Published by: M. Mittler | 3/11/2021

What is your Purchase Power?

Before you can start shopping for a home, you need to know how much house you can responsibly afford.

To understand your purchase power, we focus on these main factors: 


Household Income 

Your salary, income from any investments, and any other money you earn on a regular basis contribute to your household income.  


Available Money 

Any funds for down payment, closing costs and earnest money. You'll want these funds to be accessible — either in savings or investments. 


Monthly Bills 

Total all of your monthly and regular bills, like student loan debt, car payments and credit card bills. 


Living Expenses 

These are your regular expenses but may vary. Think of groceries, utilities, childcare, medical and auto insurance. 


Credit Profile 

The better your credit score is, the greater chances youll have at a better interest rate on your loan.  



How to Calculate your Purchase Power 

For many loans, you follow the 28/36 rule. This means that your monthly living expenses should be no more than 28% of your household income, and your monthly bills and debts should be less than 36%. 


To calculate this on your own, add up your current monthly living expenses (minus housing, for now). Then divide that number by your gross monthly income. Then multiply by 100, this will tell you the percentage of your gross income that is spent on monthly living expenses. Subtract that percentage from 36 and you will know how much of your monthly living expense you can allocate towards a loan payment.  


( Total monthly living expenses(minus housing) / gross monthly income ) x 100 = Percentage of income spent on living expenses  


36% - percentage of income spent on living expenses = percentage of income you can put towards a monthly payment for a home. 



Other Tools to Calculate your Purchase Power 

 - Use the Nerd Wallet Affordability Calculator to test different scenarios, break down the expenses, and goes into the minute details of the math of your personal situation.  

 - Contact a UHM Loan Officer in your area, who will walk you through your unique Purchase Power calculation. 

 - Have your number in-hand? Put it to the test. Get prequalified — and get serious about finding your home. That's powerful stuff.