What home loan can I afford?
When considering buying a home, what home loan can I afford? We get asked how much mortgage we can afford on my salary all the time! Lenders will typically look at your income, expenses, credit score, and debt-to-income ratio to determine how much house you can afford.
To be clear, you need to have the financial means to make your mortgage payments and not take on more debt than you can handle. Undoubtedly, this is for your protection. On the other hand, determining how much mortgage you can afford is much more than knowing how much income you need to qualify for a specific home price. To evaluate a homebuyer’s financial needs, we have outlined three factors to keep in mind.
Debt-to-Income Ratio (DTI)
Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying off debts. Although there may be varying scenarios (depending on the homebuyer and the loan program), many lenders reference a DTI of 36% or less, including your mortgage payment.*
Downpayment and Closing Costs
Consider your down payment and closing costs. Interestingly, many homebuyers think they need to aim to put down at least 20% of the home’s purchase price to avoid paying private mortgage insurance (PMI) and to reduce their monthly mortgage payment. But wait, there are other scenarios.
Apart from this, other programs are available for homebuyers that do not require a 20% downpayment. Many programs range from no downpayment options to low downpayment options. These are available, and a seasoned home loan officer will not hesitate to get you up to speed on these other options.
Aside from the mortgage, downpayment, and closing costs, a homebuyer must be prepared for other expenses. For example, these expenses include property taxes, homeowners insurance, and maintenance costs. Furthermore, a general industry rule of thumb is to budget 1% to 3% of the home’s purchase price annually for maintenance and repairs.
You’ve Got This!
Above all, you should not let this intimidate you. If you are paying rent, you are already paying for these at the price of your monthly leasing fee to your landlord. Ordinarily, a landlord or property manager has calculated your rent to include the fees for any existing home loans, property taxes, homeowners insurance, and maintenance costs are baked into a monthly rental fee.
Let Us Help.
Are you still wondering about what home loan you can afford? Want to run some numbers? We have an excellent set of mortgage calculators to understand better “How much house can I afford?” Better yet, we love running the numbers for you. Connect with us today for our free, helpful first-time homebuyers guide, and let us help you with your questions.