Tips for Determining How Much Home You Can Afford
Professional Mortgage Solutions in Rego Park, NY works with a diverse array of homebuyers. This week, we are here to share some tips on determining how much home you can afford. There are many online resources to calculate your costs. We have a great purchase assistant tool and quote box on our website. Read on below for tips on calculating how much home you can afford.
Tip # 1: Plan Your Budget and Calculate Costs
Step one in any major purchase is budgeting. Take your time and track your expense and spending patterns to come up with the amount you can afford for a monthly mortgage payment. Be sure to plan for periodic expenses and unforeseen costs, such as repairs. Many say housing is affordable when you pay no more than 30% of your income for the cost. For a home purchase, some suggest basing the 30% amount off your gross income after expenses and debts are paid. In addition, some say you should spend no more than 36% of your income on debt: this includes auto debt, student debt, credit debt, and the mortgage. Many say that people can typically afford a home that is two to three times their income.
It is important to calculate the true cost of owning a home in your monthly projected payments. Factor in the term of the loan to get the long-range projection. You will need to forecast the following to get the true costs:
- The monthly mortgage payment;
- Costs for mortgage insurance, if applicable;
- Costs for property taxes; and,
- Interest rates and fees.
After you calculate this monthly cost, add on other monthly debt payments for your car, student loans, credit cards, alimony payments, etc. You should always aim to stay within a healthy debt-to-income ratio.
Tip # 2: Determine What Mortgages you Can Quality For
In order to understand whether you can afford to own a home, you need to ensure that you will qualify for good mortgage terms. The banks will use your income, assets, credit score, and other history to determine whether you qualify. You can count your employment income, and other payments you may receive from a trust or social security. Again, many lenders will want to see less than 36% of your income going to debt payments. At least aim to have a debt that never exceeds 43% of income.
Tip # 3: Factor Renting versus Owning, and other costs
Paying rent will never increase your assets in the same way that a home can. You should aim to keep the same housing costs, or even lessen your costs, when buying a home if you can. You can also factor in the tax savings and deductions you will be able to get through owning a home. Whatever your situation, Professional Mortgage Solutions in Rego Park, NY is here to help. We are happy to answer your questions and determine how much home you can afford.