even seniors have them) and perhaps how much that Saturday night poker game costs you.
3. Deduct #2 from #1. Thatâ€™s what you can afford a month. There have been complaints that people have been talked into house ownership debt well over their heads. Number 3 is your own limit, regardless of what anyone else tells you. Oh, and you 'd better add to #2 the maintenance upkeep of a house.
4. Now we get to the part where you determine what your house payments will be. If you have done a great job with #'s 1,2, and 3, you know what the maximum total will be per month.
The first element is P&I (Principal and Interest on your mortgage.) The mortgage is the NET figure after any down payment. At the current interest rate of 5.75%, that number will be $5.84 per thousand dollars of mortgage per month. Divide that into the amount that you have left in #3 above and thatâ€™s roughly what you can afford. You have two other things to deduct and they are Taxes and Insurance.
Next add to that the taxes per month (annual rate divided by 12.) The annual amount is, of course, the taxes on the property you will buy.
Finally, there's Insurance. There are both homeowners Insurance and, if you do not put down 20%, Mortgage Protection Insurance. I'd budget about 4% of the value of the house for the homeowner's and 2 1/2 % of the mortgage for PMI, if you take that option. To get a real figure, you'll have to get exact quotes.
There you go, a budget for PITI, the fixed monthly bill you will face.
How much of your income can go to these expenses? Rule of thumb is 28% household debt and 36% all debt. I believe that mortgages companies may let you go higher, they certainly were in the boom times but think about how much you really want for trips warm Latin climates in the winter, etc. before you go over those limits. You already have calculated your own safe zone in #3 above.
Lots of luck!