How Much House Can I Afford
How Much House Can I Afford?
When you’ve started daydreaming about buying a home, it’s easy to get caught up in looking at picturesque listings online and binging episodes of House Hunters. But before you get too deep into your home-owning fantasy, you have to answer one crucial question: how much house can I afford? There isn’t one easy answer, but if you look at some of these factors, you’ll have a better estimate of the price you’ll be paying for your home.
Getting a Complete Look of Your Finances is Important
First of all, you’ll need to take a comprehensive look at your financial situation. Your household income obviously plays a large role in determining how much house you can afford, but so does the amount of debt you have and monthly payments you’re making to pay it off. The size of your down payment will also affect the amount of house you can afford. This is because if you make a larger down payment (20% or more), your interest rate won’t be as high and you won’t have to worry about paying PMI or MIP.
Some of the other factors include any cash reserves you have and the funds you have available for closing costs. If you have major monthly expenses such as a large car payment, this will decrease the amount of house you can afford. Lastly, your credit plays an important role. The better your score, the more house you will likely be able to pay for.
The Type of Loan Matters
It’s important to understand that the amount of house you can afford will greatly depend on the type of mortgage you’re going to use to finance it. For example, if you are using an FHA loan, you may be able to make a down payment that’s as low as 3.5%. If you’re a veteran, active member of the military, or a widowed spouse of a service member, you may qualify for a VA loan. This option allows you to buy a home without any down payment at all in some instances.
You may have heard of the 28/36 rule, which is a good measure of how much house you can afford. The idea is that you should spend no more than 28% of your monthly income (before taxes) on your mortgage and all your home-related expenses. Property taxes and homeowner’s insurance are included in that 28%. On the other hand, the 36 represents the percentage of your pre-tax income that you should use for paying off debt. This includes your mortgage, any student loans, credit card debt, etc.
With a little math, you can use this rule to get an idea of your mortgage payments. All that being said, everyone’s financial situation is still unique. While the 28/36 rule is a good guideline, it’s not the only way to think about your mortgage.
If All Else Fails, Consult an Expert
Although these are some good indicators, there’s nothing quite like talking to an experienced lender like the Carolina Mortgage Team at Revolution Mortgage about your finances. We know how uncomfortable talking to a stranger about your finances can be, but we make the process easy! Let us answer the important “how much house can I afford?” question and help you get one step closer to your dream home!