It’s normal to want to use caution prior to making a large purchase or a long term commitment (buying a house is usually both), especially if you're a first-time homebuyer. A home purchase can be a lifelong commitment and a common inheritance for future generations also.
It's no wonder that potential homebuyers want to know what they are getting into before making any final decisions. The good news is that our experts are here to help clear up any doubts or concerns that you may have and help you through the process.
If you want to know how much house you can afford, our team is here to help, you can learn a bit more about affordability below!
To calculate how much house you can afford you will need to know your financial status. You'll need to know your income, credit, and debts. The amount of house you can afford depends on a number of factors. The following aspects of your personal finances are commonly used by lenders to determine how much they can lend:
Luckily, you do not have to calculate this yourself, we have a mortgage calculator that you can use to calculate how much house you are able to afford. To use the calculator, you will have to input the cost of the house, the loan term you're interested in, and how much of a down payment you can afford. If have an idea of what your mortgage rate could be, then it will give you a more accurate monthly mortgage payment with a breakdown of the monthly principal and rate. Not sure you have enough to afford a home? You can also look into ways to lower your mortgage payment.
The 28/36 rule is a good initial way of know whether you are currently in a position to afford the purchase of the home. The rule states the following:
You will need to add up all of your expenses and income and then divide it to get concrete numbers. So let’s say that your total income is $6,000 a month, this means that your housing expenses should not exceed $1,680 a month.
After using the mortgage calculator and/or doing your own calculations using the 28/36 rule, maybe you feel that your salary could be keeping you from being a home buyer.
The good news is that your salary is not the only thing that matters when you are trying to buy a house. You can increase your buying power by decreasing your debts or increasing your income. Which can help get you to the preferred ratios that lenders like to work with.
Also there are loans available that work with lower income levels which may be a good option for you. These mortgages are typically federal loans, but there may be other options available if you're a first-time homebuyer. Some home loan options may come with special requirements and conditions. Your loan officer can help you navigate through the ins and outs.
Your Debt-to-Income ratio (DTI) is a percentage of all of your debts divided by your gross monthly income. Your DTI can impact your affordability because it is a ratio that can be adjusted depending on how much you owe. Here are ways that you can make purchasing a house more affordable through changing your DTI ratio:
There are many ways to lower your DTI ratio through taking a look at your finances and seeing how you can change it to help you buy a home.
You can determine how much you’re able to afford using a mortgage calculator, but the best way to start is to contact our team. Our experts can help you on your journey to home ownership. Get in touch with our team today and start moving forward on the path to your new home.