Figuring Out What Home You Can Afford
Posted by Eric Skates on
If you're thinking about where to buy a home, one of the central pieces of information you need is how much house you can afford. We can also help you figure out what kind of home you can afford based on your prequalification application, click here to enter your information. Here are some tips to follow in order to figure it out.
Take a Preliminary Shopping Tour
Affordability in various areas can vary tremendously, depending on the neighborhood, the kind of house you want, and how far you could commute to work. Even in expensive real estate areas, for example, homes are often less expensive if you're willing to live further away from the center.
So start assessing how much you can afford versus what is available to buy. This will not be done in a day. You'll need to start preliminarily looking at available homes for sale in neighborhoods you like. Look at some online real estate sites with homes to buy. These will have prices and often have multiple pictures. Take drives around on the weekend. How much do houses in various neighborhoods cost?
Figure Out Potential Payments
Once you've got a sense of neighborhoods and their pricing, check into an online mortgage calculator to see what the monthly mortgage payment would be. Can you afford it?
It's usually considered wise to pay no more than 28% of your monthly gross income on mortgage payments. (Gross income is before taxes are taken out.) If you have other debt, such as car payments, credit cards, or other debt you pay each month, banks generally like to see no more than 36% of your gross income go for debt repayment in total, including the mortgage.
So sit down with a calculator and do the math. Could you pay a mortgage on a house you like on your current salary?
Calculate a down payment as well. Most mortgage lenders would ideally like to see a 20% down payment, although some will accept less.
Are Any Adjustments Needed?
It's not uncommon to realize you may need some adjustments once you do this preliminary shopping around and figuring what you'd need to pay.
Some people adjust the neighborhoods they want to live in. Maybe you've had your eye on a historic district, and realize you just can't swing that. But there are usually up-and-coming neighborhoods that might be less expensive. Homes further out in the suburbs or country may be less expensive. Less square footage or fewer amenities also bring down the price.
Others start looking for a job that would boost their salary. If there's a disparity between what you want and what you can afford, you will need to adjust your wants and your available funds until you find the sweet spot of what you can afford.
Can You Get a Mortgage?
It's a very good idea to get your own credit report when you start to think about whether you could buy a house. Mortgage lenders will not approve a mortgage for someone whose credit is poor, and many will not approve it if your credit rating is average. They want to see excellent to good credit.
If your credit score has taken hits in the past, there's no need to despair. Credit scores can be raised! You'll need to pay your bills on time and clean up any overdue bills. But a plan of action should be able to get your score high enough to obtain a mortgage.
Once your score is good to excellent and you have your financial information, it's an excellent idea to apply for preapproval of a mortgage. That way, you can put a bid on a home and not have to fear being turned down for a mortgage at the last minute.
Be aware that your own personal calculations about what you can afford won't be enough for the bank. They will assess your credit report and want a detailed look at your finances, including pay stubs and several years' worth of tax returns.
Once you are preapproved, talk to a trusted real estate agent. They can help you find the house of your dreams. We're here to help your homeownership dreams come true, click here to get started or call us at (877) 255-3554
Thinking about home buying? We can help.