Are you asking yourself, ‘What house can I afford?’ Home prices in the United States increased a record 15.7 percent from April 2020 to April 2021! Low interest rates on mortgages have been part of what has driven homes to record prices in many places throughout the country.
Buying a home can be an exciting but nerve-racking time in the lives of people of all ages and socioeconomic statuses. Before you begin looking for a new home, you need to know how much you can afford.
Read on to learn how to decide what home price range will fit in your budget today!
Your debt-to-income ratio is arguably the most important factor to consider when you are deciding on a home budget. This ratio takes into account all of your income sources and the debt(s) you owe.
For example, if you earn $5,000 each month but have debt payments that total $2,000 each month, your debt to income ratio is 40%. The lower your debt-to-income ratio, the stronger candidate you will be for a mortgage.
When answering the question, ‘What house can I afford with my salary?’, the answer will revolve around how much of your income goes out the door with pre-existing debt.
Your Credit Score Counts
A credit score is a number from 300 to 850 that represents your creditworthiness as a person. Your credit score is a combination of your existing credit lines, the balances on them (if any), and how often you have paid your bills on time.
When you have a low debt-to-income ratio and a high credit score, you will make yourself eligible for the most competitive interest rates on Fieldstone Homes and other options. Paying down debt and making your payments timely can help you improve your credit score!
Your Down Payment
The down payment on a new home is the amount of money you will be putting towards the purchase price at closing. The higher your down payment, the lower the amount of principal that will remain on your mortgage. This will also help you to reduce the monthly payment you must make on the loan.
If you put down 20 percent of the purchase price, you will be able to avoid paying private mortgage insurance (PMI) each month. Sometimes, buyers will choose to put down less than 20 percent but this may cause you to pay more on your home in the long run.
What House Can I Afford?
When asking, ‘What house can I afford?’, the answer may surprise you. Although you may be able to “afford” a certain price range of a home based on your current situation, it doesn’t mean you should buy at the top of your budget.
You should consider how your financial picture may change over time. Once you sign a mortgage and agree to make monthly payments, you will be committed to timely payments unless you pay off your mortgage or sell the property.
Check out our blog section for other great posts with answers to some of your life’s most important questions!