Core Factors Dictating How Much Home One Can Afford
It’s a dream of every American to be a homeowner. And what pushes most would-be homeowners from realizing their dreams? Credit scores, lending rates, down payment – name them – but one fact remains, most people don’t know actually the type of homes they can afford. The home one could afford depends on the price and lenders normally dictate this.
By assuming a 30-year mortgage (calculated at current rates), 1% property tax and 0.4% home insurance, it’s clear that to qualify for a mortgage loan, the sub-total debt payments shouldn’t exceed 36% of the gross income. Monthly debt payment help allows lenders to calculate the maximum home payment one can handle. Lenders would like to offer mortgages to borrowers who in turn repay comfortably.
Home Affordability Calculator
Using a home affordability calculator is the easiest way to find the right home based on your income and debt payments. Income considered include the basic salary, bonuses, commissions, tips, overtime, investment income, rental income etc. Also, down payment comes as an important factor when calculating how much home you can afford. Home buyers should always ensure that they’ve surplus cash after the down payment to cover unforeseen financial emergencies and repairs. The interest rates for the loan as well as debt-to-income ratio are also considered. Other factors that are featured in this calculator include HOA dues, loan term, mortgage insurance, homeowners insurance, income taxes and property taxes.
Lifestyle and Future Plans
The type of home one can afford depends on the current lifestyle and future expectations. The current living standards and futures expenses such as wedding costs determines how much home one can afford. It’s good to purchase what you comfortably afford today and not tomorrow. Your current house expense ratio and debt-to-income ratio are two key ratios that lenders look when calculating a home that one can afford. Fees one incurs for a home appraisal, home repairs and inspection services should always be considered when finding an affordable home.
Important To Questions to Ask Yourself
You need to evaluate yourself before making a financial decision of purchasing a particular home. How much mortgage can you qualify for? How much down payment have you saved? What’s the future of your current job? How much house one can afford is actually a factor of how much one is able to borrow and how much down payment one has mustered. Remember that most home affordability calculators do not factor in private mortgage insurance which one owes in case the down payment is less than 20% of the buying price. Also, it’s good to reduce the maximum target if you have other saving needs such as college tuition, health care, retirement and child care.