Purchasing a house is a huge task, as much as you must get one. It is also essential to ensure that you can afford the house payment. When planning to buy a house, you must decide what kind of house you want and how much mortgage you can afford. One way to start is to get pre-approved by a lender.
The lender will consider your income, debt, credit, and how much you have saved for a down payment to determine your loan amount.
One rule in purchasing a house is to aim for one that costs about two-and-a-half times your gross annual salary. Also, all your monthly home payments should not exceed 36% of your gross monthly income.
The money you spend on a house depends on factors like the amount of your loan and the mortgage rate you lock in.
The term of your loan, with other expenses like property taxes, insurance, homeowner’s association fees, and private mortgage insurance.
Factors that Influence How Much House You Can Afford
Before you start looking for a house, the first step is determining your affordability and considering some factors that influence this.
Income
You must calculate your income to know how much house you can afford. The more money you make, the more home you can Purchase. Your monthly income will dictate how much you can afford to spend on a house.
Credit Score
If your credit score is high, it will play a positive role in purchasing a house. It’s best to check what range your credit score is in. A high credit score will get you a low interest rate, and you can afford to borrow when your interest rate is low.
Debt-to-income Ratio
Your DTI compares your monthly income to your monthly debt. If you have a high debt relative to your income, you will have a higher DTI, but if you have a low debt relative to your income, you will have a low DTI.
When your DTI is high, it will be hard for you to get a mortgage. So, you should pay off your debt before applying for a mortgage. If your debt increases your ratio, you might still get approved for a mortgage, especially if you have an excellent credit score.
Down Payment
When your down payment is large, you tend to get a better mortgage rate because lenders take less by giving you less money.
Aside from the price you intend to pay and the amount you already have for a down payment. There are some other expenses involved in purchasing a house, they include:
Your Closing Costs refer to recording fees or transfer taxes in your location and the fees charged by your lender band lawyer.
Property Taxes. This is added to your monthly mortgage payments.
Homeowner Insurance. This can be paid through escrow.
Helpful Tips for Buying an Affordable Home
Here are some tips that will help you in buying an affordable house.
You have to Stay within your Means
A lender may want to offer you a larger mortgage. It may be something you are comfortable with.
But you do not need to accept the offer because you can afford it. Committing to the payment that fits your overall budget would be best.
Shop around to Save on Homeowners Insurance
You should solicit quotes from other insurers to ensure you get the best offer.
Research the Neighborhood
You need to know the area where you want to live. Consider how long you can work from home and other essential things.
Steps to Take after Knowing How Much House You Can Afford
Once you determine your budget, you must find a home that meets your criteria. Here are the steps to take to find the right house.
First, you need to find a Lender
Meeting with different lenders to learn their mortgage rates would be best. This will help you narrow down your choices.
Next, get Pre-approved for a Mortgage
A pre-approval letter will inform you how much you can borrow for a home.
Then, you should find a real estate agent
A real estate agent will help you navigate your local housing market, determine what offer you should make on the house you are interested in buying, and negotiate with the seller.
After finding a real estate agent, you should Apply for a Mortgage
If approved, your money will be granted to you immediately. It can take up to 30 days or more.
Close in your Mortgage
When your lender is ready to close your loan, you must bring a check for your down payment.
You also have to sign the necessary documents to secure your mortgage. With these steps, you will be able to purchase an affordable house.
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