Are you thinking about buying a home? One of the first questions is usually how much can you afford? There isn’t a one size fits all answer to this question, but there are some good ways to figure out what you can do.
One question I always ask potential home buyers is what they are comfortable with in a house payment. Just because you can qualify for a certain price doesn’t mean you want to spend that much. Think about your monthly expenses and set a limit so you know you are not going to be house poor. You may want to create a household budget. Many financial experts recommend using the 50/30/20 rule. This rule is 50% of your budget going to “needs” (groceries, bills, etc – including your mortgage payment), 30% going to “wants” (entertainment, meals out, etc) and 20% going to savings and investments. While you are working on getting ready to buy, you may want more going to savings to build up a down payment.
To figure out what you can qualify for, look at your household income. Lenders will look at your debt to income ratio. This is the ratio between what you earn and what your monthly debt is. For example if you bring in about $7500 each month, but spend $2000 on car payments, student loans and other installment debt, your debt to income ratio is 27%, this is before you add in your mortgage payment. Ideally you want to keep your total debt to income ratio below 43%. If you are struggling with high debt, it may be wise to pay off that car loan or credit card bill before you shop for a home. To figure out exactly what you can qualify for, contact your lender, we can help you figure out what you can qualify for.
There are other factors that go into what you can qualify for. You need to make sure you have enough money for your down payment and closing costs. Some mortgages may have specific requirements, maybe 2-6 months of reserves (one month is equal to one monthly payment), or a certain credit score. Remember you do need a two year employment history.
Buying a home can be an exciting experience! Consider all factors to make sure you are ready and that you get the home that works for you and your budget. Remember as your lender, we are here to help you along your journey!
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
