When you are looking to purchase your first home, one thing you need to consider is how much property you can afford! Home affordability is something that requires careful consideration, making sure that you do not end up defaulting on your mortgage payments in the future. With that being said, read on to discover everything you need to know about house affordability.
What is considered when it comes to home affordability?
In order to determine how much property you can afford, a number of factors are taken into consideration. This includes the amount of savings you have available for a down payment, your monthly debts, for example, any student loan payments or car loans, and your household income.
As a property buyer, you will want to make sure that you can comfortably afford your monthly mortgage payments. While you may have stable monthly debts and household income, your savings can be impacted by unplanned spending and unexpected expenses, so it is vital that there is room in your budget for this.
So, A good rule of thumb when it comes to home affordability is to have at least three months of payments in reserves, or be able to shortly after your loan, including your mortgage payment and any other monthly debts you have. This should help your mortgage payment be covered even if there is some sort of unexpected event.
How is home affordability impacted by your debt-to-income ratio?
One vital metric that your bank will use to calculate the amount of money you are able to borrow is what is known as the debt-to-income (DTI) ratio. This compares your total monthly debts and your monthly income pre-tax. Generally speaking, your housing costs should not exceed 28 percent of the income your household has per month, depending on the mortgage program guidelines. Some lenders will allow for a larger DTI than others depending on the mortgage program.
What are some of the other factors considered when it comes to home affordability?
In addition to looking at the amount of money you have coming in and going out every month, there are a number of other factors that will be considered. For example, your credit score makes a difference when it comes to home affordability. This is because the higher your credit score, the more property you will be able to afford for the same down payment. The reason for this is because you will be able to secure a lower interest rate if you have a higher credit score. And, the lower your interest rate is, the more you will be able to afford to bother.
Another factor to consider is the down payment that you have to put down on a property. After all, the bigger your down payment is, the more house you can afford. If you are able to put down 20 percent or more, you should not have to pay mortgage insurance. So, this is also going to free up more money that can be put toward interest and principal.
Some of the other factors that you should consider you consider when determining home affordability are as follows:
- Cash reserves
- Living expenses
- The cost of utilities
- Home maintenance expenses
- Homeowners Association Fees
- Flood insurance
- Mortgage insurance
- Homeowners insurance
- Property taxes
- Closing costs
If you end up falling in love with a property that is more than you can comfortably afford, you will need to make some sacrifices to free up some funds. For example, you may want to consider working hard toward boosting your credit score and paying down any debt that you have. You may be able to also ask a friend or relative to provide gift money toward the down payment if possible, so you can increase the amount of money you can put down, depending on the mortgage program as some allow certain gifts and from whom.
Final words on home affordability
So there you have it: a good start on what may help you about home affordability and how to figure out how much of a property you can afford. We hope that this has helped to give you a better understanding of the sort of home that you may be able to purchase. After all, while you
may be excited to purchase a property, it is imperative that your home makes sense from a financial viewpoint. Connect with MortgageQuote.com to further inquire about home affordability.