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How Much House Can I Afford?

How Much House Can I Afford?

August 8th, 2018 | Purchasing a Home, Preapproval, Pre-qualification

When you are ready to buy a home, whether for the first time or the tenth, it is always important to know how much you can afford to spend. This will help you narrow your home search and ensure you do not get in over your head financially. There are several factors to consider when determining how much house you can afford.

Debt Ratios

Mortgage lenders will evaluate your debts relative to your income. The standard rule of thumb for debt-to-income ratios is 28/36. The first number means lenders prefer that your total housing debt- including your new mortgage, taxes, HOA fees, private mortgage insurance, etc. – is less than 28% of your total income. The second number refers to your total debt – mortgage, car loans, student loans, credit cards, etc. – which lenders prefer to be less than 36% of your income. Of course these ratios will vary slightly by lender, but the lower your ratios, the better your chances of finding funding and getting good interest rates.

Credit

How much you can afford for a house will also be determined by your credit history and FICO score. These factors will influence what type of mortgage you can qualify for and how low the interest rate will be. If your credit score is less-than-perfect, your mortgage interest rate will be higher, making your monthly payment higher and reducing how much you can actually spend on a house. If your credit profile is not as clean as you would like it to be right now, you can take steps to improve your FICO score before applying for a mortgage.

Down Payment

Almost all home loans require a down payment, even if it is just 3% of the purchase price. (There may be some exceptions in FHA and VA loans.) The more you have to contribute as a down payment, the more attractive you will be to sellers and the more attractive your loan options will be. A 20% down payment is ideal because with any less than that you will have to pay private mortgage insurance which pushes up your monthly payment and cuts down your home price budget.

Beyond coming up with these numbers, you should consider your lifestyle when it comes to how much you can afford. Buying a home can come with many hidden costs - repairing and replacing various parts and appliances, HOA dues, higher utilities, yard work, renovation – and those can eat into your budget for other things like entertainment or savings. It is important to set a house budget that will give you enough cushion to still be able to pay for not only the essentials of food and transportation, but also for your retirement goals, saving for kids’ college and vacation plans.

With some careful calculations on your own and possibly with the help of online tools, you can figure out how much home you can truly afford without stretching your resources too thin. When you buy a house within that budgeted price range, homeownership can be just as enjoyable as you have dreamed it would.

Do you want to find out how much house you can afford? If so, contact PRIME 1 BANCORP, LTD at 630-519-5955 today and we can give you the answer over the phone.

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Disclaimer:
Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate License #MB.6761138, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation License #MBR1930 dba Prime 1 Mortgage Inc, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights 60DB055973 and a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending. Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

Loan product availability is subject to qualification of the borrower and loan approval after full review of the file. Not every applicant qualifies or is eligible for every loan program. Some loan products may not be available in all states. Loan approval, note rate and annual percentage rate are dependent on factors including, but not limited to, credit, collateral, income, assets and overall financial history. Not all applicants will be approved for a loan. All loan programs, terms and annual interest rates are subject to change without notice. NMLS: 1434638